The Allco court’s prohibition on the use of formula rates to satisfy 18 C.F.R. § 292.304(d)(2)(ii), discussed in Part 1 of this series, has not yet had a widespread impact. As long as a state commission permits the utilities that it regulates to negotiate fixed-price (non-formulaic) contracts, the Allco decision should not have a meaningful impact, absent a utility absolutely refusing to entertain any non-formula rate. Only where a state policy, rule, or regulation prohibits a non-formula rate (or a utility refuses to negotiate a fixed rate), is litigation at FERC and the courts likely to ensue. Our expectation is that some additional litigation, attacking the use of formula rates in QF contracts, will continue to occur absent a change in the FERC regulation.
In response to the Massachusetts District Court finding that its PURPA rules were unlawful in the Allco case, the Massachusetts Department of Public Utilities (DPU) opened a new rulemaking docket in March 2017 (DPU 17-54). The DPU solicited comments on proposals for complying with the court’s order in Allco. Comments were received, but no action has yet been taken by the DPU in the docket. Thus, even in Massachusetts, the ultimate impact of Allco is uncertain.
The Iowa Utilities Board (IUB), in an August 18, 2017 order, discussed Allco, but determined that “FERC regulations do not require, and the Board will not independently mandate, that utilities attempt to establish standard rates for purchase of energy and capacity under a [legally enforceable obligation (LEO)],” thus avoiding the issue altogether.
In November 2017, the New Hampshire Public Utilities Commission (NH PUC) denied a request for rulemaking from a QF that complained that the utility practice of paying QFs only for energy based on the real-time ISO-New England locational marginal price ran afoul of FERC’s PURPA regulations and Allco. The NH PUC indicated that it has never adopted rules implementing utility obligations under PURPA, instead relying on rate orders and tariff filings. The NH PUC was not aware of any QF seeking a long-term legally enforceable obligation, but left open the possibility of examining the issue at another time.
In contrast, in January 2018, the Connecticut Public Utilities Regulatory Authority (PURA) reversed an earlier decision and found that it had incorrectly determined that PURPA’s requirements were satisfied by real-time avoided cost offerings only, and that forecasted avoided cost rates are not necessary. The PURA further concluded that its PURPA-related regulations should be amended to incorporate a forecasted avoided cost rate methodology. Any such rulemaking proceeding should be closely observed. FERC had noted in a related Enforcement Petition case that a forecast avoided cost rate was required but did not indicate whether a formula rate could be deemed a forecast avoided cost rate.
In short, as long as a state commission allows utilities to freely negotiate PURPA rates, Allco’s impact may remain limited unless and until a particular QF demands a fixed rate contract, as happened in Connecticut.