Eighth Circuit Upholds FERC Interpretation of “Avoided Cost” Rate for QF Power Purchases
Posted on February 8, 2016
On October 6, 2015, the U.S. Court of Appeals for the Eighth Circuit upheld a regulatory interpretation by the Federal Energy Regulatory Commission (FERC) that the avoided cost rate paid by an electricity distribution cooperative for energy purchased from a qualifying small production power production facility (QF) is the same as the avoided cost rate of the co-op’s all-requirements generation supplier. Swecker v. Midland Power Cooperative, No. 14-2186 (8th Cir. Oct. 6, 2015).
In this case, the QF was an Iowa farmer-owned wind power generator, which sold its excess power to Midland Power Cooperative, a non-generating electricity distributor. The Central Iowa Power Cooperative (“CIPCO”) was Midland’s “all-requirements” electricity supplier, so called because Midland was contractually bound to purchase all of its electricity from CIPCO. FERC regulations promulgated pursuant to section 210 of the Public Utility Regulatory Policies Act of 1978 (“PURPA”) require electric utilities to offer to purchase electric energy from qualifying small power production facilities. The rate paid to the QF is the purchasing utility’s “avoided costs.” In a 1987 administrative ruling, FERC determined that, in the case of an all-requirements contract between a wholesale electricity supplier and a non-generating distributor, the “avoided costs” rate under the rule is based on the supplier’s avoided costs rather than those of the non-generating distributor actually purchasing the QF’s excess power. City of Longmont, 39 FERC ¶ 61,301 (June 16, 1987).
The QF wind generator in Swecker challenged FERC’s interpretation, claiming that the language of the relevant FERC regulation, 18 C.F.R. § 292.303(d), required Midland to obtain the QF’s consent before CIPCO’s avoided cost rate (which was lower than Midland’s) could apply to Midland’s purchase of the QF’s power. However, the Eight Circuit concluded that FERC’s interpretation of the regulation in Longmont was not “plainly erroneous or inconsistent with the regulation” and thus deferred to FERC’s interpretation pursuant to Auer v. Robbins, 519 U.S. 452 (1997).