Case3:13-cv JD Document90 Filed08/31/15 Page1 of 33

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1 Case:-cv-0-JD Document0 Filed0// Page of AROCLES AGUILAR (CSB ) HARVEY Y. MORRIS (CSB 0) ELIZABETH M. MCQUILLAN (CSB 0) JAMES M. RALPH (CSB ) Public Utilities Commission of the State of California 0 Van Ness Avenue San Francisco, CA Telephone: () 0- Facsimile: () 0- emm@cpuc.ca.gov Attorneys for Defendants Michel Florio, Catherine Sandoval, Carla Peterman, Michael Picker, and Liane Randolph, in their official capacities as Commissioners of the California Public Utilities Commission UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION WINDING CREEK SOLAR LLC, vs. Plaintiff, MICHAEL FLORIO, CATHERINE SANDOVAL, CARLA PETERMAN, MICHAEL PICKER, and LIANE RANDOLPH, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants. Case No. -0 JD MEMORANDUM OF POINTS AND AUTHORITIES OF DEFENDANT COMMISSIONERS OF THE CALIFORNIA PUBLIC UTILITIES COMMISSION IN OPPOSITION TO MOTION FOR SUMMARY JUDGMENT Date: October, Time: :00 a.m. Courtroom, th Floor Case No. -0 JD

2 Case:-cv-0-JD Document0 Filed0// Page of TABLE OF CONTENTS... i TABLE OF AUTHORITIES... ii-v TABLE OF ACRONYMS... vi-vii I. INTRODUCTION... II. STATEMENT OF ISSUES TO BE DECIDED... III. FACTUAL BACKGROUND... A. Regulatory Framework.... Utility purchase obligation.... Avoided cost rates... B. State Authority Over Utility Procurement... C. The Market Price Referent... D. The Evolution of the Feed-in Tariff Under Public Utilities Code..... The original program amendments to..... The Re-MAT Decisions.... The Standard Contract for QFs MW or less... E. AB Feed-in Tariff... F. Winding Creek s Enforcement Petitions... IV. SUMMARY JUDGMENT STANDARD... V. THE RE-MAT DECISIONS ARE NOT UNLAWFUL... A. FERC s Interpretations Warrant Deference... B. The Utility Purchase Obligation Is Not Restricted... C. The Challenge to the Standard Contract Fails... D. The Re-MAT Pricing Is Lawful.... Non-QF sources.... Price adjustment mechanism... VI. CONCLUSION... i Case No. -0 JD

3 Case:-cv-0-JD Document0 Filed0// Page of FEDERAL CASES TABLE OF AUTHORITIES Page Aguilar v. Int l Longshoremen s Union, F.d (th Cir. )..., - Allco Finance Ltd. v. Klee, WL 000 (D. Conn. )... Auer v. Robbins, U.S. ()... Bassiri v. Xerox Corp., F.d (th Cir. 0)... Chevron, U.S.A., Inc. v. Natural Res. Defense Council, U.S. ()... Christensen v. Harris Cnty., U.S. (00)... Entergy Nuclear Vt. Yankee LLC v. Shumlin, F.d (d Cir. )... Exelon Wind, L.L.C. v. Nelson, WL 0 (W.D. Tex. )... Exelon Wind L.L.C. v. Smitherman, F.d 0 (th Cir. )...,, FERC v. Mississippi, U.S. ()...,, Fournier v. Sebelius, F.d (th Cir. )... Indep. Energy Producers v. Cal. P.U.C., F.d (th Cir. )... passim Industrial Cogenerators v. FERC, F.d (D.C. Cir. )... King v. Burwell, S. Ct. 0 ()... Kokajko v. FERC, F.d (st Cir. )... Kumho Tire Co. v. Carmichael, U.S. ()...,, Maffei v. N. Ins. Co., F.d (th Cir. )..., - Morgantown Energy Ass n v. Pub. Serv. Comm n, WL ()... New York v. FERC, U.S. (0)..., ii Case No. -0 JD

4 Case:-cv-0-JD Document0 Filed0// Page of NRG Power Marketing v. Maine P.U.C., U.S. ()... Oxygenated Fuels Ass n v. Davis, F.d (th Cir. 0)... Perfectly Fresh Farms, Inc. v. U.S. Dep t of Agric., F.d 0 (th Cir. )... Power Resource Grp. v. P.U.C. of Tex., F.d (th Cir. 0)... Price v. Stevedoring Serv. of Amer., F.d (th Cir. )... Pub. Lands for the People, Inc. v. U.S. Dep t of Agric., F.d (th Cir. )... P.U.C. of Cal. v. FERC, F.d 0 (D.C. Cir. 0)... Skidmore v. Swift & Co., U.S. ()... United States v. E. Mun. Water Dist., 0 WL (C.D. Cal. 0)..., - United States v. Jones, Receiver No., U.S. ()... United States v. Morgan, U.S. 0 ()... Whistler Inv., Inc. v. Depository Trust & Clearing Corp., F.d (th Cir 0)... FERC DECISIONS AND ORDERS Cal. P.U.C., FERC,0, clarified on reh g by, FERC, 0 ()..., Cal. P.U.C., FERC,0 (), reh g denied, FERC,0 ()... passim Cal. P.U.C., FERC,0 ()..., Energy Producers and Users Coalition, FERC, ()... Hydrodynamics, Inc., FERC, ()... - JD Wind LLC, 0 FERC, ()... Midwest Power Sys., FERC,0 ()..., iii Case No. -0 JD

5 Case:-cv-0-JD Document0 Filed0// Page of Otter Creek Solar LLC, FERC, (), reh g denied, FERC, ()... Otter Creek Solar LLC, FERC, ()... Pac. Gas. and Elec. Co., FERC, ()... Revised Regulations Governing Small Power Production and Cogeneration Facilities, FERC, (0)... Signal Shasta Energy Co., FERC, ()..., Small Power Production and Cogeneration Facilities; Regulations Implementing Section 0 of the Public Utility Regulatory Policies Act of, Fed. Reg., (0)... passim S. Cal. Edison Co., 0 FERC,, clarified by S. Cal. Edison, FERC, (), overruled in part by Cal. P.U.C., FERC,0 ()..., S. Cal. Edison Co., FERC, ()... Winding Creek Solar LLC, FERC, ()... Winding Creek Solar LLC, FERC, ()... passim FEDERAL STATUTES AND REGULATIONS U.S.C.... U.S.C. a-... passim C.F.R.. (0)..., - C.F.R.. (0)... C.F.R..0 (0)... C.F.R..0 (0)..., C.F.R..0 (0)... passim C.F.R..0 (0)... C.F.R.. ()... C.F.R.. ()... C.F.R..0 ()... C.F.R.. ()... C.F.R.. ()... - C.F.R..0 ()... iv Case No. -0 JD

