Cherokee County Cogeneration Partners, LLC v. FERC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 6, 2022 Decided July 15, 2022

No. 21-1163

CHEROKEE COUNTY COGENERATION PARTNERS, LLC,
PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION ,
RESPONDENT

DUKE ENERGY CAROLINAS, LLC,
INTERVENOR

Consolidated with 21-1176

On Petitions for Review of Orders
of the Federal Energy Regulatory Commission

Paul W. Hughes argued the cause for petitioner. With him
on the briefs were Neil L. Levy, David G. Tewksbury, and
Andrew Lyons-Berg.

Lona T. Perry, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent. On
the brief were Matthew R. Christiansen, General Counsel,
 2
Robert H. Solomon, Solicitor, and Elizabeth E. Rylander,
Attorney.

Misha Tseytlin argued the cause for intervenor Duke
Energy Carolinas, LLC in support of respondent. With him on
the brief was Kevin M. LeRoy. Christopher R. Jones and Amie
V. Colby entered appearances.

Before: WILKINS and RAO, Circuit Judges, and
SILBERMAN , Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge
SILBERMAN .

SILBERMAN , Senior Circuit Judge: Petitioner, Cherokee
County Cogeneration Partners, LLC, seeks review of the
Federal Energy Regulatory Commission’s determination that
FERC lacked jurisdiction over Petitioner’s Federal Power Act
section 205 rate filing which sought compensation for its
provision of reactive service.

Before we reach the question of FERC’s jurisdiction—let
alone the merits—we are obliged to consider our own
jurisdiction. While we clearly have jurisdiction over the
petitions, we lack authority to consider Petitioner’s arguments
because they were not adequately presented in its petition for
rehearing. Because there are no arguments that are properly
before us, we deny the petitions for review.

I.

The Federal Power Act gives FERC jurisdiction over the
rates for the transmission of electric energy and sale of electric
energy at wholesale in interstate commerce. 16 U.S.C.
§ 824(a)-(b). FERC reviews those rates to ensure they are “just
 3
and reasonable” and that they do not “grant any undue
preference or advantage” or “subject any person to any undue
prejudice or disadvantage.” 16 U.S.C. § 824d(a), (b), (e).

But there are exceptions to FERC’s jurisdiction. In 1978,
Congress enacted the Public Utility Regulatory Policies Act
(PURPA) “to encourage the development of cogeneration and
small power production facilities” to reduce demand for
traditional fossil fuels. FERC v. Mississippi, 456 U.S. 742, 750
(1982). To support that goal, PURPA directed FERC to
exempt such qualifying facilities from the Federal Power Act
by developing implementing regulations. 16 U.S.C. § 824a-
3(e)(1). It also required state regulatory authorities to adopt
rules implementing PURPA and FERC’s regulations. 16
U.S.C. § 824a-3(f)(1).

Accordingly, FERC promulgated a regulation that
exempts cogeneration and small power production facilities
that are “qualifying facilities” from sections 205 and 206 of the
Federal Power Act when certain conditions are met. (Sections
205 and 206 provide that all rates for the transmission or sale
of electric energy shall be just and reasonable. 16 U.S.C. §§
824d-e.) Under that regulation, “sales of energy or capacity
. . . made pursuant to a state regulatory authority’s
implementation of section 210 [of PURPA] shall be exempt
from scrutiny under sections 205 and 206.” 18 C.F.R.
§ 292.601(c)(1) (“the cogeneration regulation”). In other
words, FERC does not have jurisdiction over those sales. The
interpretation of this regulation is at the center of the dispute
before us.
 4
***
Petitioner, Cherokee, owns a qualifying cogeneration
facility in South Carolina. 1 Intervenor, Duke Energy
Carolinas, LLC, is a public utility that sells wholesale and retail
electric service to customers in North Carolina and South
Carolina. Petitioner sells the entirety of its generated capacity
and energy to Duke “under a Power Sales Agreement (PPA)
pursuant to PURPA.” Cherokee Cty. Cogeneration Partners,
LLC, Order Dismissing Rate Filing, 175 FERC ¶ 61,002 at P 3
(Apr. 2, 2021) (“Dismissal Order”). Petitioner and Duke are
also parties to a Large Generator Interconnection Agreement
(“Interconnection Agreement”) which provides the terms of the
interconnection between Duke’s transmission system and
Petitioner’s facility.

