“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.