6 Case:-cv-0-JD Document0 Filed0// Page of OTHER FEDERAL AUTHORITY H.R. Conf. Rep. -0, reprinted in U.S.C.C.A.N., WL 0 (Oct., )..., CALIFORNIA DECISIONS S. Cal. Edison Co. v. Cal. P.U.C., Cal. App. th (0)..., S. Cal. Edison Co. v. Cal. P.U.C., Cal. App. th (0)... CPUC DECISIONS D WL (June, 0)... D.0-0-0, 0 WL 0 (June, 0)... D.0-0-0, 0 WL (July, 0)... - D , 0 WL (Sep., 0)..., D.--0, WL 0 (Dec., )... passim D.--0, WL 0 (Dec., )... D.-0-0, WL (Apr., )... D.-0-0, WL (May, )... passim Resolution E-, 0 WL (Dec., )... CALIFORNIA STATUTES AND REGULATIONS Pub. Res. Code... Pub. Util. Code.... Pub. Util. Code.... Pub. Util. Code Pub. Util. Code.... -, Pub. Util. Code Cal. Legis. Serv. Ch. (S.B. ) Cal. Legis. Serv. Ch. (A.B. )... Cal. Leg. Serv. st Ex. Sess. Ch. (S.B. )... v Case No. -0 JD

7 Case:-cv-0-JD Document0 Filed0// Page of TABLE OF ACRONYMS. FiT: Original feed-in tariff implementing California Public Utilities Code., enacted in 0. AB CHP: A certain type of cogeneration facility (combined heat and power system), as defined in California Public Utilities Code 0.. FiT: A feed-in tariff. kw: A kilowatt is,000 watts of power. A watt hour is the basic unit of measure of electric energy consumption. kwh: A kilowatt hour is the amount of power necessary to produce,000 watts for one hour. For example, ten 0-wattlight bulbs burning for one hour uses,000 Wh of electric energy, or kwh. MPR: The Market Price Referent reflects the construction, operation and maintenance costs of a proxy generator: a new, highly efficient 00 MW capacity combined cycle natural gas turbine. MW: A megawatt is a million watts of power. For example, a MW is the amount of power needed to light,000 0 watt bulbs. MWh: A megawatt hour is the amount of electric power delivered multiplied by the time over which the energy is consumed (measured in hours). A MWh is the amount of power needed to light,000 0 watt bulbs for one hour. PG&E: Pacific Gas and Electric Company. PURPA: Public Utility Regulatory Policies Act of, codified generally at U.S.C. and a-. QF: A qualifying facility is an eligible cogeneration or small power production facility that is a qualifying facility under the requirements specified in Subpart B of FERC s regulations ( C.F.R..(b)(),.). QF Settlement: The comprehensive settlement among QFs, utilities, and ratepayer representatives approved by the CPUC in December in CPUC decision D.--0. RAM: The Renewable Auction Mechanism was established by the CPUC in D.--0 as the primary contracting tool for utility procurement from smaller renewable energy projects (up to MW in size) that are eligible for the California Renewables Portfolio Standard Program. vi Case No. -0 JD

8 Case:-cv-0-JD Document0 Filed0// Page of Re-MAT: Renewable Market Adjustment Tariff, the revised feed-in tariff program implementing amendments to California Public Utilities.. RPS: The Renewable Portfolio Standard is a utility procurement requirement mandated by California law (Article of the Public Utilities Code, commencing with.). The RPS requires increasing utility procurement by CPUC-regulated utilities from eligible renewable energy resources. SCE: Southern California Edison Company. SRAC: Short-Run Avoided Costs are the short-run marginal costs for the production of one additional unit of electricity: fuel costs, and certain operation and maintenance costs. Standard Contract: The power purchase agreement approved by the CPUC that California s regulated utilities must offer QFs of MW or less. vii Case No. -0 JD

9 Case:-cv-0-JD Document0 Filed0// Page of MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION The motion of plaintiff Winding Creek Solar LLC ( Winding Creek ) for summary judgment should be denied and summary judgment entered for the defendant Commissioners of the California Public Utilities Commission ( CPUC ). The Second Amended Complaint ( SAC ) challenges a CPUC s feed-in tariff program, Re-MAT, which requires utility procurement of 0 megawatts ( MW ) of electricity from small renewable energy generators that are strategically located near consumer demand, and alleges Re-MAT is preempted by the Public Utility Regulatory Policies Act of ( PURPA ). Re-MAT is part of California s Renewable Portfolio Standard ( RPS ), a state requirement that utilities procure % renewable energy to serve their retail customers by December,. Participation by qualifying facilities ( QFs ) in the Re-MAT Program is voluntary, and Re-MAT is in addition to the mandatory Standard Contract that California utilities must offer smaller QFs of MW or less generation capacity under PURPA. In a Declaratory Order, FERC rejected Winding Creek s arguments that the 0 MW state-wide limit of the Re-MAT Program violates PURPA because the Standard Contract offers a long-term rate compliant with C.F.R..0(d)()(ii), and the Standard Contract is available to Winding Creek and any other QF of MW or less. This Court should defer to the Declaratory Order, and FERC s interpretations of PURPA and FERC s regulations. Both the Ninth Circuit and FERC precedent acknowledge the broad ratemaking authority of the CPUC in determining avoided cost rates under PURPA. Ignoring this precedent, Winding Creek argues that the CPUC should have done it differently, based solely on the testimony of its expert witness, Dr. Jonathan Lesser. Not only is Dr. Lesser s testimony A feed-in tariff reflects a policy to support new renewable power generation, and typically requires utilities to purchase energy from eligible renewable sources, with guaranteed payments over a long-term contract. Case No. -0 JD

