PURPA presents interesting issues regarding how state commissions may deal with “transmission costs” caused by qualifying facilities (QFs), particularly when QFs are wheeling to a utility to which they are not interconnected. FERC previously has stated that a QF only has to deliver power to a point of interconnection with the purchasing utility in Pioneer Wind Park I. But in the same case, FERC also stated that “implicit in the Commission’s regulations, transmission or distribution costs directly related to installation and maintenance of the physical facilities necessary to permit interconnected operations may be accounted for in the determination of avoided costs if they have not been separately assessed as interconnection costs.” This statement, while located in a footnote, should not be overlooked. Several years ago, the Montana Public Service Commission affirmed its importance in Decision 7560a, ruling that transmission service upgrade costs associated with the a QF project may be accounted for in the determination of avoided costs, but then found the utility at issue had to provided adequate evidence of transmission costs.

QFs seeking to ensure that any costs associated with moving their power further than the point of interconnection of their choosing were not borne by such QFs placed before FERC in a Petition for Declaratory Order (PDO) about a year ago by the Blue Marmot QFs. The Blue Marmot QFs sought rulings that transmission congestion on a purchasing utility’s system does not relieve such entity of its purchase obligation and that interconnection costs only included costs relating to the interconnection of the QF to the utility with which it is interconnected. The Blue Marmot QFs “avoided” asking FERC about the avoided cost issue. Based on Pioneer Wind Park I, one might expect FERC to find that the congestion does not relieve the utility of its purchase obligation at the point of interconnection but that the cost of relieving the congestion, e.g., the cost of designating the purchase contract as a network resource, could be used to reduce the avoided cost otherwise owed by the utility (Portland General Electric (PGE)). It is now unclear, however, as to whether FERC will opine. Another state commission has now confirmed that the “avoided cost footnote” is the correct basis for seeking cost relief from QFs siting in congested locations. But, once again, facts matter and issues related to transmission costs caused by QFs should be raised early by purchasing utilities.

While awaiting FERC’s opinion on the PDO, the parties litigated largely the same issues at the Public Utility Commission of Oregon (Oregon PUC). The Oregon PUC decided that, generally, a QF cannot unilaterally choose its point of delivery (the facts of the case, however, resulted in most of the QFs being able to select a point of delivery). The decision on the delivery point issue was based on Oregon law; FERC could well have a different opinion. The Oregon PUC distinguished several FERC cases in reaching its conclusion. The state commission also addressed the issue of whether transmission costs or lost opportunity costs could be assigned to QFs, i.e., to reduce the avoided cost rate. The Oregon PUC would not allow PGE to alter the already-established avoided cost rates, but indicated that in the future, utilities should negotiate avoided cost rates or seek modifications to rates if congestion was an issue. The Oregon PUC found that if a QF wants to deliver power to a point where transmission is scarce that the avoided cost can be adjusted to reflect transmission costs that would be incurred. This ruling is in accord with Pioneer Wind Park I.