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Allco Renewable Energy Limited v. Massachusetts Electric Co.

United States District Court, D. Massachusetts

September 23, 2016

ALLCO RENEWABLE ENERGY LIMITED, Plaintiff,
v.
MASSACHUSETTS ELECTRIC COMPANY D/B/A NATIONAL GRID; ANGELA O'CONNOR, JOLETTE WESTBROOK and ROBERT HAYDEN, in their official capacities as Commissioners of the Massachusetts Department of Public Utilities; and JUDITH JUDSON, in her official capacity as Commissioner of the Massachusetts Department of Energy Resources, Defendants.

          MEMORANDUM AND ORDER

          Patti B. Saris, Chief United States District Judge

         INTRODUCTION

         Allco Renewable Energy Limited (“Allco”) filed this suit against Massachusetts Electric Company, doing business as National Grid, and various Massachusetts public officials (“state defendants”), seeking redress for alleged violations of the Public Utility Regulatory Policies Act (“PURPA”). Allco claims that National Grid violated PURPA by refusing to enter into a long-term contract to purchase electric energy from Allco's solar energy projects at a specified rate (Count III). Allco also claims that the Massachusetts Department of Public Utilities (“MDPU”) regulations that National Grid cited as the basis for its refusal, 220 Mass. Code Regs. §§ 8.03, 8.05, are inconsistent with PURPA and therefore invalid (Count II).

         National Grid moved to dismiss Count III of the complaint. Allco moved for summary judgment on Counts II and III, and the state defendants cross-motioned for judgment on the pleadings on Count II. National Grid's motion to dismiss Count III of the complaint (Docket No. 27) is ALLOWED. Allco's motion for summary judgment (Docket No. 50) is DENIED as to Count III and ALLOWED as to Count II. The state defendants' cross-motion for judgment on the pleadings on Count II (Docket No. 63) is DENIED.

         BACKGROUND

         I. Statutory and Regulatory Framework[1]

         Congress enacted PURPA in 1978 to combat an energy crisis by reducing the nation's dependence on traditional fossil fuels. FERC v. Mississippi, 456 U.S. 742, 745-46 (1982). Section 210 of PURPA sought to accomplish that goal by encouraging the development of nontraditional electricity generating facilities, such as those that use renewable resources. See 16 U.S.C. § 824a-3; see also FERC, 456 U.S. at 750 & n.11; Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 404-05 & n.1 (1983).

         Congress found that one obstacle to the development of alternative energy projects was the reluctance of traditional electric utilities to do business with such projects. FERC, 456 U.S. at 750 & n.12. As such, PURPA directed the Federal Energy Regulatory Commission (“FERC”) to promulgate rules requiring utilities to purchase electric energy from qualifying facilities (“QFs”).[2] 16 U.S.C. § 824a-3(a).

         Under PURPA, those required electric energy purchases must be at rates that do not “exceed[] the incremental cost to the electric utility of alternative electric energy.” Id. § 824a-3(b). That incremental cost is “the cost to the electric utility of the electric energy which, but for the purchase from [the QF], such utility would generate or purchase from another source.” Id. § 824a-3(d). That cost is also known as “avoided cost.” 18 C.F.R. § 292.101(b)(6).

         In accordance with PURPA, FERC promulgated rules requiring electric utilities to purchase energy from QFs at a rate equal to the utility's full avoided cost. Id. § 292.303(a) (purchase obligation); id. § 292.304(a)(2), (b) (avoided cost); Am. Paper Inst., 461 U.S. at 406. The FERC rules give each QF two options for how to provide energy to utilities:

         Each qualifying facility shall have the option either:

(1) To provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility's avoided costs calculated at the time of delivery; or
(2) To provide energy or capacity pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term, in which case the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on either:
(i) The avoided costs calculated at the time of delivery; or
(ii) The avoided costs calculated at the time the obligation is incurred.

18 C.F.R. § 292.304(d).

         State regulatory commissions, in turn, are directed by section 210(f) of PURPA to implement FERC's rules. 16 U.S.C. § 824a-3(f)(1); FERC, 456 U.S. at 751. Under PURPA's statutory scheme, “the states play the primary role in calculating avoided costs and in overseeing the contractual relationship between QFs and utilities operating under the regulations promulgated by [FERC].” Indep. Energy Producers Ass'n, Inc. v. Cal. Pub. Utils. Comm'n, 36 F.3d 848, 856 (9th Cir. 1994). States have “latitude in determining the manner in which the regulations are to be implemented” and can choose to meet their mandate “by issuing regulations, by resolving disputes on a case-by-case basis, or by taking any other action reasonably designed to give effect to FERC's rules.” FERC, 456 U.S. at 751.

         Massachusetts fulfilled its mandate via MDPU regulations codified at 220 Mass. Code Regs. ch. 8.00. Under the MDPU regulations, a QF may sell to a utility either under “[a] standard contract available to all [QFs] for sales at the Short-run Rate only, ” or under “[a] negotiated contract executed by a [QF] and a [utility].” 220 Mass. Code Regs. § 8.03(1)(b). The short-run rate is the “hourly market clearing price for energy and the monthly market clearing price for capacity, as determined by” ISO New England, Inc., a FERC-regulated regional transmission organization that operates the wholesale power grid for New England states. Id. § 8.02.

         The MDPU regulations also provide standard terms of purchase for QFs, grouped by their capacity. Id. § 8.05. QFs with a design capacity of one megawatt or greater “shall have their output metered and purchased at rates equal to the payments received by the [utility] from the ISO power exchange for such output for the hours in which the [QF] generated electricity in excess of its requirements.” Id. § 8.05(2)(a). In other words, the MDPU regulations define the avoided cost rate for QFs with a design capacity of one megawatt or greater --such as Allco's QFs -- as the spot market ISO New England rate.

         II. Factual Background

         Allco is the owner and developer of solar generation QFs in Massachusetts and a number of other states. National Grid is a Massachusetts electric utility company.

         On March 28, 2011, Allco submitted an offer to sell the entire generation output from several solar energy generating QFs in Massachusetts[3] to National Grid for a term of twenty-five years. Allco offered to negotiate a purchase agreement under 220 Mass. Code Regs. § 8.03(1)(b)(2) and proposed two pricing options.

         On April 18, 2011, National Grid declined to negotiate a purchase agreement but instead offered to purchase Allco's energy under National Grid's standard power purchase contract, with the rate as set out in National Grid's MDPU-approved Qualifying Facility Power Purchase Rate P Tariff (“P-Rate Tariff”). In accord with 220 Mass. Code Regs. § 8.05(2)(a), the P-Rate Tariff states that “QFs that have a design capacity of 1 [megawatt] or greater shall have their output metered and purchased at rates equal to the payments received by [National Grid] from the ISO power exchange for such output for the hours in which the QF generated electricity in excess of its requirements.” On August 3, 2011, Allco filed a petition under 220 Mass. Code Regs. § 8.03(1)(c) requesting that the MDPU investigate the reasonableness of National Grid's response. Allco asked the MDPU for a declaration that (1) National Grid has a legally enforceable obligation to purchase from each of Allco's QFs; (2) the purchase rate should be based on National Grid's avoided costs over the twenty-five-year term, calculated at the time the obligation was incurred; and (3) National Grid's avoided costs for that time period should be based on a rate forecasting methodology used in a specific prior MDPU proceeding.

         On July 22, 2014, the MDPU denied Allco's petition for an investigation, finding National Grid's offer to Allco to have been ...


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