10 Case:-cv-0-JD Document0 Filed0// Page of inadmissible but, as a matter of law, neither Re-MAT nor the Standard Contract is inconsistent with PURPA or FERC s regulations. II. STATEMENT OF ISSUES TO BE DECIDED In addition to the issues identified by Winding Creek, the Court must decide what deference to accord FERC s Declaratory Order and FERC's interpretations of PURPA and FERC s regulations. III. FACTUAL BACKGROUND A. Regulatory Framework In, Congress enacted PURPA to encourage fuel-efficient cogeneration and small power production facilities (QFs) in order to reduce the reliance of electric utilities on fossil fuels. See FERC v. Mississippi, U.S., -, 0- (). In Section 0(a) of PURPA, Congress required FERC, in consultation with the states, to adopt rules as necessary to encourage cogeneration and small power production, including rules requiring electric utilities to offer to purchase electricity from QFs. See U.S.C. a-(a)(). Section 0(f) of PURPA requires State commissions like the CPUC to implement FERC s regulations. See id. at a-(f). A State commission may comply by issuing regulations, by resolving disputes on a case-by-case basis, or by taking any other action reasonably designed to give effect to FERC's rules. See FERC v. Mississippi, U.S. at ; Indep. Energy Producers Ass n v. Cal. P.U.C., F. d, (th Cir. ) ( IEP ) (CPUC has broad ratemaking authority under PURPA). In turn, FERC s regulations afford State commissions wide discretion, as long as the implementation is consistent with FERC s regulations: In this regard, the determinations that a state commission makes to implement the rate provisions of section 0 of PURPA are by their nature fact-specific and include consideration of many factors, and we are reluctant to second guess the state commission's determinations; our regulations thus provide state commissions with guidelines on factors to be taken into account, to the extent practicable, in determining a utility's avoided cost of acquiring the next unit of generation. Case No. -0 JD

11 Case:-cv-0-JD Document0 Filed0// Page of See Cal. P.U.C., FERC, 0, at P ( CPUC ), reh g denied, FERC,0 () (citations omitted).. Utility purchase obligation Section.0(a) of FERC s regulations provides: Each electric utility shall purchase, in accordance with.0... any energy and capacity which is made available from a qualifying facility.... See C.F.R..0(a). When PURPA was enacted, there was no market for electricity produced by QFs, and all QF sales to utilities took place pursuant to a State commission s implementation of PURPA. See Revised Regulations Governing Small Power Production and Cogeneration Facilities, FERC,, at P (0). However, this changed as a result of PURPA s success in developing markets for QF power, and the deregulation of the wholesale electricity market. See id. In 0, Congress amended PURPA, and new contracts with QFs over MW are not required if FERC finds there is nondiscriminatory access to specified markets. See U.S.C. a-(m); C.F.R..0. In June, FERC terminated the purchase obligation for California utilities from QFs over MW. See Pac. Gas. and Elec. Co., FERC,, at PP -, - ().. Avoided cost rates PURPA and FERC s regulations similarly provide that rates for utility purchases from QFs may not exceed the utility s avoided cost: the incremental cost to the utility of the electricity that, but for the purchase from the QF, the utility would need to generate or purchase from another source. See U.S.C. a-(b), (d); C.F.R..(b)(),.0(a)(). FERC has specifically clarified that what costs a utility is avoiding can be defined by utility procurement requirements established by state law that require utilities to purchase electricity from certain types of facilities: Where a state requires a utility to procure a certain percentage of energy from generators with certain characteristics, generators with those characteristics constitute the sources that are relevant to the determination of the utility's avoided cost for that procurement requirement. Case No. -0 JD

12 Case:-cv-0-JD Document0 Filed0// Page of CPUC, FERC, 0, at PP, 0. Setting avoided cost rates does not require mathematical precision or an exact correlation with actual costs. See Small Power Production and Cogeneration Facilities; Regulations Implementing Section 0 of the Public Utility Regulatory Policies Act of, Fed. Reg.,, at p., (0) ( Rulemaking Order ). FERC s regulations do not impose any mandatory requirements for avoided cost rates, but simply list factors to be considered by a State commission, to the extent practicable, such as the availability of electricity during daily and seasonal demand peak periods, and the reliability of the facility. See C.F.R..0(b)(), (e); CPUC, FERC,0, at P. Avoided cost rates are not one size fits all. State commissions have the discretion to set multi-tiered avoided cost rates for QFs, with different rates for QFs based on their technological capabilities. See id. at PP -, & ; C.F.R..0(c)()(ii). Avoided costs can include both energy costs and capacity costs. Energy costs are the costs associated with the incremental production of electric energy, including the cost of fuel and certain operating and maintenance costs. Capacity costs are the costs of providing the capabilities to meet the demand for electric energy, which could be construction costs, conservation program costs, or wholesale power purchase costs. See IEP, F.d at n.; see also Rulemaking Order, Fed. Reg. at,. Whether a sale of power includes capacity value depends on whether it allows a utility to avoid the costs of the construction or the purchase of new capacity. See Rulemaking Order, Fed. Reg. at,. A firm sale provides power when the buyer requests, as opposed to a non-firm sale, where the seller sells power as available. See id. Generally, firm power is more valuable than non-firm power. See id. at,-; IEP, F. d at n.. A non-firm sale may provide capacity value, but energy costs ordinarily are the costs associated with non-firm sales. See Rulemaking Order, Fed. Reg. at,. PURPA also requires that avoided cost rates be just and reasonable, (see U.S.C. a-(b)()), and Congress intended that this language be construed to protect consumers Case No. -0 JD

