On December 23, 2008, the U.S. Court of Appeals for the District of Columbia Circuit (“DC Circuit”) upheld FERC’s interpretation of the term “markets” as it applies to qualifying facility (“QF”) purchase exemptions found in the Public Utility Regulatory Policies Act (“PURPA”). The Petitioners, the American Forest and Paper Association (“AFPA”), argued that the term means only competitive markets. FERC interpreted the word to encompass both competitive and non-competitive markets. The DC Circuit acknowledged an ambiguity, but accepted FERC’s interpretation as reasonable and denied AFPA’s petition for review.

The exemption at issue was added to PURPA only recently. Originally, PURPA mandated that utilities buy energy from certain QFs without exceptions. However, Congress created exemptions from the mandatory purchase requirement in EPAct 2005. In October 2006, FERC implemented these exemptions in Order No. 688. Order No. 688 stated that utilities would be exempt if the relevant QF had nondiscriminatory access to “independently administered, auction-based day ahead and real-time wholesale markets for the sale of electric energy; and wholesale markets for long-term sales of capacity and electric energy.” Several parties challenged the order, appealing to the DC Circuit.

In its decision, the DC Circuit applied the so-called Chevron test. The first step is to determine whether the statute is ambiguous. If the statute is ambiguous, the court proceeds to step two, which is to decide if the agency’s interpretation was reasonable. If the interpretation was reasonable, then the agency’s interpretation will stand.

Under the first step of the analysis, Circuit Judge Janice Rogers Brown concluded that the statute was ambiguous because it does not specify whether the market must be competitive. After concluding that the statute was ambiguous, Judge Brown cited multiple reasons why FERC’s interpretation was reasonable. First, the phrase “competitive markets” appears in two neighboring subsections. The Court inferred that if Congress had meant only competitive markets, it would have called them “competitive markets.” The omission of the word “competitive” implies that Congress meant to include other kinds of markets. Second, FERC’s interpretation of “market” is a common sense usage of the word. Third, the Chevron test does not require the agency to use the best interpretation–only a reasonable one.

A copy of the opinion can be found at http://pacer.cadc.uscourts.gov/docs/common/opinions/200812/07-1328-1155504.pdf