Readers of this blog may know that Allco can be a thorn in the side of utilities with PURPA purchasing obligations. Allco is often successful in ensuring the rights of QFs under PURPA in district and appellate court cases. Sometimes, however, its positions inadvertantly benefit purchasing utilities, as its challenges have led to rulings that states cannot mandate the price of wholesale power unless acting under PURPA in the (non-ERCOT) continental United States. Indeed, in challenging a Connecticut statute that facially appeared to require utilities to pay a state-set price for wholesale power, Allco lost its case (Allco v. Klee), but its failure only was due to the fact that the court interpreted the Connecticut statute as not mandating the utilities to purchase power at the state-set price. The Second Circuit found that that while the state could “direct utilities to “enter into” contracts with specific bidders, that there was not sufficient evidence that “utilities will be ‘compelled … to accept specific bids.” This ruling would certainly provide grounds for a utility to reject a purchase contract with the price set by the state outside of PURPA’s avoided cost regime.

A recent dismissal of one of Allco’s challenges, although correctly decided by a Vermont district court on purely procedural grounds, should be of considerable interest to Vermont ratepayers, ISO-New England, and FERC in light of the position on the limits on FERC jurisdiction espoused by the Vermont Public Utility Commission (Vermont PUC). Indeed, it would be of immense interest to the industry in the unlikely event that the merits of the Vermont PUC’s stance against FERC jurisdiction, had been the grounds for the dismissal of the case. But, that position – that Vermont’s “Standard Offer Program” is “clearly” outside the jurisdiction of FERC because wholesale sales under the program are made in intrastate commerce – was not addressed on the merits.

The Vermont PUC claimed “[t]he solar facilities that participate in the Standard Offer Program are the original source of all power that they sell to Vermont utilities. There is no upstream commingling with any other source or type of electricity. Combined with the fact that the power, by statute, is sold directly to VEPP, Inc. and only enters the utilities’ subtransmission or distribution system, the sales at issue are wholly intrastate.” The Vermont PUC relied on in part on Otter Creek Solar in defending the legitimacy of the Standard Offer Program, but that case merely holds that an electric utility can agree to rates for PURPA purchases that differ from avoided cost. That case does not hold a state can compel a purchase at above an avoided-cost rate because the sale is in intrastate commerce. The position that a wholesale sale can be in intrastate commerce puts Vermont and FERC at odds.

Whether a future jurisdictional showdown between Vermont and FERC will occur is unknowable; it does not appear any purchasing utility in Vermont is willing to take on its regulator and place the issue before FERC. And, despite FERC’s willingness to steadfastly hold the line on its jurisdiction over all wholesale sales (where it is willing to concede a wholesale sale occurs), it has yet to sua sponte challenge states that encroach on its jurisdiction by adopting programs that mandate purchases at an above avoided-cost rate or outside of PURPA. That broad scope of FERC jurisdiction means that a state may only act under PURPA, a federal law subject to FERC oversight, to set mandatory rates for wholesale purchases.

What is so remarkable about the Vermont PUC’s position that sales by distributed QFs are in intrastate commerce is that the position flouts a direct ruling by FERC on the same subject. The issue was squarely addressed in the CPUC FERC proceeding, where a municipal utility tried to squash FERC’s jurisdictional reach in a case involving cogeneration facilities. FERC denied SMUD’s request that the Commission clarify that distribution-level facilities and distribution-level feed-in tariffs do not implicate Commission jurisdiction, holding that the “Commission’s FPA authority to regulate sales for resale of electric energy and transmission in interstate commerce by public utilities is not dependent on the location of generation or transmission facilities, but rather on the definition of, as particularly relevant here, wholesale sales contained in the FPA.” The CPUC was able to defend its program by clarifying that it was a PURPA program and rates were set at avoided cost.

Indeed, Vermont’s neighbor learned less than two years ago that compelling purchases outside of the PURPA avoided cost rate context was improper. Ratepayers were able to defeat a New Hampshire-mandated purchase program because the law did not limit the rate to a rate equal to or less than the avoided cost rate. Although the issue of whether such New Hampshire generators were connected to distribution did not arise, Vermont, like New Hampshire, is an ISO-New England state. Under the ISO-New England Tariff, all end-use customers are assumed to use the “Regional” portion of ISO-NE transmission system and thus Regional Network Load is defined to “include[s] all load designated by the Network Customer (including losses) and shall not be credited or reduced for any behind-the-meter generation.” Whatever Standard Offer Program energy is produced on the distribution system, the consumers of such energy are presumed to use the transmission system to consume it, even if located next door to a program participant. The Vermont PUC claimed Standard Offer Program energy is not commingled with out-of-state energy upstream of the sale, but provided no evidence to support the claim. The FERC-approved ISO-New England Tariff presumes such commingling. Indeed, the greatest threat to the ISO/RTO business model is the notion that load can be served through intrastate wholesale sales, using only distribution facilities.

No one is denying that Vermont has the right to demand its state-regulated utilities buy power from small, solar distributed resources. But, the Vermont PUC’s claim that it has the right to set the price for such purchases on the grounds that the sales are in intrastate commerce should not be allowed to stand, if substantively litigated. Erasing the bright line between state and federal jurisdiction over wholesale sales (which bright line is impacted, but not actually disturbed by federal law (i.e., PURPA)) would lead to jurisdictional chaos.