United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 6, 2005 Decided March 24, 2006
No. 04-1396
SOUTHERN CALIFORNIA EDISON COMPANY,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
ORMESA LLC,
INTERVENOR
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Catherine E. Stetson argued the cause for petitioner. With
her on the briefs were Kevin J. Lipson, Douglas L. Beresford,
Jessica L. Ellsworth, and J. Eric Isken.
Robert H. Solomon, Deputy Solicitor, Federal Energy
Regulatory Commission argued the cause for respondent. With
him on the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Former Solicitor.
Before: GARLAND, BROWN and GRIFFITH, Circuit Judges.
Opinion for the Court filed by Circuit Judge BROWN.
BROWN, Circuit Judge: The Federal Energy Regulatory
Commission certified intervenor Ormesa LLC (Ormesa) as a
qualifying geothermal small power production facility, entitling
it to certain privileges pursuant to Section 210 of the Public
Utility Regulatory Policies Act of 1978 (PURPA), 16 U.S.C.
§ 824a-3. In particular, the certification permitted Ormesa to
compel traditional utilities to purchase Ormesa’s net power
output. Southern California Edison Co. (Edison), a utility that
has a power purchase agreement with Ormesa, petitions for
review, arguing the Commission acted arbitrarily and capri-
ciously by permitting Ormesa to sell capacity in excess of its net
output and by distinguishing between brine extraction and brine
reinjection in calculating the net output in the first place.
Finding no basis for upsetting the Commission’s order, we deny
the petition for review.
I
Congress enacted Section 210 of PURPA, 16 U.S.C.
§ 824a-3, to encourage the development of cogeneration and
small power production facilities. FERC v. Mississippi, 456
U.S. 742, 750 (1982); Conn. Valley Elec. Co. v. FERC, 208 F.3d
1037, 1039 (D.C. Cir. 2000). A “cogeneration facility” pro-
duces both electric energy and either steam or some other form
of usable energy, 16 U.S.C. § 796(18)(A); a “small power
production facility” produces no more than 80 megawatts of
electricity using only biomass, waste, renewable resources, or
geothermal resources as the primary energy source, id.
§ 796(17)(A).
To counter traditional electric utilities’ reluctance to deal
with these nontraditional facilities, the PURPA charges the
Commission with implementing mandatory purchase and sell
obligations, requiring electric utilities to purchase electric power
from, and sell power to, qualifying cogeneration and small
2
power production facilities (collectively, “qualifying facilities”
or “QFs”). See id. § 824a-3(a)(1)-(2); FERC v. Mississippi, 456
U.S. at 750-51.1 A qualifying small power production facility
must “meet[] such requirements (including requirements
respecting fuel use, fuel efficiency, and reliability) as the
Commission may, by rule, prescribe.” 16 U.S.C. § 796(17)(C);
cf. id. § 796(18)(B) (covering qualifying cogeneration facilities).
Hewing to the PURPA’s mandate, the Commission enacted
regulations requiring a utility to purchase “any energy and
capacity which is made available from a [QF],” 18 C.F.R.
§ 292.303(a), and to sell “any energy and capacity requested by
the [QF],” id. § 292.303(b). While the utility must sell electric-
ity to a QF at regulated tariff rates, the utility must buy electric-
ity from the QF at a rate equal to the utility’s full “avoided cost.”
See Conn. Valley Elec., 208 F.3d at 1040 (citing 18 C.F.R.
§§ 292.303-.305); 18 C.F.R. § 292.304(b)(2). The utility’s
avoided cost (also called the “incremental cost of alternative
electric energy”) is “the cost to the electric utility of the electric
energy which, but for the purchase from such [QF], such utility
would generate or purchase from another source.” 16 U.S.C.
§ 824a-3(d); see 18 C.F.R. § 292.101(b)(6); Am. Paper Inst.,
Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 405-06
(1983); Conn. Valley Elec., 208 F.3d at 1040 n.*. As a practical
matter, “the rate that a QF can require a utility to pay [i.e. the
avoided-cost rate] is almost always higher than the regulated
tariff rate at which the QF can purchase from the utility electric-
ity for its internal operating needs.” Conn. Valley Elec., 208
F.3d at 1040 n.*.
