Without having seen the new PURPA NOPR, two reforms discussed at the September 19 Open Meeting appear to be the most significant. First, is the ability of states to permit a floating (i.e., formula) energy rates in contracts, such as tying the energy price to market rates. If adopted, this change would reverse the various
In 2017, a California federal district held in Winding Creek v. CPUC that the California Public Utilities Commission (CPUC) had two PURPA problems: 1) its capped PURPA program entitled “Re-MAT” did not adopt an avoided-cost price because of its adjustment mechanism scheme; and 2) the CPUC’s standard PURPA contract (Standard Contract) failed to properly implement PURPA because the contract had only one, not two, pricing options. As a result, the court found that the cap on the Re-MAT program was improper. The district court found that the Standard Contract would need to provide a fixed price at the time of contracting and at delivery to satisfy FERC’s PURPA regulations. The district court also held that it was not its job to fix the Re-MAT pricing problem by setting an avoided cost price or requiring the purchasing utility to provide a contract at the “unadjusted” price demanded by the QF. Both sides appealed.
Yesterday, the Ninth Circuit ruled that the district court was correct as to all its findings. Perhaps of most importance, the Ninth Circuit concluded that a formula rate could not satisfy the requirement of 18 C.F.R. § 292.304(d)(2)(ii) of a price set at the time of contracting (i.e., when a legally enforceable obligation (LEO) is formed). It stated, that the “Standard Contract provides only one formula for calculating avoided cost, and that formula relies on variables that are unknown at the time of contracting.” Indeed, it found this “infirmity is plain from the face of the regulations, so we do not defer to FERC’s unreasoned conclusion to the contrary.”…
“We hold only that where a utility uses energy from a QF to meet a state RPS, the avoided cost must be based on the sources that the utility could rely upon to meet the RPS.” Californians for Renewable Energy v. CPUC (CARE)
Wow! This ruling is now binding within the Ninth Circuit and could have ripple effects throughout the country.
In 2010, in CPUC v. SCE, FERC reversed several decades of PURPA policy and precedent on avoided costs, permitting States with Renewable Portfolio Standards (RPS) to base avoided cost rate calculations on the costs of other renewable resources regardless of whether alternative non-renewable sources were available at lower cost. This is referred to as “multi-tiered” avoided cost rates. The Ninth Circuit has now taken FERC’s re-interpretation of the rules for determining avoided cost rates a giant step further. Where FERC held that States have discretion to adopt multi-tiered avoided cost rates, the court in CARE turned it into a mandate.
The concept of multi-tiered avoided cost rates has always been legally questionable (and, indeed, has never been subjected to challenge before a court). It is legally suspect because it permits the States to set avoided costs that could impose higher costs on customers than they would have incurred absent the PURPA mandate. This runs contrary to the central principle behind avoided cost pricing according to FERC, which is to prevent the PURPA mandate from increasing a utility’s costs to serve its customers – that “utilities (and their ratepayers) be in the same financial position as if they had not purchased QF power.” As the Supreme Court explained, FERC’s adoption of full avoided cost requires utilities to pay “the same costs had they generated the energy themselves or purchased it from other sources” and, therefore, holds the utility and its customers harmless. PURPA, thus, compels utilities to buy from certain renewable generators, but caps the price based on the alternatives the utility would have built or bought absent the purchase mandate. In CARE, however, the Ninth Circuit arguably turned this principle on its head – with regard to any QF purchase made to meet an RPS. The decision forbids States from considering the costs of the generation resources the utility would have built or bought in the absence of PURPA. …
Stampedes are dangerous. QF stampedes toward stale above-market standard avoided costs rates are dangerous to ratepayers. The first stampede occurred in the 1980s in California. California’s utilities were compelled to offer standard rates to QFs based on gas and oil prices at the time and then very shortly thereafter the bottom fell out of the oil and gas markets. California ratepayers paid for that stampede for decades. Stampedes toward stale avoided cost rates are continuing in various states today, particularly as solar generation prices have fallen rapidly. For example, Portland General reported that in Oregon, where standard rates are available for up to under 10 MW QFs, it has received 173 contract requests from sub-10 MW QFs. How state commissions, FERC, state courts, and federal courts all react to such stampedes will be discussed in future posts, as events unfold in various states. The experience of the Montana PSC in trying to stop a stampede illustrates the differences between the state and federal courts as relates to their authority to specifically set rates, terms, and conditions of PURPA contracts. In the case of the Montana PSC, a state court’s broad authority to set rates may exacerbate the impacts an existing QF stampede.
