SEIA V. FERC, No. 20-72788 (9th Cir. 2023)
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This case involves rules adopted by the Federal Energy Regulatory Commission to implement the Public Utility Regulatory Policies Act of 1978 (PURPA). Congress enacted PURPA to encourage the development of a new class of independent, non-utility-owned energy producers known as “Qualifying Facilities,” or “QFs.” PURPA tasks FERC with promulgating rules to implement the statute. In 2020, FERC revised its rules to alter which facilities qualify for PURPA’s benefits and how those facilities are compensated. The new rules make it more difficult to qualify for treatment as a QF, and they also make QF status less advantageous.
The Ninth Circuit granted in part and denied in part a petition for review brought by the Solar Energy Industries Association and several environmental organizations challenging Orders 872 and 872-A (collectively, “Order 872”). The panel rejected Petitioners’ argument that Order 872 as a whole is inconsistent with PURPA’s directive that FERC “encourage” the development of QFs. Applying the two-step framework of Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984), the panel held that (1) PURPA on its face gives FERC broad discretion to evaluate which rules are necessary to encourage QFs and which are not, and (2) FERC’s interpretation was not unreasonable. Next, the panel rejected Petitioners’ challenges to four specific provisions of Order 872. First, the panel held that the modified Site Rule—which modified the rules for determining when facilities are deemed to be located at the same or separate sites—survives Chevron, is not arbitrary and capricious under the Administrative Procedure Act (APA), and is not unlawfully retroactive.
Court Description: Federal Energy Regulatory Commission /. Environmental Law The panel granted in part and denied in part a petition for review brought by the Solar Energy Industries Association and several environmental organizations challenging Orders 872 and 872-A (collectively, “Order 872”), rules adopted by the Federal Energy Regulatory Commission (FERC) that alter which facilities qualify for benefits under the Public Utility Regulatory Policy Act (PURPA) and how those facilities are compensated.
Congress enacted PURPA to encourage the development of a new class of independent, non-utility-owned energy producers known as “Qualifying Facilities,” or “QFs.” Order 872 makes it more difficult for a facility to qualify for treatment as a QF, and makes QF status less advantageous.
The panel rejected petitioners’ argument that Order 872 as a whole is inconsistent with PURPA’s directive that FERC “encourage” the development of QFs. Applying the two-step framework of Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984), the panel held that (1) PURPA on its face gives FERC broad discretion to evaluate which rules are necessary to encourage QFs and which are not, and (2) FERC’s interpretation was not unreasonable. Next, the panel rejected petitioners’ challenges to four specific provisions of Order 872. First, the panel held that the modified Site Rule—which modified the rules for determining when facilities are deemed to be located at the same or separate sites—survives Chevron, is not arbitrary and capricious under the Administrative Procedure Act (APA), and is not unlawfully retroactive. Second, the panel held that the modified Fixed-Rate Rule—which modified the rates paid to QFs—survives Chevron and is not arbitrary or capricious under the APA. Third, the panel held that the provision allowing States to adopt a rebuttable presumption that, for utilities located within certain organized energy markets, the locational market price represents the purchasing utility’s avoided costs, is not arbitrary or capricious under the APA. Fourth, the panel held that the provision reducing the threshold that terminates an electric utility’s obligation to purchase from a QF if the QF has nondiscriminatory access to certain organized markets is not arbitrary or capricious under the APA.
Finally, the panel addressed the environmental organizations’ claim that FERC violated the National Environmental Policy Act (NEPA) by failing to prepare an environmental assessment (EA) before issuing Order 872. The panel held that the environmental organizations had Article III standing because they adequately documented the concrete harms that Order 872 could cause their members, and had prudential standing because they demonstrated that the harms they fear fall within NEPA’s zone of interests.
On the merits, the panel held that FERC violated NEPA by failing to prepare, at minimum, an EA. First, the panel held that the more substantive elements of Order 872 fall outside NEPA’s categorical exclusion for rules that do not substantially change the effect of the rules being amended. Second, the panel rejected FERC’s argument that it was not required to prepare an EA because any potential environmental impacts from Order 872 are not reasonably foreseeable. The panel stated that it was not aware of any case approving an agency’s decision not to engage in any environmental analysis for rulemaking of the magnitude of Order 872, and held that the lack of reasonably foreseeable environmental impacts cannot relieve an agency of its obligation to prepare an EA.
The panel determined that the appropriate remedy for FERC’s NEPA violation was to remand to the agency without vacatur. Although FERC’s failure to prepare an EA is a serious violation, Order 872 does not suffer from fundamental flaws making it unlikely that FERC could adopt the same rule on remand, and the disruptive consequences of vacatur would be significant.
Concurring, Judge Miller, joined by Judge Nguyen, joined the court’s opinion in full and wrote separately to respond to Judge Bumatay’s discussion of Chevron in his concurrence and dissent.
Concurring in part and dissenting in part, Judge Bumatay concurred with denying the petition challenging the enactment of FERC’s revised rules, but would rely on the text of PURPA instead of on Chevron deference. With respect to the NEPA claim, he would hold that the environmental organizations lack standing because they have not alleged that they will suffer an environmental harm sufficient to confer NEPA standing.
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