1
Congress also sought to relieve some of the regulatory burdens
that discouraged development of such facilities by exempting QFs
from certain state and federal laws. See 16 U.S.C. § 824a-3(e); FERC
v. Mississippi, 456 U.S. at 750-51.
3
The Commission certifies the amount of power (“qualifying
output” or “qualifying power”) that a QF can require a utility to
purchase. The Commission determines a QF’s qualifying output
by looking to the QF’s net output rather than its gross output.
Penntech Papers, Inc., 48 F.E.R.C. ¶ 61,120, at 61,423 (1989);
Power Developers, Inc., 32 F.E.R.C. ¶ 61,101, at 61,276 (1985);
Occidental Geothermal, Inc., 17 F.E.R.C. ¶ 61,231, at 61,445
(1981). A QF’s gross output is the total amount of electric
energy that it can produce. The net output is the gross output
minus the “auxiliary load,” which is electricity the QF itself
consumes during the production process. See Penntech Papers,
48 F.E.R.C. at 61,423 (“[T]he facility must consume some
electric power for auxiliary equipment such as pumps, blowers,
fans, etc.”). The Commission defined the auxiliary load as
power that is a “‘necessary and integral’ part of the power
production process.” GEO East Mesa Ltd. P’ship, 55 F.E.R.C.
¶ 61,255, at 61,813 (1991).
By only certifying a QF’s net output (rather than gross
output) as qualifying output, the Commission prevents a QF
from purchasing power for its auxiliary load from one utility at
retail rates and then attempting to sell its entire gross output to
another utility at avoided cost rates. Penntech Papers, 48
F.E.R.C. at 61,423. This accords with the purposes behind the
PURPA, as the Commission thus certifies the amount of output
that the QF actually contributes to the system—the amount that
will displace electricity produced by traditional means. Id. The
Commission has cautioned that “[a]llowing [a QF] to sell the
gross output at one utility’s avoided cost rates while the [QF]
purchases the auxiliary power at another utility’s retail rates may
very well result in an economic distortion.” Id.
Until recently, a QF had to be “owned by a person not
primarily engaged in the generation or sale of electric power
(other than electric power solely from cogeneration facilities or
small power production facilities).” 16 U.S.C. § 796(17)(C)(ii)
4
(2000) (qualifying small power production facility); id.
§ 796(18)(B)(ii) (qualifying cogeneration facility); see also 18
C.F.R. § 292.206 (2005).2 The Commission construed this
ownership restriction to mean that a QF could not itself be in the
business of selling electric power in excess of its net output,
unless the incremental power fell within the ambit of the
parenthetical exception. See Conn. Valley Elec. Co. v.
Wheelabrator Claremont Co., 82 F.E.R.C. ¶ 61,116, at 61,418
(1998) (Connecticut Valley); Turners Falls Ltd. P’ship, 55
F.E.R.C. ¶ 61,487, at 62,671-72 (1991). The penalty for selling
such nonqualifying power was loss of QF status. Turners Falls,
55 F.E.R.C. at 62,672.
This changed, however, with the Energy Policy Act of 2005
(the Act), Pub. L. No. 109-58, § 1253(b), 119 Stat. 594, 970
(amending 16 U.S.C. § 796(17)(C) & (18)(B)), which eliminated
the statutory ownership limitation.3 Consequently, the
2
This regulation read:
(a) General Rule. A cogeneration facility or small power
production facility may not be owned by a person primarily
engaged in the generation or sale of electric power (other than
electric power solely from cogeneration facilities or small
power production facilities).
(b) Ownership test. For purposes of this section, a
cogeneration or small power production facility shall be
considered to be owned by a person primarily engaged in the
generation or sale of electric power, if more than 50 percent
of the equity interest in the facility is held by an electric utility
or utilities . . . .
18 C.F.R. § 292.206 (2005).
3
We offer no comment on the Act’s amendments to 16 U.S.C.
§ 824a-3, which added new subsection (m), allowing for the
mandatory purchase and sell requirements to be lifted in certain
5
Commission removed the corresponding regulation, noting that
“[r]emoval of the ownership prohibition removes the bar to a QF
selling non-QF electric energy while retaining QF status.”
