In a case involving Allco, a frequent plaintiff in state and federal PURPA litigation, a state’s adoption of an alternative PURPA program was challenged. Vermont is a state with multiple PURPA programs, a situation FERC has held is perfectly reasonable. Parsing the existing FERC holdings on multiple programs, having two different PURPA programs is acceptable
Order No. 872-Related FERC and State Proceedings Initiated in Its Initial Weeks of Effectiveness
Now that Order No. 872 has been effective for a few weeks, the first few proceedings that will inform its implementation have commenced. More such proceedings will certainly be initiated in next few months.
Continue Reading Order No. 872-Related FERC and State Proceedings Initiated in Its Initial Weeks of Effectiveness
A Lesson for State Commissions In Classifying QFs
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.
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Not All States Are Awaiting a FERC Final Rule In Re-Examining PURPA Rates and Contracts (Updated)
In light of the pending FERC PURPA NOPR, some states have stayed or delayed ruling on pending cases involving PURPA contracts and avoided cost rate, particularly where a standard contract or rate is involved. In two states, however, December 9, 2019 saw significant decisions on PURPA contracts and rates. Although too detailed to fully recap here, the orders reflect the fact that PURPA rates and contracts raise innumerable and complex issues, particularly when utilities claim renewable QFs cause integration costs and developers of hybrid (paired) QFs seek compensation associated with the benefits of adding battery storage to renewable QFs. On January 3, 2020, however, one of the orders, was altered on reconsideration, as arguments that the rates adopted were too low were found to be persuasive.
In Caithness Beaver Creek, LLC, which is pending reconsideration, the Montana PSC -re-examined numerous policies on avoided costs and other issues such as contract length after Caithness and NorthWestern could not negotiate a PURPA contract. Perhaps the most interesting ruling came on the methodology for calculating an avoided cost for energy, as the Montana PSC found good cause to depart from its prior methodology. As the current FERC PURPA regulations still require a fixed price for energy, the Montana PSC decided to adopt a forecasted rate based on hourly modeling and marginal costs to serve load so that avoided energy costs would equate to the running cost of NorthWestern’s highest-cost resource needed to serve load in each hour: $0 if load is served with must-take or intermittent resources with no variable costs (solar, wind, hydro); the variable costs of the marginal generating resource if load is served with NorthWestern-dispatched generation; or the market price if load is served by market energy purchases.
Continue Reading Not All States Are Awaiting a FERC Final Rule In Re-Examining PURPA Rates and Contracts (Updated)
Transmission Costs and Congestion: Relationship to Avoided Costs
PURPA presents interesting issues regarding how state commissions may deal with “transmission costs” caused by qualifying facilities (QFs), particularly when QFs are wheeling to a utility to which they are not interconnected. FERC previously has stated that a QF only has to deliver power to a point of interconnection with the purchasing utility in Pioneer Wind Park I. But in the same case, FERC also stated that “implicit in the Commission’s regulations, transmission or distribution costs directly related to installation and maintenance of the physical facilities necessary to permit interconnected operations may be accounted for in the determination of avoided costs if they have not been separately assessed as interconnection costs.” This statement, while located in a footnote, should not be overlooked. Several years ago, the Montana Public Service Commission affirmed its importance in Decision 7560a, ruling that transmission service upgrade costs associated with the a QF project may be accounted for in the determination of avoided costs, but then found the utility at issue had to provided adequate evidence of transmission costs.
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PURPA NOPR: Initial Reaction Based on FERC Meeting Discussion
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…
Ninth Circuit Affirms Winding Creek: Formula Rates Do Not Satisfy Price Set at Time of LEO
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.”…
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Ninth Circuit Mandates Use of Multi-Tiered Avoided Cost Rates Where Utilities Make Purchases From QFs In Meeting Renewable Portfolio Standards
“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. …
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The Montana QF Stampede and the Varying Roles of the Judiciary in Enforcing 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.
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FERC to Address Several PURPA Issues In Coming Weeks and Months
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.
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