As noted in the most recent blog post, a challenge by Allco Finance Limited (Allco) to the Massachusetts Department of Public Utilities’ (DPU) and the Massachusetts Department of Energy Resources’ (DOER) (Massachusetts Agencies) implementation of Massachusetts’ seven-year old legislation – An Act to Promote Energy Diversity – has no obvious connection to PURPA, yet was submitted as a PURPA Petition for Enforcement (PFE) under PURPA Section 210(h)(2)(B). A Petition for Declaratory Order (PDO) arguably would have been a better, albeit costlier, choice. The few responses to the PFE shed a small amount of light on the relevancy of PURPA issue, but spread a brighter light on the need for state actors to retain FERC counsel before drafting and implementing laws concerning the sale for resale of electricity and transmission of electricity in interstate commerce.
In response to the PFE, the Maine Office of the Public Advocate (MOPA) ignored the issue of the relevance of PURPA and instead tackled the issue of whether the Massachusetts act and its implementing regulations (220 CMR 24.00) unlawfully compelled a wholesale purchase at a price determined by a state-mandated process. MOPA claimed that the rules governing the Massachusetts program did not include any provision allowing the Massachusetts Agencies to compel the regulated utilities to enter into contracts. It noted that a utility could decide “that all [power sale] proposals are unreasonable.” Although Rule 24.04(12) is accurately quoted as to allowing a rejection of all offers, that rule also indicates that the DOER will approve or reject any such decision within four months, and that DOER may order the utility to reconsider any decision to reject all proposals. MOPA also argued that “even if DOER had selected the winning bidder, it is clear that the utilities would have conducted any negotiations with that bidder,” albeit while admitting that the “final contract shall be subject to review by the” DOER. In short, MOPA tries to make a lack of compulsion case based on Allco v. Klee, but the merit of MOPA’s argument may require a hard look at the act and the regulations. That said, FERC is unlikely to take such a hard look and clarify the line between compelled and non-compelled purchases. More likely, it will issue an intent not to act or dismiss the PFE altogether.
An interesting protest to the PFE was filed by the transmission owner New England Clean Energy Connect (NECEC) whose transmission contracts with the Massachusetts utilities that will deliver the power to be procured were confused with power purchase agreements in Allco’s Petition. The Allco Petition erroneously implied that the NECEC “project” was a power production facility, when in fact it is a proposed transmission line that will deliver the purchased power from Canada. NECEC argued that the PFE was barred by the statute of limitations. This position raises very interesting issues had a PDO on the preemption issue been filed instead, or if Allco had standing to challenge the procurement act in federal court as being preempted by the Federal Power Act. A state law “exists” but is unenforceable when it is preempted. The First Circuit has declared preempted state laws “void ab initio.” Imagine a scenario where Massachusetts had enacted a law that absolutely compelled utilities to purchase Canadian power at $100/MWh, with other terms to be negotiated. At the least, FERC or the purchasing utilities, should have standing to claim such act (and any contract under it) was void, even after any statute of limitations had passed on preemption grounds. The fact that Allco, albeit presumably erroneously, challenged NECEC’s transmission contracts also raises another interesting, non-PURPA, question – can a state commission mandate a wholesale transmission purchase (or sale) at all? Unfortunately, these are questions likely to be left for another day.
NECEC did raise the most relevant argument – that the “substance of the Petition is unrelated to Massachusetts’ implementation of the Commission’s PURPA regulations.” NECEC appears to be correct that the Massachusetts act and its implementing regulations have nothing to do with PURPA, which is subject to an entirely separate set of regulations. Allco does appear “to rely on a premise that PURPA requires that all QFs have the opportunity to participate in any state-sponsored procurement of electric energy regardless of whether state rules are already in place that allow such QFs to sell their output in a manner that is consistent with PURPA.” Of course, a state-sponsored procurement act (outside of PURPA) still cannot lawfully mandate contracts be executed based on the outcome of the solicitation without violating the FPA.
Finally, the Massachusetts Agencies asked for an extension of time to determine whether to procure FERC counsel, a process that would result in a substantive response being filed outside the 60-day window that Congress mandates FERC either open an enforcement case or otherwise open the door to federal court for the petitioner by choosing not to act. (“If the Commission does not initiate an enforcement action … against a State regulatory authority or nonregulated electric utility within 60 days following the date on which a petition is filed under this subparagraph with respect to such authority, the petitioner may bring an action in the appropriate United States district court to require such State regulatory authority or nonregulated electric utility to comply with such requirements, and such court may issue such injunctive or other relief as may be appropriate.”) This extension request may well be irrelevant given the fact that case does not seem to fall within the scope of PURPA Section 210(h)(2)(B) in the first place. If FERC did not act, a court would likely find the claim outside the scope of PURPA Section 210(h)(2)(B). That said, guidance from FERC as to the relevance of PURPA might save all interested parties considerable resources, were Allco to heed such advice.
Perhaps the most important lesson from this proceeding is that state legislatures should procure FERC counsel before drafting any legislation that addresses topics within FERC’s exclusive jurisdiction and tailor such legislation based on existing case law. FERC has demonstrated that any attempts to “mess with” its wholesale power markets will be taken seriously (i.e., Hughes v. Talen). Although the Massachusetts law predated Allco v. Klee, any attempt by a state to “encourage” a wholesale power purchase at a state-set price or to require a PURPA purchase at an above avoided cost rate needs to be “voluntary.” Voluntariness may be in the eye of the beholder, but non-PURPA compliant state mandates can be problematic when they stray much beyond procurement targets for various technologies. Cases directly involving state-mandated wholesale transmission purchases or sales, or particular forms of transmission tariffs or contracts, appear scarce, to the extent they exist at all; but, once again, FERC counsel could be rather helpful to a legislature or state agency wading into such territory.