Revised Regulations Governing Small Power Production and
Cogeneration Facilities, 71 Fed. Reg. 7852, 7864 (Feb. 15,
2006) (deleting 18 C.F.R. § 292.206).
II
Ormesa is a geothermal small power production facility
located in Imperial County, California, with a gross capacity of
19.95 megawatts (MW). Ormesa was originally certified as a
QF by the Commission in 1986. Ormesa Geothermal II, 36
F.E.R.C. ¶ 62,030 (1986). The facility utilizes several wells
extending into underground reservoirs that are close enough to
the surface and hot enough to be useful in generating electricity.
As relevant to the present case, the electricity production process
consists of (i) using pumps to extract brine from the geothermal
production wells and transport it to the facility; (ii) various in-
facility activities, such as moving the hot brine through a
vaporizer to vaporize the “working fluid”—isopentane—which,
in gaseous form, then flows into the turbines, generating electric
power; and (iii) reinjecting the used brine back into the geother-
mal reservoir. Ormesa obtains the power necessary to perform
steps (i) and (iii)—requiring 3.24 MW and 1.35 MW, respec-
tively—from another geothermal QF. The 3.38 MW needed to
circumstances, and new subsection (n), directing the Commission to
revise the criteria in 18 C.F.R. § 292.205 for new qualifying
cogeneration facilities seeking to make sales pursuant to Section 210
of PURPA. See Pub. L. No. 109-58, § 1253(a), 119 Stat. at 967-70;
see also New PURPA Section 210(m) Regulations Applicable to Small
Power Production and Cogeneration Facilities, 71 Fed. Reg. 4532
(Jan. 27, 2006) (proposing amendments to 18 C.F.R. pt. 292 in
accordance with 16 U.S.C. § 824a-3(m)); 71 Fed. Reg. at 7852-60,
7865 (implementing 16 U.S.C. § 824a-3(n)).
6
perform the in-facility functions, such as the activities described
in step (ii) above, comes from Ormesa itself.
Edison is an investor-owned electric utility that generates
and purchases electric energy and resells it to consumers in
Southern California. Edison purchases power from Ormesa
under a power purchase agreement consistent with Commission
regulations, see 18 C.F.R. § 292.101 et seq. The agreement
requires Ormesa to maintain its QF status at all times.
On February 3, 2004, Ormesa filed an application for re-
certification as a QF. Ormesa argued the auxiliary load con-
sisted solely of the in-facility activities, such as moving the
brine directly into the generating equipment. Ormesa thus
sought certification at a capacity of 16.57 MW.4 The Commis-
sion permitted Edison to intervene and protest Ormesa’s
application. Edison argued the power for brine
extraction/transportation and brine reinjection (that is, steps (i)
and (iii) as described above) should also be considered part of
the auxiliary load and, accordingly, excluded from the certified
net output. Edison thus would calculate the net output at 11.98
MW.5
The Commission agreed in part with each party. See
Ormesa LLC, 107 F.E.R.C. ¶ 61,043 (2004) (Certification
Order). Relying on GEO East Mesa, 55 F.E.R.C. ¶ 61,255, the
Commission concluded brine extraction and transportation were
not “necessary and integral” to the power production process.
The corresponding power consumption was excluded from the
auxiliary load and, in turn, included in Ormesa’s net output.
Conversely, the Commission concluded power for brine
reinjection was “necessary and integral.” It was thus included
4
19.95 (Gross) – 3.38 (ii) = 16.57 (Net).
5
19.95 (Gross) – 3.24 (i) – 3.38 (ii) – 1.35 (iii) = 11.98 (Net).
7
in the auxiliary load and excluded from net output. Accord-
ingly, the Commission calculated the net output to be 15.22
MW6 and certified that amount as qualifying output.
In a footnote, however, the Commission granted Ormesa
permission to sell an additional 1.35 MW of power in excess of
its net output without imperiling its QF status, notwithstanding
the ownership limitation.7 Certification Order, 107 F.E.R.C. at
61,151 n.10. The Commission made this allowance insofar as
“the 1.35 MW will be purchased from another QF,” and pointed
to Connecticut Valley, 82 F.E.R.C. at 61,418 & n.17, for the
proposition that “a sale in excess of net output would deprive a
facility of its QF status unless the incremental sale consisted of
power solely from cogeneration or small power production
facilities.” Certification Order, 107 F.E.R.C. at 61,151 n.10.
