Tuning into a replay of the March 8, 2022 SEIA v. FERC oral argument on FERC’s PURPA reform rule – Order No. 872 – resulted in a somewhat unexpected lesson on the National Environmental Policy Act (NEPA), including NEPA standing, and remedies. About two-thirds of the argument focused on whether an Environmental Assessment (EA) was necessary or too speculative, whether the Public Interest Organizations (PIOs) had standing to raise NEPA issues, and whether the most appropriate remedy for a NEPA violation was vacatur of the Final Rule or remand (leaving the Final Rule in place).
Before delving into the NEPA issues, much of the other one-third of the oral argument was spent discussing the issue of the right of a state commission to eliminate a QF’s option of selecting a fixed energy rate with the rate set at time of the legally enforceable obligation. SEIA’s primary contention was that FERC reversed a long-standing policy by finding in Order No. 872 that a single PURPA contract that over its life exceeded actual avoided cost, rather than balancing out over time, was a violation of PURPA itself. SEIA may have scored a point in arguing that given such a policy was adopted, the Final Rule could not have left it to the states to determine whether or not energy costs could be fixed or variable, as that act in itself would have itself been arbitrary. That said, it is quite difficult to find in Order No. 872 any definitive holding or finding that an individual contract violates PURPA if it over-estimates avoided cost over its lifetime, let alone, that FERC adopted a remedy to address this possible result.
In Order No. 872-A, FERC stated that it would “allow states the flexibility to require variable avoided cost energy rates in QF contracts and LEOs and thereby reduce the risk to customers.” Clearly, FERC was acknowledging that there was still some risk to ratepayers of over ever-estimated avoided costs over the life of a PURPA contract, particularly if a state chose not to adopted variable energy rates. Nothing in Order No. 872 indicates that FERC was adopting a hard and fast policy that every PURPA contract must be reexamined at the end of its term and all costs above actual avoided costs should be returned to ratepayers. Such a change in policy would have required far more regulatory text and would have been extremely controversial (particularly if applied to existing, but unexpired contracts). The FERC policy that actually changed was the “belief” that over- and under-estimates of avoided energy costs are likely to even out time, but the notion that FERC adopted a policy that all new PURPA contracts must never exceed actual avoided cost is not supported by the Preamble or the regulatory text associated with Order No. 872.
Onto NEPA. The issue of most interest to the panel was whether FERC was capable of modeling the potential impacts of the Order No. 872 on the environment. Although it was largely conceded that Order No. 872 was “less encouraging” of QF development than the pre-Order No. 872 regulations, the issue was whether FERC could possibly determine the environmental impacts of “lesser encouragement.” Oddly, no one representing the FERC side even mentioned that QFs are not all renewable, it largely was just assumed that they were. (This assumption may well be appropriate, but it would have to be well-supported if one were to determine if an environmental analysis were required.) One could readily argue that QFs are no more or less likely to be zero-carbon facilities, than the generation alternatives that would be constructed in their stead. While it was mentioned that QF applications were robust in early 2022, the Order No. 872 finding that permitted tiered-avoided costs could be so profoundly important in states that seek to encourage small distributed renewables (e.g., particularly <5 MW QFs that all utilities still must purchase from), such finding could neutralize other provisions that are less encouraging to QFs.
There are innumerable assumptions that could be made about the environmental impacts of Order No. 872, which support the finding in Order No. 872 “that there is no way to determine whether issuance of the rule will significantly affect the quality of the human environment.” I.e., at either extreme one can assume QF development will cease and will be replaced with fossil generation or that it will cease and all be replaced with zero-carbon generation. The PIOs pointed to one single state (Idaho) as to what would happen as a result of Order No. 872 (i.e., QF development would die), but Idaho rather openly started discouraging QFs a decade before Order No. 872 took effect. And, a look at the Idaho Power interconnection queue applications submitted in 2021-2022 shows a miniscule amount of fossil generation as compared to zero-carbon alternatives. An analysis of the actual development of QFs and all other generators after the effective data of Order No. 872 would be interesting, but it may be too soon to draw any conclusions given the time generation development takes.
As the oral argument ended, a remand on NEPA grounds seemed to be a distinct possibility, with vacatur not completely out of the question. The panel’s suspicion over the lack of any NEPA evaluation largely seemed rooted in prior evaluations, such as the one performed when the PURPA regulations were adopted in Order No. 69. Given the current make-up of the Commission and its new policy regarding pipelines, how a remand would play out is unclear. No matter what the current Commission might find as to the need for an EA and possibly an EIS, another round of litigation likely would ensue, as attempting to predict the environmental impact of Order No. 872 in 2022 is a far, far different undertaking than predicting the impact of Order No. 69. QFs selling under PURPA were such a small percentage of renewable development in the last decade as compared to what could be predicted in the 1980s, the analysis is far more complex. For example, how such an analysis would even consider net-metered QFs, could skew the results markedly as the Final Rule has very little impact on this sector of the QF industry, where the states do the encouraging and discouraging.