About a decade ago, FERC opened the door to state commissions setting different avoided cost rates and adopting different standard contracts for different types of QFs. Although the ultimate legality of so-called “tiered avoided cost pricing” remains to be tested in court, a decision from the United States Court for the District of Idaho teaches an important lesson in how state commissions should and should not issue rulings categorizing QFs as fitting within a particular tier, if such tiers exist. In Franklin Energy Storage, the court decided that a state commission order finding that a particular type of QF was only eligible for the avoided cost rate and contract for solar and wind facilities was in error because the state commission actually was ruling on whether the facilities were or were not QFs. Despite the fact that all the parties to the case agreed that QF status was a matter exclusively within FERC’s jurisdiction, as supported by the IEP v. CPUC precedent, the court still read the Idaho commission’s action as a ruling on the merits of QF status.

The QFs at issue consisted of battery storage devices that would receive 100% of their energy input from a combination of renewable energy sources such as wind, solar, biogas, biomass. The purchasing utility obtained an order from the Idaho commission that that storage facility QFs such as the plaintiffs’ were subject to the same treatment and rates as wind and solar QFs rather than the treatment of “other QFs.” The plaintiffs challenged this order, which would have resulted in less favorable contracts. The court found that the Idaho Commissioners made their own determination of QF status, despite their concession that only FERC could make such determination. It appears that it was the specific wording of the Idaho commission’s order that caused this result.

Specifically, the court pointed to the fact that the state commission order stated that “to qualify as a PURPA resource, the primary energy source behind the battery storage must be considered. We must, then, look to [Plaintiffs’] … primary energy sources in order to determine their eligibility under PURPA.” What the state commission actually needed to do was say that the determine the QFs’ eligibility for a particular type of avoided cost rate/contract, it needed to determine the primary energy source. That said, even had the state commission made extraordinarily clear that the only reason it was looking at fuel source was to determine which tier the QF batteries should fall into, it is somewhat uncertain whether such clarity would have swayed this court. The court, on several occasions indicated that it believed that FERC has various QF “classifications” beyond the two broad categories set forth in PURPA and FERC’s PURPA regulations –small power production facilities and cogeneration facilities.

From the very outset of the decision, the court repeatedly finds that there is such thing as a storage facility QF, as if FERC made such a classification. The court noted that the plaintiffs have certified that their facilities are “specifically ‘energy storage Qualifying Facilities.’” The court found “by virtue of Plaintiffs’ FERC Forms 556, which self-certified their projects as QFs (and energy storage QFs, not solar QFs), Plaintiffs’ eligibility had already been decided under PURPA.” The court found that the state “Commissioners violated PURPA …. by then deciding, for all substantive purposes, that each is a solar QF rather than an energy storage QF.” Additionally, the court stated: “the Commissioners implemented a plan purporting to allow or require the IPUC to consider the primary source of energy for a battery storage system in order to classify it for contracting purposes under Idaho law. But when doing so ignores or looks behind a facility’s QF status with FERC – in this case, self-certification as an energy storage QF and not a solar QF – such an implementation plan violates PURPA.” Time and again, the court states that the Idaho commission could not examine whether a QF was a storage or solar QF. The court never reconciles these claims with the fact that FERC does not anywhere recognize those two categories of QFs – solar and storage.

The lesson is clear for commissions with tiered avoided costs. They should be very clear in any order, particularly, if setting an avoided cost for storage, that the purpose of looking at fuel source is to determine the appropriate avoided cost for that type of QF. That is, state commissions should speak in terms of Section 304(e) of FERC’s PURPA regulations. Indeed, the ultimate outcome of this case, that battery QFs should be classified as “other QFs” under Idaho’s classification system may well be more rational than the alternative. But, that does not mean that states should not have the right in the first instance to determine how to classify various types of QFs into any tiers that the state creates.