On February 14, 2023, the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Energy Regulatory Commission’s (FERC) method for calculating the size of a small power production qualifying facility (QF) under PURPA as the net output or “send-out” capacity of the project. See Solar Energy Industries Association v. FERC, No. 21-1126 (D.C. Cir. 2023). To be a small power production QF under PURPA, a facility must use a qualified renewable resource, such as biomass, waste, wind, solar, or geothermal resources, to produce energy, and have a power production capacity that does not exceed 80 megawatts when considered with other facilities at the same site. FERC’s method of calculating the maximum size limitation was contested by Edison Electric Institute and Northwestern Energy (collectively, Utilities).
This proceeding began in September 2019, when Broadview Solar, LLC applied for QF certification for its Montana project. Broadview’s facility consists of a 160 MW solar array and a 50 MW battery storage system, both of which produce or store direct current (DC) power. To convert the DC power to alternating current (AC) power, Broadview’s QF has inverters with a total net capacity of 80 MW. Initially, FERC denied Broadview’s QF certification after determining that the facility exceeded the statutory 80 MW maximum power production capacity limit because the solar arrays totaled 160 MW. This denial was a departure from FERC’s longstanding prior precedent stemming from Occidental Geothermal, Inc. 17 FERC ¶ 61,231 (1981), in which the 80 MW size limitation was determined based on a facility’s net output to the grid or its “send-out” capacity. On rehearing, FERC reversed its prior order and instead found that the net output or “send-out” test was the most appropriate way to interpret PURPA for purposes of measuring the maximum power production capacity.
In a 2-1 decision, the D.C. Circuit found that determining a facility’s QF status by measuring the facility’s net output “brings various provisions of PURPA into harmony.” PURPA’s mandatory purchase requirement applies only to grid-useable power and thus is consistent with determining QF status using net output – or grid-usable power. According to the court, by having a 160 MW solar array combined with battery storage, Broadview’s facility is able to more consistently produce the maximum amount of grid-usable power permitted by the statute.
The court found unpersuasive Utilities’ arguments that the House Committee Report underlying PURPA stated that the power production capacity means “rated capacity,” which Utilities argued in Broadview’s case was 160 MW. The court found Broadview’s argument more convincing, that “rated capacity” refers to the rated capacity of the whole facility, which according to FERC includes the inverters that limit output to the grid to 80 MW. The court agreed with FERC’s determination that the component parts of Broadview’s facility, working together, produce no more than 80 MW of grid-usable AC power as “reasonable and well-supported by the statute’s text, structure, purpose and legislative history.”
Utilities also argued that it was arbitrary and capricious for FERC to treat the 160 MW solar array and the 50 MW battery as a single facility. Utilities argued that FERC must consider the combined power production capacity of “facilities located at the same site.” The court rejected this argument, stating that it was reasonable for FERC to interpret “facility” as “all components working together to produce grid-usable AC power.” Broadview’s battery in this case was not a separate facility because it can only store DC power and cannot deliver usable power to the grid. Interpreting Luz Development & Finance Corp., 51 FERC ¶ 61,078 (1990), the court found that merely because a battery can be a standalone QF “does not compel the result that it must be a separate facility.”
Judge Walker dissented on the size calculation issues. He stated that the majority engaged in “Chevron maximalism” (more recently disfavored by the Supreme Court) by not “trying every tool of statutory construction before declaring the text ambiguous and proceeding to agency deference.” In his view, by applying the normal tools of statutory interpretation, Broadview’s power production capacity should include both AC and DC power production because Congress did not limit power production to AC power.
Disagreeing with FERC that the power sent to the battery is not useful to anybody, Judge Walker states that the battery makes the solar arrays more efficient by enabling them to sustain additional hours of maximum output. As a result, he calculates that Broadview is too large to be a QF: “Because Broadview can produce 80 megawatts for its inverters while it simultaneously produces 50 megawatts for its battery, Broadview’s facility is capable of producing more than 80 megawatts of power.” Indeed, Utilities had argued that FERC should look at Broadview’s net power output over time – i.e., a megawatt hour measure. The majority rejected this interpretation because the statute measures power production capacity in megawatts, not megawatt hours.
The court’s decision affirms the way FERC has calculated a QF’s size since the early 1980s. Thus, there are no immediate new implications presented by this decision. Calculating the size of a QF is important not only for the overall 80 MW size limitation but also for obtaining certain QF exemptions. For example, QFs of 20 MW or less are exempt from FERC’s market-based rate tariff requirements and QFs of 30 MW or less are exempt from certain FPA Section 203 authorization requirements. This decision – that net output to the grid is the measure of size — should continue to be applicable for determining a QF’s size for all purposes, including the maximum size limitation and for the applicability of exemptions.
The 2-1 decision, along with Judge Walker’s detailed dissent, opens the door to a potential appeal to the Supreme Court. Should it reach that level, the Supreme Court’s interpretation of the specific statutory language will be key, given that FERC may not enjoy the same level of Chevron deference.