Southern California Edison Co. v. Federal Energy Regulatory Commission
370 U.S. App. D.C. 230, 443 F.3d 94, 2006 U.S. App. LEXIS 7309 (2006)
Rule of Law:
The Federal Energy Regulatory Commission (FERC) does not act arbitrarily or capriciously when it applies its established 'necessary and integral' test to differentiate between fuel extraction and spent fuel reinjection in calculating a qualifying facility's (QF) auxiliary load, nor when it interprets an exception to a QF ownership limitation to permit the sale of power purchased from another QF.
Facts:
- Ormesa LLC is a geothermal small power production facility located in Imperial County, California, originally certified as a Qualifying Facility (QF) by the Commission in 1986.
- Ormesa's facility has a gross capacity of 19.95 megawatts (MW) and operates by extracting hot brine from underground wells, moving it through a vaporizer to generate electricity using isopentane, and then reinjecting the used brine back into the geothermal reservoir.
- Ormesa obtains 3.24 MW of power from another geothermal QF for the initial brine extraction and transportation activities.
- Ormesa obtains 1.35 MW of power from another geothermal QF for the brine reinjection activities.
- Ormesa uses 3.38 MW of self-generated power to perform its in-facility functions, such as moving the hot brine through the vaporizer.
- Southern California Edison Co. (Edison) is an investor-owned electric utility that purchases power from Ormesa under a power purchase agreement requiring Ormesa to maintain its QF status.
Procedural Posture:
- Ormesa LLC filed an application for re-certification as a Qualifying Facility (QF) with the Federal Energy Regulatory Commission (FERC) on February 3, 2004.
- Southern California Edison Co. (Edison) was permitted to intervene and protest Ormesa’s application before FERC.
- FERC issued a Certification Order, certifying Ormesa's net output at 15.22 MW and granting Ormesa permission to sell an additional 1.35 MW of power.
- Ormesa and Edison each filed requests for rehearing of FERC's Certification Order, which FERC denied in a Rehearing Order.
- Edison filed a timely petition for review of FERC's orders with the United States Court of Appeals for the District of Columbia Circuit.
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Issue:
Does the Federal Energy Regulatory Commission (FERC) act arbitrarily and capriciously by (1) permitting a qualifying facility (QF) to sell power in excess of its certified net output if that excess power is purchased from another QF, and (2) distinguishing between brine extraction and brine reinjection activities when calculating a geothermal QF's auxiliary load for net output certification?
Opinions:
Majority - Circuit Judge BROWN
No, the Federal Energy Regulatory Commission (FERC) did not act arbitrarily and capriciously in its decisions regarding Ormesa's QF certification. First, the court upheld FERC's decision to permit Ormesa to sell an additional 1.35 MW of power beyond its net output, so long as that power was purchased from another QF. The court reasoned that this interpretation was consistent with the now-defunct statutory ownership limitation, which allowed QFs to sell "electric power solely from cogeneration facilities or small power production facilities." Citing Connecticut Valley Elec. Co. v. Wheelabrator Claremont Co. and distinguishing Turners Falls Ltd. P’ship, the court found that selling another QF's qualifying power did not violate the ownership restriction, as it aligned with the goal of promoting qualifying output and did not constitute the sale of nonqualifying power by the QF itself. The recent statutory change eliminating the ownership limitation did not moot the validity of the Commission’s 2004 order under the prior law. Second, the court affirmed FERC's distinction between power used for brine extraction/transportation and power used for brine reinjection when calculating Ormesa's auxiliary load. Applying its precedent from GEO East Mesa Ltd. P’ship, FERC had previously distinguished between fuel extraction/transportation to a facility (not auxiliary load) and essential fuel handling within a facility (auxiliary load). The Commission reasonably categorized raw brine as "fuel" for extraction, likening it to coal mining, and thus excluded extraction power from the auxiliary load. Conversely, it reasonably categorized used brine as "spent fuel" requiring disposal, finding reinjection to be a "necessary and integral" "essential fuel handling" activity, akin to preparing or moving fuel within the plant. The court found FERC's explanation for adhering to GEO East Mesa and for its distinction to be reasonable, falling within its agency discretion.
Analysis:
This case illustrates the significant judicial deference afforded to expert agencies like FERC, particularly when interpreting their own regulations and applying technical standards under the Administrative Procedure Act's arbitrary and capricious standard. It clarifies the application of the "necessary and integral" test for auxiliary load calculation in geothermal power production, establishing a precedent for distinguishing between fuel acquisition and spent fuel disposal. Moreover, the ruling provides a historical interpretation of the now-repealed PURPA ownership limitation, which permitted QFs to market power purchased from other QFs without jeopardizing their own QF status, thus maintaining the policy objective of encouraging alternative energy. This decision reinforces the principle that agency actions will be upheld if they are reasoned, principled, and based on the record, even if alternative reasonable interpretations exist.