The two components of electrical power in an alternating
current system are “real” power and “reactive” power. Real
power “causes electrical equipment to perform work.”
Reactive power creates a stable voltage so that real power can
be transmitted through the power system. See Ala. Power Co.
v. FERC, 220 F.3d 595, 596–97 (D.C. Cir. 2000). Under the
Interconnection Agreement, Petitioner is required to provide
reactive service for Duke’s transmission system and Duke is
required “to pay Cherokee for reactive power to the extent
[Duke] pays its own or affiliated generators for Reactive
Service.” Dismissal Order at P 4. The parties agree that the
provision of reactive service is not controlled by the Power
Sales Agreement. Dismissal Order at PP 10, 12.

This case arises because Petitioner seeks compensation for
the reactive service it provides to Duke’s transmission system.
Petitioner filed a proposed rate schedule for its reactive service

1
There is no dispute that Cherokee’s facility is a qualifying
facility under PURPA.
 5
with FERC pursuant to section 205 of the Federal Power Act.
16 U.S.C. § 824d. Petitioner argued that, under the
comparability requirement, since Duke pays its own generators
for reactive power, it must pay Petitioner for the same service.
“The comparability requirement is the requirement, established
in Order No. 2003, that the transmission provider must pay the
interconnection customer for reactive power . . . if the
transmission provider pays its own or affiliated generators for
such service.” Dismissal Order at P 12 n.27 (citing Order No.
2003-A, 106 FERC ¶ 61,220 at P 416 (March 5, 2004)).

Duke intervened and claimed that FERC lacked
jurisdiction over Petitioner’s section 205 filing. Duke
contended that Petitioner’s facility is a qualifying facility
selling energy or capacity to Duke pursuant to South Carolina’s
implementation of PURPA. Thus, Duke argued, under the
cogeneration regulation, Petitioner’s proposed rate filing was
exempt from scrutiny under section 205.

The Commission dismissed Petitioner’s rate filing for lack
of jurisdiction. FERC stated that Petitioner’s “only asserted
basis for entitlement to compensation for Reactive Service is
the [Interconnection Agreement].” Dismissal Order at P 16.
Relying on Order No. 2003, FERC noted that where a “utility
is obligated to interconnect under Section 292.303 of the
Commission’s Regulations, that is, when it purchases the
[qualifying facility’s] total output, the relevant state authority
exercises authority over the interconnection and the allocation
of interconnection costs.” Order No. 2003, 104 FERC ¶ 61,103
at P 813 (July 24, 2003). As noted, in this case, Duke
purchased all of Petitioner’s output. Therefore, FERC
concluded it did not have jurisdiction over the Interconnection
Agreement. Dismissal Order at PP 16–18. And because FERC
determined that the Interconnection Agreement was the “only”
 6
asserted basis for compensation, it dismissed Petitioner’s rate
filing. Dismissal Order at P 16.

Petitioner sought rehearing, arguing that the
Interconnection Agreement was not the only basis for
entitlement to compensation. Rather, Petitioner contended that
“[t]he principal basis for Cherokee’s entitlement to
compensation is the Commission’s well-established
comparability standard,” and thus that the jurisdictional status
of the Interconnection Agreement “has no bearing whatsoever
on the Commission’s jurisdiction over Reactive Service that
Cherokee provides to [Duke].” JA 349, 352.

Petitioner filed a timely petition for review. The next day,
FERC issued a substantive order explaining its denial. FERC
reiterated its conclusion that the Interconnection Agreement is
not subject to its jurisdiction. It also concluded that it lacked
jurisdiction over Petitioner’s freestanding claim for
compensation under the comparability requirement because
Petitioner’s rate filing was exempt from FERC scrutiny under
the cogeneration regulation. In particular, the rehearing order
determined that reactive service was “energy or capacity”
within the meaning of that regulation. Cherokee Cty.
Cogeneration Partners, LLC, Order Addressing Arguments
Raised on Rehearing, 176 FERC ¶ 61,069 at PP 14–16 (Aug.
3, 2021) (“Rehearing Order”). Accordingly, FERC determined
that Petitioner’s comparability standard argument was “moot.”
Rehearing Order at P 18. Petitioner filed a supplemental
petition for review.

II.

Petitioner contends that FERC’s dismissal of its section
205 rate filing is arbitrary and capricious (unreasonable). The
exemption from FERC jurisdiction provided by the
 7
cogeneration regulation, Petitioner claims, is inapplicable here.
That’s for two reasons. (1) Petitioner’s provision of reactive
service is not made pursuant to a state regulatory authority’s
implementation of PURPA. And, to compound the
Commission’s error, FERC failed to even respond to this
argument in its rehearing order. (2) Alternatively, reactive
service is not “energy or capacity.” Thus, Petitioner contends
that FERC erred in concluding that it lacked jurisdiction.

***

FERC brings two arguments that challenge our own
jurisdiction. Neither have any merit.