13 Case:-cv-0-JD Document0 Filed0// Page of interests in equitable rates for electricity. See H.R. Conf. Rep. -0, reprinted in U.S.C.C.A.N., WL 0, at *- (Oct., ). PURPA was not intended to guarantee QFs a rate of return or a subsidy. See id.; Exelon Wind L.L.C. v. Smitherman, F.d 0, (th Cir. ). Rates exceeding avoided cost also allow QFs an unfair advantage in the competitive wholesale markets. S. Cal. Edison Co. ( SCE ), 0 FERC,, at pp.,- (), overruled on other grounds by CPUC, FERC,0, at PP -0. B. State Authority Over Utility Procurement While the FERC has jurisdiction over the wholesale sale of electricity, the Federal Power Act did not preempt all areas of traditional state regulation. See U.S.C. (b)(); New York v. FERC, U.S., -, - (0). The states, not the FERC, have jurisdiction over local service issues, which include the composition of utility resource portfolios and utility buy-side decisions. See id. at. The states broad powers to direct the planning and resource decisions include the power to order state-regulated utilities to purchase renewable energy. See Entergy Nuclear Vt. Yankee LLC v. Shumlin, F.d, (d Cir. ); Allco Finance Ltd. v. Klee, WL 000, at * (D. Conn. ) (Allco is Winding Creek s affiliate). While the CPUC can order its regulated utilities to purchase from renewable facilities, the CPUC may not set the wholesale price for these purchases except from QFs and in compliance with PURPA. See CPUC, FERC,0, at PP -, clarified on reh g by, FERC,0, at PP - (), reh g denied, FERC,0 (); Midwest Power Sys., FERC,0, pp.,- (). Independent of PURPA, California has imposed additional state requirements for utility procurement from renewable resources. In 0, the Legislature enacted SB (Sher, Stats. 0, ch. ), to establish the Renewable Portfolio Standard ( RPS ) (Article, commencing with., of the Public Utilities Code). The RPS currently requires utility procurement of % from eligible renewable energy resources by December,. See Pub. Util. Code Case No. -0 JD

14 Case:-cv-0-JD Document0 Filed0// Page of.(a);.; cf. Morgantown Energy Ass n v. Pub. Serv. Comm n, WL, at * () (West Virginia renewable procurement rules in addition to PURPA). C. The Market Price Referent Winding Creek implies that the CPUC s Market Price Referent or MPR was developed as measure of avoided cost for PURPA rate-setting. See Opening Brief ( OB ), p.. This is incorrect. Rather, the MPR initially was adopted because Public Utilities Code.(c) directed the CPUC to determine the market price of electricity to be used as a benchmark for the CPUC to evaluate bids received in renewable power solicitations by utilities to meet the RPS, and to serve as a cost-containment mechanism. See D.0-0-0, pp. -, 0 WL 0 (June, 0); 0 Cal. Legis. Serv. Ch. (S.B. ); D.-0-0, p. & n.; CPUC Resolution E-, 0 WL (Dec., ) (adopts MPR values, and the history of the MPR). The first MPR was adopted in 0. See D.0-0-0, at - &, 0 WL (June, 0); D.-0-0, pp. - & n.. In 0, the MPR did not reflect the market price of renewable energy because most of the existing contracts had been signed by the California Department of Water Resources during the 00-0 energy crisis, and there were insufficient comparable contracts to provide a basis for setting a market price. See D.0-0-0, at -. Accordingly, the CPUC based the MPR on the long-term costs of the ownership, operation, and fixed-price fuel for a proxy generator: a new, highly efficient, 00 MW natural gas-fired combined cycle gas turbine. See id. at -, ; D.-0-0, pp. -. The MPR has been was refined over time, and reflects payment for both energy and capacity by applying time of delivery factors. See D.-0-0, pp. -, & nn.,. Approximately % of the MPR calculation is driven by the price of natural gas. See id. at n.. D. The Evolution of the Feed-in Tariff Under Public Utilities Code.. The original program In 0, as part of California s RPS, the legislature added. to the Public Utilities Code. See 0 Cal. Legis. Serv. Ch. (A.B. ). In 0, the CPUC Case No. -0 JD

15 Case:-cv-0-JD Document0 Filed0// Page of implemented., and established a feed-in tariff program requiring utility purchases from a limited class of public water and wastewater facilities (. FiT Program ). See D.0-0-0, 0 WL (July, 0). The. FiT Program was later expanded to include renewable generators of. MW or less. See D.-0-0, p.. The pricing for the. FiT Program was based on the MPR because, in 0,. required that the tariff price shall be the market price as determined by the CPUC pursuant to.(c) (the MPR). See id. at - & -; 0 Cal. Legis. Serv. Ch. (A.B. ), p.; D.0-0-0, p.. The. FiT Program had a State-wide procurement limit of 0 MW. See id. at,.. 0- amendments to. In 0, 0, and, the California legislature amended.. See D.-0-0, pp., -. The most significant amendment eliminated the cross-reference to., so the price was no longer tied to the MPR. See D.-0-0, pp. -; Cal. Leg. Serv. st Ex. Sess. Ch. (S.B. ), p.. Section. directed the CPUC to consider the following: () the long-term market price for fixed price products determined by the utilities general procurement activities; () the long-term ownership, operating and fixed-price fuel costs for fixed-price electricity from new generation facilities; and () the value of different products, including baseload, peaking, and as-available electricity. See Pub. Util. Code.(d)()(A)-(C). The amendments also changed the facilities eligible for the tariff. The size of a facility was increased to MW, and the facility must be interconnected to a utility and strategically located on the grid to optimize delivery to consumer demand. See Pub. Util. Code.(b),.(e); Cal. Pub. Res. Code. The required procurement was increased to a State-wide cap of 0 MW. See Pub. Util. Code.(e). For Re-MAT, an as-available facility is one that provides energy during non-peak hours. D.-0-0, p.. Under PG&E s tariff, super-peak hours are hours ending -. See Lesser Decl., Exh., p.. A peaking facility is also an as-available resource, but generates electricity during peak hours when all other resources are operating at maximum capability. A baseload facility provides firm energy around the clock. See D.-0-0, p.. Case No. -0 JD

16 Case:-cv-0-JD Document0 Filed0// Page of. The Re-MAT Decisions The CPUC issued the Re-MAT Decisions to implement the 0- statutory amendments to.. See SAC,. The Re-MAT Decisions adopted a new pricing mechanism, referred to as the Renewable Market Adjusting Tariff or Re-MAT. See D.-0-0, p.. The CPUC evaluated a number of pricing proposals. See id. at -. The CPUC explained its decision to not continue using the MPR: See id. at -. Specifically, the MPR does not reflect ongoing changes within the renewable market and, as a result, could potentially result in a price either too low or too high. In addition, the renewable market has evolved since the Commission first established the MPR in 0 at the beginning of the RPS program. Now the renewable market is sufficiently robust to serve as the point of reference for establishing the market price for small renewable projects rather than the very different benchmark used for the MPR, which is based on the costs of a combined-cycle natural-gas power plant. The CPUC expressly relied on FERC s clarification in CPUC, FERC,0, that avoided cost rates could be based on State requirements that utilities procure electricity from particular facilities. See D.-0-0, pp. -. The CPUC found that a price based on the most recent comparable competitive solicitation for renewable generation more fully reflects the avoided costs under federal law, and the renewables market is now sufficiently robust to serve as the benchmark for the market price for small renewable projects. Id. at 0- &. As the CPUC further explained: See id. at. The market-based pricing methodology adopted today allows customers to realize the benefits of changing market conditions that result in potentially lower costs. In addition, it allows generators to set the market price through the bidding process, which theoretically will ensure the price is neither too high nor too low but, instead, will be reasonable to cover the generator s costs and encourage broad participation in the market. In contrast, administrativelydetermined pricing is static and, as a result, can result in pricing being either too high, leading to windfalls for project developers and unnecessarily high procurement costs for customers, or pricing that is too low, preventing program subscription. These scenarios based on an administratively-determined price do not achieve ratepayer indifference to the extent achieved by Re-MAT. Case No. -0 JD