Both Northwestern Energy and the Montana PSC have been trying to fend off a stampede from 3 MW and smaller (mainly solar) QFs on numerous fronts, but were dealt a blow by a April 2, 2019 state district court order in Vote Solar v. Montana PSC that vacated certain Montana PSC orders. The most interesting aspect of the Cascade County District Court opinion was the fact that the court actually ordered the PSC to set rates, terms, and conditions of standard PURPA contracts in a particular manner.
By 2016, Northwestern recognized that a stampede was heading its way due to stale avoided cost rates for QFs of 3 MW or less. It took several proactive steps to have the Montana PSC protect its ratepayers. The Montana PSC lowered the standard avoided cost rate, limited what size QFs were permitted to request the standard avoided cost rate, reduced the length of the term of standard contracts, and affirmed its legally enforceable obligation (LEO) standard.…
Over the last several weeks, a variety of entities have filed Petitions for Declaratory Order (PDO) or Enforcement Petitions relating to PURPA that may prove interesting to watch.
Sunrun asked FERC to make an exception for the need to self-certify (through Form 556) QFs under common ownership that total in aggregate more than 1 MW of capacity if all the QFs are located with one mile of one another, but only if such aggregation includes only QFs that are under 20 kW residential solar systems where the customer has a purchase option. (Sunrun often leases solar systems with an option to buy, thus its desire to avoid the complexities of trying to determine when the 1 MW minimum for self-certification is met.) This PDO may prove less controversial than some of the others recently filed.
Redlake Falls challenged a Minnesota PUC decision regarding what a utility’s avoided cost was at the time the legally-enforceable obligation (LEO) was formed, in a dispute that involves which rate proposed by various entities best represents avoided cost at the time the LEO was established. This is not the type of PURPA Enforcement case that FERC is likely to bring an enforcement action itself, but a request was made for a PDO, so some non-binding guidance may be issued.
The two-decade battle between the Swecker family and Midland Power Cooperative and its supplier (Central Iowa Power Cooperative) continues unabated. This case cannot been deemed controversial, as the very same PURPA arguments have now been made and rejected repeatedly by any number of venues. The most interesting issue to watch in the latest proceeding is whether Midland will finally obtain a suspension of the Sweckers’ rights to bring enforcement actions against Midland and CIPCO that raise the same avoided cost rate scheme.
Finally, in perhaps the most interesting case of the lot, NorthWestern petitioned FERC for a declaratory order determining that:
- in periods when a utility has excess generation and cannot back down its generation, the avoided cost paid by the utility for energy to QFs should be zero; and
- nothing in PURPA, including the rule against “non-discrimination” in pricing of avoided cost, permits setting a QF purchase rate above the utility’s avoided cost.
A PURPA complaint before the Michigan PSC, accessible through the article Michigan Utility Under Fire For Alleged PURPA Violations, teaches a good lesson about words. The QF complainant (Greenwood Solar) stated that a utility (DTE): 1) has an obligation to buy capacity even if unneeded; and 2) needs to obtain a waiver from FERC in order to be absolved of the requirement to buy capacity. Indeed, in a fairly recent case cited by Greenwood Solar, FERC reiterated its regulation that specifically requires that a utility purchase any energy and capacity made available by a QF. PURPA regulations state that energy and capacity purchases are mandatory, but for the exemption for purchases from over 20 MW QFs that most utilities in organized markets have obtained. The complaint alleges that respondent DTE insisted that it had no obligation to purchase unneeded capacity from a QF. A close reading of FERC’s exact words on the topic supports Greenwood Solar’s contention that an obligation to purchase capacity exists, despite any need. Although this policy appears counterintuitive, the policy is logical when coupled with other words issued by FERC – that a utility that lacks a need for capacity may lawfully fulfill its purchase obligation by offering a QF a price for capacity of $0.00/MW.…