Ormesa and Edison each unsuccessfully requested rehear-
ing. See Ormesa LLC, 108 F.E.R.C. ¶ 61,299 (2004) (Rehearing
Order). Edison now brings a timely petition for review.
III
We address Edison’s challenge to the Commission’s
decision under the deferential arbitrary and capricious standard
set forth in the Administrative Procedure Act. 5 U.S.C.
§ 706(2)(A); Exxon Mobil Corp. v. FERC, 430 F.3d 1166, 1172
(D.C. Cir. 2005); Mo. Pub. Serv. Comm’n v. FERC, 215 F.3d 1,
6
19.95 (Gross) – 3.38 (ii) – 1.35 (iii) = 15.22 (Net).
7
The Commission nowhere stated whether Edison was
necessarily compelled to buy this additional amount, only that Ormesa
was permitted to sell it without losing QF status. Cf. Connecticut
Valley, 82 F.E.R.C. at 61,418 (“[T]he requirement of [18 C.F.R.
§] 292.303(a), that an electric utility purchase any energy and capacity
made available from a QF, is limited to the energy and capacity a QF
actually has available, which is its net energy and capacity.”).
8
3 (D.C. Cir. 2000). Our role is “limited to assuring that the
Commission’s decisionmaking is reasoned, principled, and
based upon the record.” Williston Basin Interstate Pipeline Co.
v. FERC, 165 F.3d 54, 60 (D.C. Cir. 1999) (internal quotation
marks and citation omitted). “The Commission must consider
the relevant factors and draw a rational connection between the
facts found and the choice made.” Mo. Pub. Serv. Comm’n, 215
F.3d at 3 (internal quotation marks and citation omitted).
A
Edison first challenges the Commission’s application of the
ownership limitation—specifically, the decision to grant Ormesa
permission to sell more than its net output while maintaining QF
status. As a preliminary matter, we must determine whether the
Act and the subsequent Commission rule changes, which delete
the statutory and regulatory ownership constraints, moot the
petition for review with respect to this issue. See Honig v. Doe,
484 U.S. 305, 317 (1988); Beethoven.com LLC v. Librarian of
Congress, 394 F.3d 939, 950 (D.C. Cir. 2005). We have little
difficulty concluding they do not. Although the Act eliminated
the statutory ownership limitation in 2005 and the Commission
amended its regulations accordingly in early 2006, the question
of whether the Commission acted arbitrarily and capriciously
back in 2004 remains very much live. Given that whatever harm
accrued as a result of the Commission’s order did not suddenly
vanish when the ownership limitation was excised, this is not a
case where the events have “outrun the controversy such that the
court can grant no meaningful relief.” McBryde v. Comm. to
Review, 264 F.3d 52, 55 (D.C. Cir. 2001).
We turn now to the merits, examining the Commission’s
order in light of the ownership limitation as it existed at that
time. Edison argues the Commission acted arbitrarily and
capriciously in permitting Ormesa to sell, over and above its net
output, an additional 1.35 MW—corresponding to an amount
purchased from another QF to cover Ormesa’s brine-reinjection
9
auxiliary load—without Ormesa’s jeopardizing its QF status.
We disagree.
Per the now-defunct statutory ownership restriction, a QF
had to be “owned by a person not primarily engaged in the
generation or sale of electric power (other than electric power
solely from cogeneration facilities or small power production
facilities).” 16 U.S.C. § 796(17)(C)(ii) (2000); id.
§ 796(18)(B)(ii). In Turners Falls, the Commission construed
this language to bar a QF from selling nonqualifying power over
and above its certified net output, and held that such a sale
would result in the loss of QF status altogether. 55 F.E.R.C. at
62,671-72. In that case, the Commission had certified the QF’s
net output (gross less auxiliary load) as qualifying power. Id. at
61,665. However, the QF, which received its auxiliary load
from a local utility, sought to sell the nonqualifying incremental
amount (gross less net) as a nonqualifying facility seller. Id. at
62,666. According to the Commission, such sales of
nonqualifying power by QFs are prohibited because the QF
would be selling electric power that does not fall within the
parenthetical “other than” exception, despite the colorable
argument that even the incremental power—which after all was
generated by the QF itself—was “electric power solely from
cogeneration facilities or small power production facilities.” Id.
