Federal Court Sustains Connecticut's Green Energy Programs

For the third time, a federal court has rebuffed a losing bidder's challenge to a Connecticut law promoting renewable power projects and utility purchases of the capacity therefrom. In the latest round of litigation, the U.S. Court of Appeals for the Second Circuit again rejected a complaint from a solar power developer that had protested the Connecticut Department of Energy and Environmental Protection's (DEEP's) award of long-term power purchase agreements (PPAs) to other participants in prior state-administered auctions of renewably sourced generation. The plaintiff, Allco Finance Limited, had alleged that it was more qualified than other bidders in both a 2013 solicitation and a 2015 auction, yet had lost out in both instances.

In prosecuting its claim, Allco contended that DEEP had improperly intruded upon the authority reserved to the Federal Energy Regulatory Commission (FERC) and also had violated the dormant Commerce Clause of the U.S. Constitution. More particularly, in objecting to the green energy policies established in Connecticut, which revolve around a target of 27% of all electric usage coming from New England-area renewable resources by 2020, Allco argued that the state's focus on locally or regionally sited clean energy facilities not only runs counter to the provisions of the Public Utility Regulatory Policies Act of 1978 (PURPA), but also disregards the Commerce Clause, which provides for federal control of exchanges between the states and prohibits a state from favoring in-state entities over competitors from out-ofstate.

In addition, Allco identified several other factors that it said would invalidate Connecticut's renewable energy mandates. For one, the plaintiff attested that DEEP's plan and auction protocols impeded the workings of FERC-created wholesale markets. For another, the petitioner charged that DEEP's solicitations did not comport with PURPA because the agency permitted bidding by entities that would not meet the "qualifying facility" standards set forth in PURPA.

In recounting the genesis of its complaints, Allco noted that in the 2013 solicitation, it had tendered separate bids for five individual solar power facilities, each with a capacity of less than 80 megawatts (MW), making them PURPA-eligible. According to the plaintiff, however, DEEP inexplicably granted PPAs to a small but higher-priced in-state solar facility as well as a large, 250-MW out-of-state wind project.

Allco maintained that its bids were superior to those of both of the winning bidders. Indeed, the appellant said, the size of the wind farm alone, which exceeded PURPA limits, should have excluded its consideration by DEEP. And the lower price submitted by Allco should have given it priority in DEEP's avoided-cost calculations as well, the litigant said. The plaintiff averred that its participation in DEEP's 2015 solicitation yielded a similar result. With respect to that auction, though, Allco asserted that Connecticut's renewable energy programs not only interfered with the FERC's jurisdiction and interstate commerce, but also failed to comply with the U.S. Supreme Court's 2016 ruling in Hughes v. Talen Energy Marketing.

In that order, the Court struck down a Maryland energy strategy aimed at incentivizing construction of new electric generation capacity within the state. Under the Maryland plan, independent merchant plants would be built, with jurisdictional electric utilities purchasing their output. However, the price paid by the utilities could be higher or lower than the prevailing market rates overseen by the PJM Interconnection. In the Court's opinion, that pricing construct meant that the Maryland approach would improperly "disregard" going market rates for wholesale power, which fall within the FERC's exclusive purview.

Relying on the Hughes holding, Allco stated that the situation in Connecticut was analogous to the one in Maryland, inasmuch as Connecticut's goals for renewable power included a clear preference for certain in-state or regional clean energy projects. But the appellate court declared the Hughes case inapt, explaining that unlike the Maryland plan, which encompassed a pricing scheme dependent on "contracts for differences" that could undercut the FERC's rate-setting authority in wholesale markets, the Connecticut plan was not linked to specific pricing parameters that could undermine FERC oversight.

The Second Circuit elaborated that the Supreme Court had narrowly tailored the Hughes decision, such that it would apply to other states in only very limited circumstances. The appeals court noted that the Maryland program could have resulted in FERC-approved PJM auction outcomes being "overridden" by the state. However, the appellate court said, that was not the case in Connecticut, where the renewables program would not disturb any pricing terms enacted by the Independent System Operator for New England.

In fact, the circuit court emphasized, the PPAs awarded by DEEP following its solicitations for renewables were basically tantamount to conventional bilateral contracts. As such, the court said, they were reviewable by the FERC and thus clearly did not intrude upon the FERC's authority.

The court concluded that Connecticut's vision for advancing renewable energy development had been designed in a manner that properly balanced state goals against federal interests. The court stated that Connecticut's energy policies included "means and ends [that] are well within the scope of what Congress and FERC have traditionally allowed the States to do in the realm of energy regulation." Allco Finance Limited v. Robert J. Klee, in his official capacity as Commissioner of the Connecticut Department of Energy and Environmental Protection, Docket Nos. 16-2946, 16-2949, June 28, 2017 (2nd Cir.)