On May 30, 2024, the Public Utilities Commission of California (CPUC) voted 3-1 to adopt an alternative Proposed Decision issued by Administrative Law Judges Kelly A. Hyme regarding a community renewable (CR) net value billing tariff (NVBT) proposal, among other programs. But, in a reversal from the original Proposed Decision (Original PD), the CPUC decided not to address the core legal issue presented – whether it would be lawful for the CPUC to require purchasing utilities to pay developers of CR resources for their power at a rate above PURPA avoided cost over those utilities’ objections. (The above-avoided cost rates would be passed on to ratepayers.) The decision to avoid the legal issue was not surprising after no less than three former FERC Commissioners/Chairs that support CR weighed in on the Original PD (Bay, Wellinghoff, Chatterjee). There was concern in the CR industry that the CPUC could issue a legal decision that undermined all CR programs, despite the fact there are no such programs have been opposed by the purchasing utilities.

Utilities are free to purchase power at whatever rate they choose, and at least circuit court believes that a rate set by a state commission can be “chosen” by the purchasing utility without running afould of the FPA (or PURPA). Indeed, this blog oft-cites Allco v. Klee, which effectively found that a purchasing utility would have to file a legal challenge against its state commission to demonstrate that a state-set purchase price was not a price the utility was actually willing to pay. Under this precedent, absent a legal challenge, a purchasing utility likely would be deemed by this court to be acting voluntarily. And, purchasing utilities face no prudence risk if paying a state-set price. Although the California investor-owned utilities took the position that the CPUC’s legal position in the Original PD would have no impact on other states because no purchasing utilities had challenged their CR programs on grounds they violated PURPA, the CPUC decided it was simply unnecessary to address the legal issue, ruling that “[b]ecause the [CPUC] concludes that the NBVT proposals are not compliant with state law, it is unnecessary to reach federal law compliance, and the [CPUC] declines to do so.”

Had the CPUC followed the course set forth the Original PD, the case almost inevitably would have ended up in the same legal posture – with a court or FERC declining to rule on the federal legal issue due to the state law-based finding of illegality. The state law finding of illegality rested on the relevant CR statute’s requirement (Cal. Pub. Util. Code Section 769.3(c)(3)) that any CR program had to minimize impacts to nonparticipating customers and prohibited the CR program’s costs from being paid by nonparticipating customers in excess of avoided costs. The CPUC found that adopting any form of NVBT “would result in ratepayers paying more than the avoided cost for these resources” and that “analysis of the NVBT proposal indicates that a cost shift would exist.”

In reaching this conclusion, the CPUC made three key factual findings, which were the bedrock of its position that the NVBT proposal violated state law. Specifically, the CPUC found that CR resources, under the NVBT proposal, were not shown to avoid: (future) transmission investment; (future) distribution investment; or (current) generation capacity costs. The NVBT supporters’ proposed rate was based on the assumption that these three costs, among many others, would be avoided if CR resources were used to serve load.

Whether these three cost categories are “fully avoided” or “partially avoided” or “not avoided at all” by DERs generally or CR resources in particular can be an incredibly complex question that is fact dependent. In this case, however, the CPUC readily found answers.

The primary NVBT proposal had no location requirement, such that as to future distribution and transmission costs, the CPUC found that the possible siting of CR facilities far away from subscribers made it unlikely that there would be future avoided costs for transmission and distribution. The NVBT proposal did not require CR resources to be sited in proximity to load, or even in the same CAISO “Local Reliability Area,” but only in the same service territory as the subscribing load. The primary CR advocate (Coalition for Community Solar Access (CCSA)) contended that a “close to load siting requirement” would make NVBT project financing unworkable. The CPUC’s finding leaves the door open to future close-to-load proposals that would require a much closer examination of the avoided cost issues. That said, the notion that CR resources connected to distribution systems avoid future distribution investment is somewhat counter-intuitive. DERs generally require investment in not only distribution facilities but distribution system management systems and personnel. The issue of the degree to which DERs avoid future transmission investment is one that likely will be debated and analyzed for some time to come and may be impacted by FERC Order No. 1920’s focus on increased reliance on and investment in regional and interregional transmission.

As to generating capacity, the CPUC found that without the ability of the “purchasing” utilities “to claim Resource Adequacy credits, proposed NVBT projects could not avoid generation capacity costs.” In short, the CPUC relied on the CAISO Tariff definition of capacity, which requires capacity (i.e., Resource Adequacy) resources to undergo a deliverability analysis. The CPUC found that the “lack of deliverability study, required in the Resource Adequacy process, could lead to the need for transmission upgrades that could result in higher costs for all ratepayers.”

In sum, the CPUC decision voted out on May 30, 2024 leaves the core legal issue unresolved, and it may remain unresolved for some time to come. The CR industry can avoid the legal issue the same way that it has for years, by crafting programs that are rewarding to developers, but not so rewarding that they have meaningful affordability impacts such that purchasing utilities choose not to oppose them. An interesting related issue is whether public advocates, consumer groups, attorney generals, etc. could oppose a CR program that pays above PURPA avoided cost, if the relevant purchasing utilities do not oppose the program or refuse to opine on whether the state is compelling purchases. The Maine Public Advocate has criticized Maine’s CR program, in a posted paper entitled “Understand Community Solar Subsidies,” and more recently had London Economics International LLC prepare a paper “Reducing the Cost of Solar Energy In Maine,” but has not legally challenged the CR program on PURPA grounds.