First, FERC contends that we lack jurisdiction to review
FERC’s “declaratory” ruling under PURPA. It relies on a line
of cases which holds that we don’t review FERC orders that
simply state how FERC interprets its own regulations because
“to review [such] orders issued under § 210 of the
PURPA . . . would disrupt the enforcement scheme carefully
elaborated in § 210.” Indus. Cogenerators v. FERC, 47 F.3d
1231, 1234 (D.C. Cir. 1995); see also, e.g., Midland Power Co-
op. v. FERC, 774 F.3d 1, 5–6 (D.C. Cir. 2014). We review
such declaratory orders only after a qualifying facility or FERC
brings an enforcement action in district court and appeals. Xcel
Energy Servs. Inc. v. FERC, 407 F.3d 1242, 1244 (D.C. Cir.
2005); see also Niagara Mohawk Power Corp. v. FERC, 117
F.3d 1485, 1488 (D.C. Cir. 1997). Since that hasn’t happened
here, FERC argues, we lack jurisdiction.

But these cases do not apply. Each of them involved a
§ 210(h) PURPA enforcement proceeding. The proceeding
before us is not a § 210(h) enforcement action. As such, it does
not implicate PURPA’s enforcement scheme. Rather, it is a
rate filing proceeding seeking compensation under section 205
 8
of the Federal Power Act. We have clear authority to review
Federal Power Act proceedings under 16 U.S.C. § 825l(b).
Thus, we may review FERC’s orders here.

Second, FERC argues that the case is moot because the
Power Sales Agreement between Cherokee and Duke expired.
Since Cherokee now sells to another entity and not Duke,
FERC claims that it is not apparent how our ruling could affect
the parties’ prospective rights. This contention is frankly
ridiculous. We can award retrospective, as well as prospective,
relief. Cherokee seeks retroactive monetary relief for the
reactive service it provided to Duke without compensation.
Such a claim obviously “dispel[s] any idea of mootness.” ANR
Pipeline Co. v. FERC, 885 F.2d 937, 938 (D.C. Cir. 1989)
(citing Northwest Pipeline Corp. v. FERC, 863 F.2d 73, 77
(D.C. Cir. 1988)). We have jurisdiction to review the petitions.

A.

As noted, Petitioner first argues that its provision of
reactive service is not made pursuant to a state regulatory
authority’s implementation of PURPA. Petitioner contends
that this prong of the cogeneration regulation covers only sales
made pursuant to contracts or obligations approved by state
regulatory authorities. Unlike the Power Purchase Agreement,
the Interconnection Agreement governing reactive service has
not been approved by South Carolina regulatory authorities.
Thus, Petitioner claims, this exemption from FERC’s section
205 jurisdiction does not apply.

To be sure, this is a potentially plausible argument.
Unfortunately, it appears nowhere in Petitioner’s request for
rehearing before FERC. Under 16 U.S.C. § 825l(b), “[n]o
objection to the order of the Commission shall be considered
by the court unless such objection shall have been urged before
 9
the Commission in the application for rehearing . . . .”
Petitioners “must themselves raise in that petition all of the
objections urged on appeal.” Platte River Whooping Crane
Critical Habitat Maintenance Trust v. FERC, 876 F.2d 109,
113 (D.C. Cir. 1989).

The closest Petitioner comes to raising this issue in its
petition for rehearing is in a single sentence: “[A]s explained
in Cherokee’s earlier pleadings, its sales of Reactive Service
are not ‘made pursuant to a state regulatory authority’s
implementation of section 210 [of PURPA].’” JA 352. But we
have held that “Petitioner[] must raise each argument with
‘specificity,’; objections may not be preserved either
‘indirectly,’ or ‘implicitly.’” Ameren Servs. Co. v. FERC, 893
F.3d 786, 793 (D.C. Cir. 2018) (citations omitted). Petitioner’s
sentence does no more than restate the regulation in a
conclusory manner. Petitioner does not follow this sentence
with any of the argumentation or analysis it presents in its well-
written brief. And Petitioner’s “earlier pleadings” do not
contain any discussion about the pursuant to state
implementation of PURPA prong of the cogeneration
regulation. Under our “unusually strict requirement,”
Petitioner has not done enough to present this argument in its
petition for rehearing. Wabash Valley Power Ass’n, Inc. v.
FERC, 268 F.3d 1105, 1114 (D.C. Cir. 2001). 2 Accordingly,
we lack authority to consider it.

We recognize that the Commission did not raise this
jurisdictional argument. But “[n]either FERC nor this court has
authority to waive these statutory requirements.” Platte River

2
Petitioner also argues that FERC erred in not responding to
this argument in its rehearing order. Had Petitioner properly
presented it, that would be true. But since it did not, FERC was under
no obligation to discuss it.
 10
Whooping Crane, 876 F.2d at 113. “Therefore, the failure of
FERC to challenge a petitioner’s objection on the ground that
it was not raised below does not remove this court’s
independent obligation to determine whether, in fact, the
argument is properly before us.” Wabash Valley Power Ass’n,
268 F.3d at 1114.

