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Spower Development Company, LLC v. Colorado Public Utilities Commission

United States District Court, D. Colorado

June 6, 2017

COLORADO PUBLIC UTILITIES COMMISSION, a regulatory agency of the State of Colorado; JEFFREY P. ACKERMANN, in his official capacity as Commissioner and Chairman of the Colorado Public Utilities Commission; FRANCES A. KONCILJA, in her official capacity as Commissioner of the Colorado Public Utilities Commission; and WENDY M. MOSER, in her official capacity as Commissioner of the Colorado Public Utilities Commission, Defendants.



         This matter comes before the court on three pending motions:

(1) Prospective Intervenor Public Service Company of Colorado's (“Public Service”) Motion to Intervene [#15, filed Apr. 6, 2017];
(2) Defendants Colorado Public Utilities Commission, Jeffery P. Ackermann, Frances A. Koncilja, and Wendy M. Moser's (collectively, “Defendants”) Motion to Dismiss Under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) (the “Motion to Dismiss”) [#16, filed Apr. 7, 2017]; and
(3) Prospective Intervenor Black Hills/Colorado Electric Utility Company, LP's (“Black Hills”) Motion to Intervene [#20, filed Apr. 21, 2017].

         The undersigned Magistrate Judge considers the pending motions pursuant to 28 U.S.C. § 636(b), the Order Referring Case dated May 1, 2017 [#32], and the memorandum dated May 1, 2017 [#33]. This court concludes that oral argument would not materially assist in the resolution of this matter. Accordingly, upon careful review of the pending motions and associated briefing, the applicable law, and entire case file, this court respectfully RECOMMENDS that the Motion to Dismiss be GRANTED and the Motions to Intervene be DENIED AS MOOT with leave to re-file, if necessary, after the disposition of this Recommendation.[1]


         Plaintiff sPower Development Company, LLC (“Plaintiff” or “sPower”) initiated this action by filing its Complaint for declaratory and injunctive relief on March 16, 2017. [#1]. Plaintiff, a Delaware limited liability company, develops and builds electric generation facilities powered by renewable energy resources. [Id. at ¶ 5]. sPower requests that the court “overturn a state regulation adopted by Defendants that violates [the Public Utility Regulatory Policies Act of 1978 (“PURPA” or “Act”)] and unlawfully restricts the process by which certain independent companies can supply electric energy and/or capacity to electric utilities.” [Id. at ¶ 1]. Accordingly, sPower brings this action pursuant to section 210(h)(2)(B) of the Act against the Colorado Public Utilities Commission (“COPUC”), including its Commissioners Mr. Ackermann and Mses. Koncilja and Moser, a “State regulatory authority” as defined under the Act. [Id. at ¶¶ 7-9].

         Currently, sPower is developing eleven electric generation facilities in Colorado- facilities the Federal Energy Regulatory Commission (“FERC”) certified as Qualifying Facilities (“QFs”) under the PURPA. [Id. at ¶¶ 5-6, 17-18]; see also 16 U.S.C. § 824a-3; 18 C.F.R. § 292.101(b)(1). Under the Act and the FERC's implementing regulations, electric utilities are required to purchase a QF's offered energy and/or capacity at the utility's “avoided costs, ” i.e., “the incremental costs to the utility” of capacity and/or energy that the utility would have produced or purchased elsewhere had it not purchased the energy/capacity from the QF. [Id. at ¶¶ 2, 19-21]. This is commonly referred to as the PURPA's “must-buy” provision. See [id. at ¶¶ 2, 19]; see also 16 U.S.C. § 824a-3(a); 18 C.F.R. § 292.303(a). QFs and utilities have the ability to enter into contracts or legally enforceable obligations under the “must-buy” provision. [Id. at ¶ 2].

         Plaintiff avers that, although state regulatory authorities have some latitude in setting avoided costs, they must still comply with the Act's “must-buy” provision and the FERC's implementing regulations. [#1 at ¶¶ 2, 23-29]. Here, sPower challenges Defendants' Rule 3902(c) of the Rules Regulating Electric Utilities that applies to QFs with a design capacity of greater than 100 kilowatts (“kW”). [Id. at ¶¶ 3, 33-34]; see also 4 Colo. Code Regs. § 723-3:3902(c). Rule 3902(c) states, in relevant part, that utilities “shall use a bid or an auction or a combination procedure to establish its avoided costs for facilities . . . [t]he utility is obligated to purchase capacity or energy from a [QF] only if the [QF] is awarded a contract under the bid or auction or combination process.” 4 Colo. Code Regs. § 723-3:3902(c) (emphasis added). The “bid or auction or combination process” referred to in the rule is the electric resource planning (“ERP”) process that applies to every utility regulated by the COPUC, and the ERP process occurs every four years. [#1 at ¶¶ 35-36]. The purpose of the quadrennial ERP is for utilities “to acquire new utility resources” for its customers. [Id. at ¶ 37]; 4 Colo. Code Regs. § 723-3:3611(a). However, the COPUC “regularly approves contracts for the acquisition of resources outside of the ERP process.” [#1 at ¶ 39].