17 Case:-cv-0-JD Document0 Filed0// Page of The initial starting price of $./MWh was based on the weighted average of the highest priced executed contracts of Pacific Gas and Electric Company ( PG&E ), SCE, and San Diego Gas & Electric Company resulting from the CPUC's Renewable Auction Mechanism ( RAM ) held in November. See D. -0-0, pp. 0-,,. This starting price was applied to the three product types referenced in.: baseload, peaking, and as-available. See SAC,, ; D.-0-, pp. -. The CPUC did not use a unique starting price for each electricity product type because there was insufficient market information for each product type. See id. at. The 0 MW program limit was divided among the utilities based on a formula, and PG&E s initial allocation was. MW. See D.-0-0, pp. 0-. The CPUC required the utilities to allocate equal amounts to each product type over months. See id. at 0. This design was an effort to stimulate the market for small renewable distributed generation (power generation at the point of consumption) by providing an adequate supply of available capacity for each product type in response to demand, and to minimize ratepayer exposure to a large number of non-competitively priced contracts. See id. at 0-. Participation by a QF in the Re-MAT program is voluntary; a facility must submit a participation request to the utility. Each utility establishes a queue on a first-come, first-served basis for each product type. Every two months, the utility offers a contract at that two-month Re-MAT price in order of the queue. A facility can accept or reject the price. If accepted, the contract price is fixed for the term of contract. If the price is declined, the facility maintains its position in the queue until the next two-month period. See D.-0-0, pp. -. Because the RAM auction included generators up to MW, the CPUC adopted a price adjustment mechanism to address the disparity between that market segment and the market The RAM is the primary contracting tool for utility procurement from renewable facilities under MW. See D.--0, WL 0, at * (Dec., ). Each utility conducts competitive solicitations based on its portfolio needs. Case No. -0 JD

18 Case:-cv-0-JD Document0 Filed0// Page of segment of small renewables of MW or less that are strategically located. See D.-0-0, pp. -. The price adjustment mechanism is based on a proposal by SCE, and allows the price for each product type to increase or decrease every two months based on the market response to the previously offered price. See id. at n.,. A price adjustment will be triggered only after at least five eligible projects by different developers are in the queue, in order to prevent gaming (withholding supply to force an increase in price). See id. at n.. If there are less than five projects by different developers for any two-month offering, then the Re-MAT price remains the same for the next two-months. See id. at. If at least five eligible projects are in the queue, the price may increase or decrease based on whether projects accept the Re-MAT price and the subscription level is met. See id. at -0. If no developer enters into a contract at the two-month price, then a price increase will be triggered for the following two-month period. If the threshold of five eligible projects is achieved and all available capacity is subscribed for in a product type, a price decrease is triggered for the following twomonth period. See id. For PG&E, the offering price for baseload and peaking products has remained at the initial $./MWh price. In contrast, the offering price for as-available sales decreased to a low of $./MWh, but has adjusted upward to $./MWh for the July auction. See SAC, -, -; Price Decl., Exhs.,. The offering price alone is not the tariff rate. The offering price is adjusted for time of delivery factors (month and time of day), and also depending on the facility s actual delivery profile (the firmness or reliability of the power provided). See D.-0-0, pp.,,,,,, & -. For example, if the offering price is $./MWh, PG&E will pay a QF providing as-available energy during July and the super-peak period (hours ending -) the rate of $.0/MWh ($. x.), as opposed to if the same QF provided the energy at night, when the rate would be $.00/MWh ($. x.). See Lesser Decl., Exh., pp.,. If the QF has full capacity deliverability, then the rates would be $./MWh ($. x.) and $.0/MWh ($. x.) for super-peak and night, respectively. See id. These Case No. -0 JD

19 Case:-cv-0-JD Document0 Filed0// Page of price adjustment reflect the value of the energy to the utility. See D.-0-0, pp.,,. The CPUC approved tariffs and standard contracts under the Re-MAT Program for each investor-owned utility, with terms of ten, or years. See SAC,.. The Standard Contract for QFs MW or less Since the 0s, the CPUC has approved contracts with administratively set avoided cost rates that California utilities must offer QFs, including a number of standard offer contracts. See IEP, F.d at n.; Signal Shasta Energy Co., FERC, (). There were numerous complex and contentious disputes about these contracts. See D.--0, pp.,, WL 0 (Dec., ); SCE v. Cal. P.U.C., Cal. App. th, - (0). In, the CPUC approved a comprehensive settlement ( QF Settlement ). See D.--0, p.. The QF Settlement provides a variety of QF contract options, including a pro forma agreement that utilities must offer QFs of MW or less ( Standard Contract ). See id. at -, -, -,, - &, Exh. ; excerpts of the PG&E Standard Contract are attached as Exh. to Lesser Decl. The Standard Contract has a -year term for new facilities, and provides payments separately for energy and capacity. The energy price uses a complex formula based on a previously-approved CPUC short-run avoided cost ( SRAC ) formula. See D.--0, p. & n. & Exh. (Lesser Decl., Exh., pp. -0); D , 0 WL (Sep., 0), pp. -. Since 0, the CPUC has used a variation of the SRAC formula. See D , p. ; SCE, Cal. App. th at -. PG&E s historical SRAC energy prices are posted on its website. See CPUC Request for Judicial Notice ( RJN ), Exh.. The separate, additional payment for capacity allows the QF to elect to sell its capacity as firm, as-available, or both firm and as-available. The price for firm capacity is fixed at $. kwyear. As-available capacity prices are also fixed, and increase for each year from -; the price is $. kw-year. See Lesser Decl., Exh., pp.,. All contract payments apply time of delivery factors depending on the time of year/day. See id. at -. Case No. -0 JD

