A federal appeals court on Tuesday rejected a challenge to FERC’s 2020 revisions to how it enforces the Public Utility Regulatory Policies Act, though it concluded the commission committed a “serious violation” by not conducting a formal environmental assessment (EA) before issuing the order (20-72788).

Multiple renewable energy industry and environmental advocacy groups petitioned for review of Order 872, which they argued made it more difficult for independent, non-utility-owned energy generators to be designated qualifying facilities under PURPA (RM19-15, AD16-16). (See FERC Rejects Challenges on PURPA Changes.)

The 9th U.S. Circuit Court of Appeals, however, found that FERC holds broad rulemaking discretion and its interpretations of the law were not unreasonable. The court also rejected the petitioners’ challenges to four specific provisions of the order.

The court did agree with the petitioners’ contention that FERC violated the National Environmental Policy Act by not preparing an EA before issuing the order. It remanded the order to FERC to conduct an EA, but it declined to vacate it.

“Although FERC’s failure to prepare an EA is a serious violation, Order 872 does not suffer from fundamental flaws, making it unlikely that FERC could adopt the same rule on remand, and the disruptive consequences of vacatur would be significant,” the court said.

PURPA directed FERC in 1978 to promulgate rules to encourage development of two types of QFs: alternative energy sources such as renewables owned by the same person within 1 mile of each other that totaled no more than 80 MW generation capacity, or fossil-fired cogeneration facilities.

The law mandated that electric utilities buy the power generated by QFs under rate guidelines established by FERC and set by states. In response, FERC issued Orders 69 and 70 in 1980.

Congress changed the statutory language via the Energy Policy Act of 2005, and FERC responded with Order 688, which among other things established a rebuttable assumption that facilities with not more than 20 MW capacity do not have adequate, nondiscriminatory access to markets.

With Order 872, issued under then-Chair Neil Chatterjee (R), the commission explained that extensive technology advances and dramatic energy industry changes in the preceding 40 years made significant revisions necessary.

Among other things, FERC:

• • expanded the 80-MW calculation radius to up to 10 miles and set a list of factors to establish whether facilities were “separate”;
  • allowed states to eliminate the fixed-rate option;
  • gave states additional flexibility to calculate utilities’ avoided costs; and
  • reduced the 20-MW nondiscriminatory threshold to 5 MW.

Ruling

The 9th Circuit rejected the petitioners’ contention that Order 872 discourages development of QFs, and therefore violates PURPA, which directed FERC to encourage such development.

The judges shot down various other arguments as well. They ruled that:

• • FERC did not overstep the authority granted to it by PURPA, and Order 872 meets the test of the Chevron
  • FERC was not arbitrary or capricious in making the rules; it was reasonable and used discretion delegated to it by Congress.
  • Order 872’s rate-related provisions do not violate PURPA’s nondiscrimination requirement.

The court did fault FERC for its reasoning for not preparing an environmental impact statement or an EA.

“FERC misunderstands NEPA’s requirements,” it wrote, adding that the commission’s own regulations for implementing NEPA support its conclusions.

“It was eminently foreseeable that a regulatory change of this magnitude could produce significant environmental effects,” it wrote. “It was a near certainty, for example, that at least some QFs could lose their status under the 2020 site rule, or that at least some states would eliminate the fixed-rate option for the calculation of avoided costs.”

But the court concluded that vacatur would cause severe trouble, as several states have already initiated proceedings in response to the order and some utilities already have received relief from mandatory purchase obligations with facilities rated at 5 to 20 MW.

“Victory. Again,” Chatterjee posted on X in response to the news. “The Chatterjee FERC record in the courts is quite strong.”