Federal Court Rejects QF Contract Claims

A solar power project developer has maintained its track record of being unable to prevail in court when prosecuting a complaint about eligibility for purchased power contracts at an avoided-cost rate pursuant to the Public Utility Regulatory Policies Act of 1978 (PURPA).

The developer, Allco Renewable Energy Ltd., had been unsuccessful in the past in persuading the U.S. Court of Appeals for the Second Circuit to order Connecticut to award a PURPA contract to the developer under a state-sponsored auction for the procurement of renewable energy. In the instant proceeding, before the U.S. Court of Appeals for the First Circuit, Allco sought a ruling overturning a federal district court decision that rejected the company’s efforts to compel an electric utility to purchase power at a negotiated rate rather than under a lower-priced standard offer tariff.

In initiating action in federal district court, the developer said it was merely trying to enforce its rights to sell the power to Massachusetts Electric Company d/b/a National Grid under the qualifying facility (QF) provisions contained in PURPA. But the district court had dismissed Allco’s claim against National Grid, finding that PURPA does not provide a private right of action against utility companies in federal court. The district court similarly denied arguments by Allco that officials from the Massachusetts Department of Public Utilities (DPU) had erred in implementing QF regulations as part of the role assigned to state regulators under PURPA. The dispute between Allco and National Grid followed the same path as many cases involving disagreements between QFs and utilities.

The beginning of the instant case can be traced to 2011, when Allco first offered to sell National Grid the entire generation output from its 11 solar facilities located in Massachusetts and also offered to negotiate a purchase agreement with the utility. In response, National Grid declined to negotiate a contract with Allco, but it did offer to purchase Allco’s energy under state-approved standard power purchase contract terms at a rate lower than the one suggested by Allco. Allco initially approached the DPU for an order directing National Grid to buy the QF’s power under a negotiated contract for a 25-year period at favorable avoided-cost rates. When the department refused that request, Allco proceeded to the Federal Energy Regulatory Commission (FERC), where it sought similar enforcement action. Like the DPU, however, FERC denied Allco’s request. Allco next filed suit against both National Grid and the DPU in the U.S. District Court for the District of Massachusetts. The developer’s primary claim was that the DPU regulations at issue were in conflict with FERC’s regulations implementing PURPA. That is, Allco asked the court to declare that National Grid had a “legally enforceable obligation” to buy the output.

After being rebuffed by the district court, Allco appealed to the appellate court. But, consistent with Allco’s prior complaints, the court of appeals rejected Allco’s contention that the state role in resolving PURPA disputes established a private cause of action in state and federal courts. The court held that PURPA merely creates an obligation on the part of utilities to enter into a purchase agreement at a rate specified under rules set by a state utility commission. In the Allco case specifically, the court pointed out that National Grid had never agreed to a particular cost rate, nor had any DPU rule or court decision set that rate. Addressing claims by Allco that such a view left the developer without adequate recourse for resolving such disputes, the court stated that once a state utility commission has finished promulgating rules implementing PURPA regulations, a project is free to solicit a utility to purchase the QF’s generation output.

The court related that under PURPA contracting procedures, if the parties fail to reach an agreement within 90 days and a QF believes that the utility has acted unreasonably, the QF may file a petition with the state commission. Should the project receive an adverse decision from state regulators or be otherwise dissatisfied, the QF could then challenge the result in state court, the appeals court said. The court told Allco that it had conflated some of those steps, somehow interpreting them as giving it a right of private action under PURPA. But, the court emphasized, PURPA simply cannot be construed as conferring upon a QF a right to sue a utility in federal court as an initial step. Allco Renewable Energy Ltd. v. Massachusetts Electric Co. et al., No. 17-1296, Nov. 13, 2017 (1st Cir.).