20 Case:-cv-0-JD Document0 Filed0// Page of E. AB Feed-in Tariff In, the CPUC established a different feed-in tariff program ( AB Program ) only for a specific subset of QFs: combined heat and power facilities of MW or less producing thermal heat and electricity from a single fuel output ( AB CHP ). See Assembly Bill, Stats. 0, ch. (A.B. ), codified at Pub. Util. Code 0- ; D.-0-0, pp. n., -, WL (Apr., ). Winding Creek s planned solar facility is not eligible for this program. An AB CHP must meet strict efficiency and emission requirements, and may sell only the excess electricity net of what it generates for its own needs. See Pub. Util. Code 0.(a)-(b), (a) & (e)(). The avoided cost rate is based on the MPR because AB CHPs operate continuously and are a firm resource, avoiding procurement or generation costs of a new, highly efficient natural gas combined cycle generator. See D.-0-0, pp. --, -. The energy price is higher than the SRAC approved for the Standard Contract because AB CHPs must satisfy higher efficiency and emissions standards. Id. at -. (If these standards are not met, SRAC applies. See id. at -.) FERC affirmed that the CPUC may set this avoided cost rate based on State procurement requirements from these particular facilities as opposed to the cost of any sources available to sell to the utility. See CPUC, FERC,0, at PP -. Contrary to of the SAC, nothing in the Re-MAT Program supersedes or terminates the AB Program. F. Winding Creek s Enforcement Petitions Winding Creek filed its first petition for enforcement, FERC Docket No. EL-, on June,. The first petition alleged that the Re-MAT Program violates PURPA because: () the price is not the utilities full avoided costs; and () it eliminates or restricts a QF s option for a long-run rate pursuant to C.F.R..0(d)()(ii). See Melone Decl., Exh.. FERC issued a Notice of Intent Not to Act on Winding Creek s original petition on August,. See Winding Creek Solar LLC, FERC, (). On March,, Winding Creek filed a second petition, Docket No. EL-, and requested that FERC make declaratory findings. See Melone Decl., Exh., p.. On Case No. -0 JD

21 Case:-cv-0-JD Document0 Filed0// Page of May,, FERC again issued a Notice of Intent Not to Act, and also issued a declaratory order rejecting Winding Creek s argument. See Winding Creek Solar LLC, FERC, () ( Declaratory Order ). FERC ruled that the 0 MW limit was not inconsistent with PURPA or FERC s regulations because QFs of MW or less could obtain a PURPA longterm, avoided cost legally-enforceable obligation to sell their net capacity pursuant to California s Standard Contract. See id. at PP -. Winding Creek filed a request for rehearing on June,. Because FERC must act on a rehearing request within 0 days or it is deemed denied, C.F.R.., on July,, FERC granted rehearing for the limited purpose of further consideration. See Melone Decl., Exh.. IV. SUMMARY JUDGMENT STANDARD FERC s regulations grant State commissions great latitude in determining the manner of implementation of the Commission's rules, provided that the manner chosen is reasonably designed to implement the requirements. See Exelon Wind L.L.C. v. Smitherman, F.d 0, (th Cir. ); IEP, F.d at. This Court must determine the legal issue of whether the CPUC s rules, on their face, conflict with federal law. See Exelon, F.d at 0,, -; IEP, F.d at -; Exelon Wind, L.L.C. v. Nelson, WL 0, at *, - (W.D. Tex. ). A State commission s implementation of PURPA is reviewed with deference. See Exelon, F.d at -; Power Resource Grp. v. P.U.C. of Tex., F.d, (th Cir. 0) (citing IEP, F.d at ). Such deference is appropriate because ratemaking is a legislative, not judicial, function, a task of striking a balance and reaching a judgment on factors beset with doubts and difficulties, uncertainty and speculation. See United States v. Morgan, U.S. 0, (). V. THE RE-MAT DECISIONS ARE NOT UNLAWFUL A. FERC s Interpretations Warrant Deference Although Winding Creek requested that the FERC make declaratory findings (see Winding Creek, FERC,, at P ), because the findings were adverse to Winding Case No. -0 JD

22 Case:-cv-0-JD Document0 Filed0// Page of Creek, Winding Creek now argues that the Declaratory Order is entitled to no deference. See OB, p.. Winding Creek is wrong. First, Winding Creek argues that the Declaratory Order is not FERC s final word because of Winding Creek s pending request for rehearing. See OB, p.. Under FERC s rules, rehearing may be sought only of final orders, and a request for rehearing does not stay the order. See C.F.R..(a), (e). Moreover, FERC did not grant rehearing on the merits, but merely issued a tolling order for the limited purpose of further consideration because FERC s rules require action on requests for rehearing within 0 days or the request is denied by operation of law. See id. at.(f); Kokajko v. FERC, F.d, (st Cir. ); Melone Decl., Exh.. Chevron deference is appropriate for FERC s reasonable interpretation of PURPA if the specific issue is not directly addressed or the statutory provision is ambiguous. See Fournier v. Sebelius, F.d, (th Cir. ) (ambiguous if fair arguments on both sides). Courts allow deference to an agency s reasonable policy choices in complex and technical areas unless contrary to the history and purpose of the statute. See Chevron, U.S.A., Inc. v. Natural Res. Defense Council, U.S.,, (). Winding Creek argues that the Declaratory Order does not command Chevron deference because it is an informal opinion letter that lacks the force of law. See OB, p.. Winding Creek s reliance on Christensen v. Harris Cnty., U.S., (00), is misplaced. In Christensen, the informal opinion at issue was specifically distinguished from one arrived at after, for example, a formal adjudication. See id. In contrast, the Declaratory Order is a formal FERC order issued pursuant to Section 0(h) of PURPA, after notice, and an opportunity to comment. See U.S.C. a-(h)()(a); C.F.R..,.0,.,. &.0; CPUC RJN Exh.. The FERC has the power to issue declaratory orders in response to a PURPA enforcement petition to remove uncertainty, and such orders represent both the FERC s exercise of its discretion, and a statement of the Commission s position on the matter in the event a judicial action is filed. See Hydrodynamics, Inc., FERC,, at P nn. Case No. -0 JD