B.

Petitioner also contends that the cogeneration regulation’s
exemption does not apply because reactive service is not
“energy or capacity.” Rather, it claims, “the text, structure, and
history of the regulations at issue make clear that reactive
service is a wholly separate third category of service not
encompassed by this regulatory language.”

Again, this argument does not appear in Petitioner’s
request for rehearing.3 Instead, Petitioner claimed that FERC’s
dismissal of its section 205 rate filing violated the
comparability standard. That standard, Petitioner asserts, is its
“principal basis” for entitlement to compensation and applies
regardless of whether it is included in the Interconnection
Agreement. JA 349. Tellingly, Petitioner does not directly
dispute FERC’s assertion that its “energy or capacity”
argument does not appear in the petition for rehearing. So, it
would seem this argument is presumably barred by section
825l(b).

Petitioner claims it has an excuse for its failure to raise its
“energy or capacity” argument. Section 825l(b)’s bar applies
when a Petitioner does not urge an objection in its petition for

3
Noticeably, when FERC discusses the “energy or capacity”
argument in its rehearing order, it cites only to Petitioner’s Answer
to Duke’s motion to dismiss. JA 17.
 11
rehearing “unless there is reasonable ground for failure to do
so.” 16 U.S.C. § 825l(b). Petitioner contends that this
exception to the bar applies where FERC’s order on rehearing
adopts new reasoning not found in the Commission’s original
order. To be sure, we have held that where a FERC rehearing
order “marshal[s] new arguments to support the old outcome,”
and the “party filing [the] petition for rehearing was [thus] not
on notice of the rationale that FERC would adopt in the
rehearing order, the party has a ‘reasonable ground’ for not
having addressed that rationale in its petition and accordingly
may do so for the first time in court.” Columbia Gas
Transmission Corp. v. FERC, 477 F.3d 739, 742 (D.C. Cir.
2007). Here, FERC’s original order did not discuss the “energy
or capacity” prong of the cogeneration regulation. But FERC
did analyze it in its rehearing order. Rehearing Order at P 14–
16. Therefore, Petitioner contends that, under Columbia Gas,
it may address FERC’s rationale for the first time before us.

We think Columbia Gas does not apply. There, Petitioners
entered into agreements with local distribution companies.
FERC rejected the agreements on two grounds. Petitioners
sought rehearing, attacking both reasons. FERC denied the
petition, “but marshaled slightly different reasons”—adding a
new rationale for why Petitioners should lose. Id. at 741.

On review, the Commission argued that we lacked
authority to consider Petitioners’ challenge to this new
rationale because they did not make the argument in their
petition for rehearing. Id. We noted that, “[o]f course the
reason Columbia hadn’t attacked those arguments in its petition
for rehearing is plain: FERC hadn’t yet revealed them.” Id.
We set forth the proposition that, “when a party filing a petition
for rehearing was not on notice of the rationale that FERC
would adopt in the rehearing order, the party has a ‘reasonable
ground’ for not having addressed that rationale in its petition
 12
and accordingly may do so for the first time in court.” Id. at
742. Since we determined that Petitioners had no notice of
FERC’s new rationale, we held that they were not barred by
section 825l(b) from urging objections to it before us.

But the notice considerations that underlie Columbia Gas
are not present here. There, Petitioners were truly blindsided
by a new rationale. Here, FERC did not devise a new rationale
out of the blue. Actually, Petitioner itself made the “energy or
capacity” argument in its original Answer to Duke’s motion to
dismiss, but then inexplicably dropped it in its petition for
rehearing. So, it cannot be said that FERC’s discussion of the
“energy or capacity” prong was a surprise to Petitioner.
Petitioner did not meet its obligation to show that its filing
avoided the cogeneration regulation’s exemption from FERC
jurisdiction. Thus, we think Columbia Gas is inapposite.

As just explained, we don’t have authority to consider the
two arguments Petitioner makes before us. Neither do we have
authority to consider the argument Petitioner did make in its
petition for rehearing—that the Commission focused
exclusively on the jurisdictional status of the Interconnection
Agreement under 18 C.F.R. § 292.303 and erred in applying
the comparability standard. That is because Petitioner
abandoned this contention by not raising it before us. It is
therefore forfeited. See Sierra Club v. FERC, 867 F.3d 1357,
1378–79 (D.C. Cir. 2017).

***

Petitioner presents no arguments we can consider. We
therefore deny the petitions for review.