at 62,667-68 (citation omitted). The Commission emphasized
that, in analyzing whether the incremental sale transgresses the
statutory ownership restriction, “the most important fact is that
the incremental output of the Turners Falls facility . . . is not . . .
qualifying output eligible for the regulatory exemptions.” Id. at
62,671 (emphasis added). Later, in Connecticut Valley, the
Commission, reiterating the statutory ownership restriction
(including the exception thereto) and citing Turners Falls, stated
that “a sale in excess of net output would deprive a facility of its
QF status, unless the incremental sale was of power solely from
cogeneration or small power production facilities [i.e., QFs].”
82 F.E.R.C. at 61,418 & n.17.
10
In the present case, citing Connecticut Valley, the Commis-
sion determined that, although the 1.35 MW was not part of
Ormesa’s net output, Ormesa could nonetheless sell it, provided
it would be purchased from another QF. Certification Order,
107 F.E.R.C. at 61,151 n.10. The explanation given, as set forth
in a footnote, is as follows:
Ormesa indicates that here the 1.35 MW will be purchased
from another QF. In [Connecticut Valley, 82 F.E.R.C. at
61,418 & n.17], the Commission found that a sale in excess
of net output would deprive a facility of its QF status unless
the incremental sale consisted of power solely from
cogeneration or small power production facilities. There-
fore, notwithstanding the discussion above, given that 1.35
MW will be purchased from another QF, Ormesa is permit-
ted to sell an additional 1.35 MW from its facility without
jeopardizing its QF status.
Certification Order, 107 F.E.R.C. at 61,151 n.10.
We are not persuaded this footnote represents an improper
expansion of the exception to the statutory ownership require-
ment, as applied in Commission precedent. In citing to Con-
necticut Valley (which in turn cites Turners Falls), we under-
stand the Commission to have extended permission to sell an
additional 1.35 MW only insofar as Ormesa purchases a
corresponding amount of power from the other QF’s supply of
qualifying output.8 Turners Falls highlighted that the
8
Although Ormesa never explicitly claimed in its recertification
application that it would purchase the capacity from another QF, see,
e.g., Joint Appendix 15-16 (Ormesa “uses power from another
geothermal QF” for reinjection (emphasis added)); id. at 20 (power for
reinjection “is provided by another geothermal QF” (emphasis
added)); id. at 22 (power for reinjection is “supplied by another QF”
(emphasis added)), the Commission’s permission, by its own terms,
only extends “if that additional 1.35 MW were purchased from another
11
touchstone is whether the incremental power is “qualifying
output,” and in that case, unlike the present one, the sale of
incremental power was prohibited precisely because it was not
qualifying power. 55 F.E.R.C. at 62,671. Similar to Ormesa’s
ability to sell its own qualifying power, the Commission
reasonably permitted Ormesa to, in essence, sell another QF’s
qualifying power without putting Ormesa’s QF status at risk.
That is, consistent with Commission precedent, the Commission
reasonably found that such a sale would not run afoul of the
statutory ownership restriction but would instead fall within the
exception thereto. Whether Ormesa subsequently exceeded the
bounds of the Commission’s permission—by selling
nonqualifying power—is not a matter before us.
B
Edison next argues the Commission acted arbitrarily and
capriciously in making a distinction between power for brine
extraction (which it determined is not part of the auxiliary load)
and brine reinjection (which it determined is part of auxiliary
load). Edison would adopt the Commission’s conclusion as to
reinjection, while rejecting the conclusion as to extraction.
Accordingly, Edison contends the Commission must reassess its
GEO East Mesa precedent, which directly controlled the
categorization of brine extraction. We again disagree.
In GEO East Mesa, the Commission held the auxiliary load
includes power for those functions that are a “‘necessary and
integral’ part of the power production process.” 55 F.E.R.C. at
61,813. The Commission found this criterion met in the case of
“essential fuel handling activity”—i.e., “mov[ing] the geother-
mal fuels directly into the generating equipment”—but not in the
case of “extraction and transportation functions.” Id. The
Commission employed an analogy to coal mining, originally
QF,” Rehearing Order, 108 F.E.R.C. at 62,514 (emphasis added).