23 Case:-cv-0-JD Document0 Filed0// Page of - (). Generally, the FERC s declaratory orders are entitled to precedential effect. See CPUC, FERC,0, at P n. 0. Accordingly, they are subject to Chevron deference. See Perfectly Fresh Farms, Inc. v. U.S. Dep t of Agric., F.d 0, (th Cir. ). Winding Creek s reliance on Exelon is also misplaced. Exelon relied on Christensen, but also Industrial Cogenerators v. FERC, F.d (D.C. Cir. ), in holding that an informal FERC letter was not entitled to Chevron deference. See Exelon, F.d at,. Again, in contrast, the Declaratory Order was not informal, but issued as a result of a formal adjudicatory process. Moreover, Industrial Cogenerators is inapposite because it addresses whether a FERC declaratory order in response to a Section 0(h) petition is directly reviewable in the United States Courts of Appeal, not whether such an order is entitled to deference an issue that court identified and expressly left open. See Indus. Cogenerators, F.d at -. FERC s interpretation of its own regulations is entitled to even greater deference under Auer v. Robbins, U.S., (). See Price v. Stevedoring Serv. of Amer., F.d, (th Cir. ); Bassiri v. Xerox Corp., F.d, 0- (th Cir. 0). Even informal agency opinions are entitled to Auer deference, and an agency s long-standing interpretation is entitled to special deference. See id. at,. Under Auer, if a regulation is ambiguous, deference is required to the administering agency s interpretation unless it is plainly erroneous or inconsistent with the regulation, and an alternative reading is compelled by the regulation's plain language or by other indications of the [agency's] intent at the time of the regulation's promulgation. See id. at (emphasis original; citations omitted); Pub. Lands for the People, Inc. v. U.S. Dep t of Agric., F.d, (th Cir. ). A regulation is ambiguous where, although a concept may seem obvious, the definition is not immediately clear. See id.; Bassiri, F.d at (ambiguous if not free from doubt ). Finally, even if Auer did not apply, as Winding Creek concedes, FERC s interpretation of its regulations may be accorded Skidmore deference based on the validity of its reasoning, Case No. -0 JD

24 Case:-cv-0-JD Document0 Filed0// Page of its consistency with prior orders, and its power to persuade. See OB, p., quoting Skidmore v. Swift & Co., U.S., 0 (). B. The Utility Purchase Obligation Is Not Restricted Winding Creek argues at pp. - that the 0 MW State-wide cap for the Re-MAT Program, and the MW bi-monthly auction cap, violate the utility obligation imposed by C.F.R..0(a) to purchase any energy and capacity made available by a QF. But the CPUC has not limited this purchase obligation. Winding Creek does not argue that PG&E has refused to purchase electricity from Winding Creek. Winding Creek admits that the Standard Contract is available to Winding Creek. See OB, p.. PURPA allowed the FERC to create rules as necessary requiring utilities to offer to purchase electricity from QFs. See U.S.C. a-(a)(). Accordingly, Congress allowed FERC to fill in the gaps. See King v. Burwell, S. Ct. 0, (). Nothing in PURPA or C.F.R..0(a) require that every state utility procurement program must have an unlimited purchase obligation from QFs. Winding Creek does not dispute FERC s interpretation in the Declaratory Order that a State commission may limit the amount of procurement for a particular state program (an alternative program ), as long as there is available a PURPA-compliant program with no capacity limitation. See OB, pp. -. Although at p. Winding Creek criticizes the term alternative program, this term is consistent with FERC s long-standing interpretation that states have numerous ways outside of PURPA to encourage renewable resources, and may order regulated utilities to purchase a certain amount of energy from QFs as long as the price is set at avoided cost. See Midwest Power, FERC,0, at pp.,-; Otter Creek Solar LLC, FERC,, at PP - (), reconsideration denied at FERC, () (rejecting challenge by Winding Creek s affiliate to Vermont feed-in tariff because other state PURPA program available). FERC precedent also specifically affirms that the CPUC can order utilities to purchase from renewable facilities, but may not set the price except for purchases from QFs in compliance with PURPA. See CPUC, FERC,0, at PP -. Case No. -0 JD

25 Case:-cv-0-JD Document0 Filed0// Page of The Declaratory Order expressly rejected Winding Creek s argument that the 0 MW capacity limit for the Re-MAT Program restricts the ability of Winding Creek to obtain a legally enforceable obligation at a rate calculated at the time the obligation is incurred as allowed by C.F.R..0(d)()(ii) because of the availability of the Standard Contract to Winding Creek. See Winding Creek, FERC,, at PP -. FERC s reasoning applies equally to Winding Creek s challenge to the bi-monthly cap of MW. The Declaratory Order is consonant not only with FERC precedent, but the wide latitude afforded states to implement PURPA, and the states traditional powers to direct utility procurement and encourage renewable resources independent of PURPA. See CPUC, FERC,0, at P ; FERC v. Mississippi, U.S. at ; New York v. FERC, U.S. at ; Sections II.A, B, supra. Finally, conflict preemption only occurs when there is an actual conflict between federal and state law, or where state law hinders accomplishment and execution of the federal law s purposes and objectives. See Whistler Inv., Inc. v. Depository Trust & Clearing Corp., F.d, (th Cir 0); IEP, F.d at. There is no conflict preemption because the Re-MAT Program is in addition to the Standard Contract, and furthers PURPA s objectives to encourage renewable generation by imposing an additional state requirement for renewable procurement. There is no conflict where state law works toward the same goal as federal law. See Oxygenated Fuels Ass n v. Davis, F.d, - (th Cir. 0). C. The Challenge to the Standard Contract Fails Given the adverse ruling in the Declaratory Order, although not alleged in the SAC, Winding Creek now argues that the Standard Contract does not excuse the Re-MAT s violation of PURPA because the Standard Contract does not allow Winding Creek to elect the option of a rate calculated at the time the obligation is incurred pursuant to C.F.R..0(d)()(ii). See OB, pp. -. Section.0(d)() allows a QF the option to sell energy and capacity pursuant to a legally enforceable obligation over a specified term with the rate based on avoided costs calculated either at the time of delivery or the time the obligation is incurred. See C.F.R..0(d)()(i)-(ii). These terms are not defined in Case No. -0 JD

