Ninth Circuit Strikes Down California ReMAT in Winding Creek Solar Case

On July 29, 2019, the Ninth Circuit Court of Appeals affirmed the lower court’s decision in Winding Creek Solar LLC v. Peterman et al., ruling that California’s feed-in tariff for small qualifying facilities (QFs), the Renewable Market Adjusting Tariff (ReMAT), violates the federal Public Utility Regulatory Policies Act (PURPA) (Ninth Circuit Case No. 17-17531). ReMAT provides small QFs of three megawatts (MW) or less with a standard contract for energy offtake, on a first-come, first-served basis. Under ReMAT, rates available to any given generator fluctuate based on the price the developers ahead in the contract queue will accept. The California investor-owned utilities must offer ReMAT contracts up to a program cap of 750 MW, which is proportionately split among the utilities, and then further divided across different types of generation, including baseload and peak/non-peak resources.

The Ninth Circuit ruled that ReMAT violated two tenets of PURPA. Under PURPA, subject to certain exemptions, utilities are required to buy at the avoided cost rate all the power produced by a QF. First, contrary to PURPA’s requirement that a utility buy all of a QF’s output, the Ninth Circuit found that ReMAT limits the amount of energy that utilities are required to purchase from QFs by placing caps on procurement. Second, ReMAT sets a market-based rate for energy from participating QFs, rather than a price based on the utilities’ avoided cost as required under PURPA.

The Ninth Circuit also rejected the QF Standard Contract as an alternative for California’s PURPA compliance, finding that the Standard Contract also violated PURPA. Under PURPA, QFs have the option of choosing an avoided cost rate as calculated at the time of contracting or at the time of delivery. According to the Ninth Circuit, since the Standard Contract only has one formula for calculating avoided costs and that formula relies on variables that are unknown at the time of contracting, the Standard Contract does not provide QFs with the required option to calculate an avoided cost rate at the time of contracting.

The plaintiff solar developer in this case sued the California Public Utilities Commission (CPUC) with the ultimate goal of expanding the capacity available under ReMAT for solar projects, raising the price paid to solar projects under ReMAT, and, more immediately, obtaining a contract at a higher price for its solar project in the ReMAT queue. However, Winding Creek Solar LLC did not succeed specifically on any of these fronts with this win at the Ninth Circuit. The CPUC’s next steps after this decision are not clear. Will it revise the ReMAT program? Will it maintain the ReMAT program as-is and revise the Standard Contract, making ReMAT a PURPA-compliant alternative? Also, what will happen to projects currently in the ReMAT queue? Given that ReMAT stems from a legislative mandate to create a feed-in tariff specific to small renewables, we predict that ReMAT will likely be reinstituted in some form, provided ReMAT, the Standard Contract, or another mechanism provides a PURPA-compliant option for QFs.