12
suggested by the geothermal plant in that case. Id. at 61,813-14.
Brine extraction (like coal mining) and brine transportation to
the geothermal facility (like transporting coal to a power plant)
are not “necessary and integral” to the power production process
and thus are not part of the auxiliary load. Id. On the other
hand, essential fuel handling activity at the geothermal facility,
such as moving the geothermal fuels directly into the generating
equipment (like preparing and moving coal for entry into the
boiler), is part of the auxiliary load. Id.
Applying GEO East Mesa in the present case, the Commis-
sion concluded that Ormesa’s extraction and transportation
activities were not part of the auxiliary load. Edison urges here,
as it did before the Commission, that the Commission erred in
not overturning GEO East Mesa. However, the Commission has
adequately explained why it declined to do so, rejecting Edi-
son’s contention that the brine should more properly be seen as
“working fluid” (which presumably would have brought all
extraction and transportation within the ambit of the auxiliary
load), rather than as the “fuel” (for which only “essential fuel
handling” functions are part of the auxiliary load). See Certifi-
cation Order, 107 F.E.R.C. at 61,151. The Commission
determined the “brine itself is not the working fluid of the
facility”; rather, the “working fluid is isopentane.” Id. “The
brine heats the isopentane and the isopentane functions as the
facility’s working fluid, turning the turbines and generators.” Id.
In short, the Commission offered a reasonable explanation for
adhering to GEO East Mesa. Cf. Southwest Gas Corp. v. FERC,
145 F.3d 365, 370 (D.C. Cir. 1998) (“The Commission need not
revisit the reasoning of a general order every time it applies it to
a specific circumstance.”).
Edison’s argument that it would be more appropriate to
analogize to nuclear and steam power production rather than to
coal is unavailing. It is within agency discretion to reasonably
analogize to one set of facts rather than another. See New
Charleston Power I, L.P. v. FERC, 56 F.3d 1430, 1431, 1433
13
(D.C. Cir. 1995) (concluding it was “well within bounds” for the
agency to conclude that “rain-soaked cow manure” fueling a
particular QF should be treated more like a “golf ball that
knocks out a high-voltage transformer” than a “volcanic
eruption in the Philippines”).
Having thus determined, per GEO East Mesa, that brine
extraction was not part of Ormesa’s auxiliary load, the Commis-
sion then explained its rationale for treating brine reinjection
differently:
Following the removal of heat from the brine (to heat the
isopentane), the brine is no longer fuel, but is effectively
spent fuel. It is undisputed that spent fuel must be disposed
of, and here is disposed of by reinjection[. W]e find that
given the type of QF and its configuration such disposal is
“necessary and integral” to this QF’s power production
process.
Certification Order, 107 F.E.R.C. at 61,151.9 While the Commis-
sion’s reasoning is perhaps less than robust, we are not per-
suaded that its distinction between extraction and reinjection is
so deficient as to warrant our intervention. In categorizing the
used brine as “spent fuel,” the Commission has reasonably
included reinjection in the category of “necessary and integral”
“essential fuel handling” activities. Id. Just as the Commission
finds moving the fuel (brine) directly into the generating
equipment to be necessary and integral, it is not irrational to
similarly conclude disposing of the spent fuel (used
brine)—moving it out of the generating equipment—is also
necessary and integral. The spent fuel, after all, must go
somewhere in order to allow more fuel to be brought in; as the
9
Although Ormesa argued in its motion for rehearing before the
Commission that the Commission’s distinction between extraction and
reinjection was unsound, Ormesa has not sought our review of the
Commission’s conclusion that power for reinjection is part of the
auxiliary load.
14
Commission noted, the spent fuel “must be disposed of, and here
is disposed of by reinjection.” Id. Although it might also be
reasonable to conclude, as Edison urges, that reinjection is more
closely aligned with the activity of extraction, this is a matter
left to agency discretion. In sum, the Commission acted neither
arbitrarily nor capriciously in adhering to GEO East Mesa in
assessing brine extraction while treating brine reinjection
differently.
IV
For the foregoing reasons, Edison’s petition for review is
Denied.
15