26 Case:-cv-0-JD Document0 Filed0// Page of FERC s regulations. Winding Creek relies on the opinion of its expert witness, Dr. Jonathan Lesser, who concludes that the rate is calculated at the time of delivery because the SRAC formula applies variables whose values will only be known at the time the electricity is delivered. See OB, p., citing Lesser Decl.,,. Not only is Dr. Lesser s interpretation of C.F.R..0(d)() inadmissible, but this conclusion is erroneous as a matter of law. Expert testimony is admissible only to assist the trier of fact to understand the evidence or to determine a factual issue. See Maffei v. N. Ins. Co., F.d, (th Cir. ). Expert testimony is not admissible to interpret a regulation, which is a legal issue for the Court. See Aguilar v. Int l Longshoremen s Union, F.d, (th Cir. ); United States v. E. Mun. Water Dist., 0 WL, at * (C.D. Cal. 0). Dr. Lesser admits his opinion is based on his personal interpretation. See Lesser Decl., -, -; Lesser Dep., pp. :-: (McQuillan Decl., Exh. A). Unsupported conclusory opinions not based on admissible extrinsic evidence, such as industry custom or usage, are inadmissible. See Maffei, F.d at -; Kumho Tire Co. v. Carmichael, U.S., -, - () (expert testimony unreliable because it lacks any showing of general acceptance or peer review). Dr. Lesser s opinion also is unreliable because it contradicts his other testimony that the Re-MAT Program complies with.0(d)()(ii), even though the rate paid depends on the application of time of delivery factors to the contract price which vary depending on when the energy is actually delivered. See Lesser Dep., p. :-: (McQuillan Decl., Exh. A). Significantly, Dr. Lesser s opinion also is based on a fundamental misunderstanding of the legal concept of a formula rate. Dr. Lesser agrees that a rate is fixed if the components of the formula are defined with reasonable certainty at the time the contract is signed, and also that the SRAC energy formula of the Standard Contract is fixed at the time of the contract. See OB, p. ; Lesser Dep., pp. :-: (McQuillan Decl., Exh. A). However, contrary to Dr. Lesser s opinion, the formula agreed to by the parties is the rate, and periodic adjustments to the amount paid based on the formula do not constitute changes in the rate itself. See P.U.C. of Cal. v. FERC, F.d 0, (D.C. Cir. 0). Formula rates, which fluctuate based on the Case No. -0 JD

27 Case:-cv-0-JD Document0 Filed0// Page of cost components of the rate, have been accepted as valid since the 0 s. See id. Accordingly, the fact that the actual values to be applied under the SRAC formula (e.g., actual fuel cost) will not be known until delivery of the energy does not mean that the rate the formula was not fixed at the time the obligation was incurred. FERC regulations do not prohibit an avoided cost rate based on a formula rate. Indeed, although it has evolved over time, an SRAC formula has been used in California for over 0 years to set avoided cost rates in PURPA standard contracts. See D , pp. -; IEP, F.d at n.. The FERC recently affirmed that two other QF standard contracts with energy prices based on SRAC approved by the CPUC in D.--0 along with the Standard Contract are part of the CPUC s implementation of PURPA. See Energy Producers and Users Coalition, FERC,, at PP, (); SCE, FERC,, at PP -, - (); D.--0, pp. - (SRAC pricing for various PURPA contracts). The California Courts of Appeal also have upheld CPUC SRAC formulas as compliant with PURPA. See SCE v. Cal. P.U.C., Cal. App. th, - (0); SCE, Cal. App. th, -. Winding Creek s interpretation also is contrary to how FERC has interpreted.0(d)()(ii). A rate calculated at the time the obligation is incurred means the rate in effect at the time the contract was signed, which includes a contract pre-approved by a State commission, regardless of whether the actual avoided costs at the time of delivery are different. See Signal Shasta, FERC,, at *-. On this basis the FERC determined that one of California s initial PURPA standard contracts, the SO contract, which used an SRAC formula, complied with.0(d)(), noting that neither party retained the right to renegotiate the contract rate in the future. See id; see also JD Wind LLC, 0 FERC,, at P () (rate set at time obligation incurred is valid regardless if differs from actual avoided costs at time of delivery); Rulemaking Order, Fed. Reg. at, (.0(b)() and.0(d)()(ii) allow a QF to preserve the benefit of its commitment because contract rates are based, by necessity, on estimates of avoided cost which may deviate from the actual avoided cost at the time of delivery). Case No. -0 JD

28 Case:-cv-0-JD Document0 Filed0// Page of Finally, the statement in FERC s Rulemaking Order that an investor needs to be able to estimate the expected return on investment with reasonable certainty to evaluate the QF s financial feasibility does not support Winding Creek s interpretation. See OB, pp. -, citing Rulemaking Order Fed. Reg. at,. FERC s statement actually relates to a different regulation, C.F.R..0, which prescribes the requirements for the availability of utility cost system data for present and anticipated energy and capacity costs. See id. Regardless, Winding Creek does have this information. The Standard Contract capacity payments are stated as fixed numbers for each year, and PG&E s website posts current and historical SRAC energy payments. See Lesser Decl., Exh., pp., ; CPUC RJN, Exh.. Thus, there is no basis for Winding Creek s conclusion that the rate paid cannot be estimated with reasonable certainty and a QF will have no idea what rate it would receive until it actually delivers electricity. See OB, p. (emphasis added). D. The Re-MAT Pricing Is Lawful. Non-QF sources Winding Creek does not dispute that the initial Re-MAT offering price, which was based on the RAM competitive solicitation that included QF sources, arguably complies with PURPA. See OB, p.. Nonetheless, without legal authority, Winding Creek argues that the Re-MAT price adjustment mechanism cannot be based on QF response to the offering price and must be based on non-qf sources. See id. at -. PURPA does not address whether avoided costs must be based solely on non-qf sources. Section 0(b)() of PURPA provides that no rule prescribed by FERC shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy. See U.S.C. a-(b)(). In turn, Section 0(d), U.S.C. a-(d), defines incremental cost of alternative electric energy as the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source. The legislative history does not indicate that the incremental cost of alternative energy must be from a non-qf source. See H.R. Conf. Case No. -0 JD