         sPower alleges that Rule 3902(c) “places an unlawful restriction on a QF's ability to enter a contract with a utility at an avoided cost rate, thereby violating PURPA's must-buy requirement[.]” [#1 at ¶ 38]. Specifically, the FERC's regulations provide QFs with two mechanisms for selling their electrical output to a utility: (1) on an “as available” basis with avoided costs calculated at the time of delivery; or (2) through a contract or legally enforceable obligation with avoided costs calculated at the time of delivery or at the time the obligation is incurred. See [id. at ¶¶ 24, 40]; 18 C.F.R. § 292.304(d). However, sPower asserts that Rule 3902(c) prevents a QF, such as sPower, from exercising these rights by requiring it to win “an infrequently-held [request for proposals (“RFP”)]” before selling its output. [#1 at ¶ 41]. Plaintiff contends that Defendants have thus prevented it from procuring contracts or legally enforceable obligations from Colorado utilities to buy its electrical output from its eleven QFs in Colorado-a violation of both the PURPA and the FERC's implementing regulations. [Id. at ¶¶ 42-43, 60]. Further, sPower asserts that the FERC, on two prior occasions, has held that similar rules violate the PURPA and its own regulations. [Id. at ¶¶ 4, 44].

         On December 30, 2016, sPower filed its Petition for Enforcement pursuant to section 210(h) of the Act with the FERC. [Id. at ¶ 45]; 16 U.S.C. § 824a-3(h). Plaintiff requested that the FERC invalidate the ERP requirement of Rule 3902(c); the FERC then had sixty (60) days to initiate enforcement proceedings. [Id. at ¶¶ 46-47]; 16 U.S.C. § 823a-4(h). However, because the FERC did not possess the necessary quorum to initiate such proceedings, it did not act on sPower's petition within the requisite 60 days; thus, Plaintiff filed the instant action in this court pursuant to section 210(h)(2)(B) of the Act. [#1 at ¶¶ 48-53]; 16 U.S.C. § 824a-3(h)(2)(B).

         On April 6, 2017, prospective Intervenor Public Service filed its Motion to Intervene. [#15]. The following day, Defendants filed their Motion to Dismiss, seeking dismissal of Plaintiff's Complaint in its entirety. [#16]. Then, on April 21, 2017, prospective Intervenor Black Hills filed its Motion to Intervene.[2] [#20]. A Scheduling Conference is currently set for June 22, 2017, before the undersigned Magistrate Judge. [#40]. The pending motions are now ripe for Recommendation.


         Defendants move to dismiss sPower's Complaint for three reasons. First, Defendants argue that this court lacks subject matter jurisdiction over Plaintiff's claim, because Plaintiff lacks standing to challenge Rule 3902(c). [#16 at 6-9]. Second, Defendants argue that, to the extent sPower levies an “as applied” challenge to the rule, such a claim must be filed in state court pursuant to section 210(g) of the PURPA. [Id. at 9-10]. Lastly, despite these jurisdictional shortcomings, Defendants argue that Plaintiff fails to state a claim for relief under Rule 12(b)(6). [Id. at 10-13]. Because this court concludes that sPower lacks standing, it does not reach their alternative arguments. See Cunningham v. BHP Petroleum Great Britain PLC, 427 F.3d 1238, 1245 (10th Cir. 2005) (holding that once a federal court determines that it is without subject matter jurisdiction, it must not proceed to consider any other issue).

         Federal courts are courts of limited jurisdiction and, as such, “are duty bound to examine facts and law in every lawsuit before them to ensure that they possess subject matter jurisdiction.” The Wilderness Soc. v. Kane Cty., Utah, 632 F.3d 1162, 1179 n.3 (10th Cir. 2011) (Gorsuch, J., concurring). Under Article III of the United States Constitution, federal courts only have jurisdiction to hear certain “cases” and “controversies.” Susan B. Anthony List v. Driehaus, 134 S.Ct. 2334, 2341 (2014). To satisfy Article III's case or controversy requirement, Plaintiff must establish: (1) an injury in fact; (2) a sufficient causal connection between the injury and the conduct ...

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