FERC Issues First Major FIT Order
In its first major action on state feed-in-tariffs (FITs), FERC on July 15 partially rejected and partially approved a proposal made on May 4 by the California Public Utilities Commission (CPUC) to require investor-owned utilities (IOUs) to buy power at state-set prices from small combined heat and power (CHP) generators that are not “qualifying facilities” (QFs). Although CHP is not renewable power, the decision points out that FITs can apply to any type of generation that a country, state, municipality, or utility wishes to encourage development of. It also has obvious implications for renewable FITs.
On May 11, three California IOUs filed a separate petition in which they argued that the CPUC’s requirement is preempted by the Federal Power Act (FPA) insofar as it sets rates for electric energy that is sold at wholesale. The parties filing a “declaratory order request” were disputing a California statute, AB 1613, which requires (like several European countries and Vermont) that each IOU in that state file a standard-form 10-year FIT with the PUC for CHPs whose capacity does not exceed 20 MW.
The CPUC’s petition contended that the mandated FITs were compatible with FERC’s jurisdiction under Part II of the FPA and Section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) because the states alone have jurisdiction over their utilities’ resource portfolios, and the FPA does not preempt California because it required only that such utilities make an offer to buy power. The IOUs’ petition contended that the two federal statutes preempt AB 1613’s FIT program.
The bad news for the CPUC from FERC: “We disagree with the characterization of the CPUC’s AB 1613 Decisions as merely establishing an ‘offering price’ by the purchaser of power. Rather, we agree with the Joint Utilities that the CPUC’s AB 1613 Decisions constitute impermissible wholesale rate-setting by the CPUC. Because the CPUC’s AB 1613 Decisions are setting rates for wholesale sales in interstate commerce by public utilities, we find that they are preempted by the FPA.”
The good news in FERC’s finding: “the AB 1613 program will not be preempted by the FPA and PURPA as long as: (1) the CHP generators from which the CPUC is requiring the Joint Utilities to purchase energy and capacity are QFs pursuant to PURPA; and (2) the rate established by the CPUC does not exceed the avoided cost of the purchasing utility.”
Industry analysts suggest that the decision will likely be viewed as setting strict limits on the power of states that, following California’s lead, attempt to prescribe wholesale prices for renewable power. “States may, however, continue to mandate that IOUs purchase power and energy from environmentally-friendly sources, so long as such mandates do not set wholesale rates,” said lawyers from the Van Ness Feldman firm in a July 22 briefing.
The report attempts to provide solutions to these and other constraints. It suggests, for example, that state regulatory commissions could ask FERC for a “clarification” that above-avoided-cost tariffs would qualify automatically for the less than 20-MW exemptions if they met certain conditions. (As the "FERC Issues First Major FIT Order" sidebar explains, that approach was recently taken in California, with mixed results for FITs.) The report notes that this solution wouldn’t entirely resolve the issue: “First, this path is not available to non-[qualifying facilities (QFs)], or QFs exceeding 20 MW. Second, FERC would need to modify or reinterpret existing FERC precedent … that if the seller is a QF, it is bound by PURPA’s avoided cost cap even if the buyer’s obligation to buy arises from state law rather than PURPA.”
The ideal fix for weeding out these and other regulatory concerns would be if “Congress could modify PURPA and the FPA to allow states to establish feed-in tariffs unconstrained by current federal law,” the report concludes. “The intent behind such an amendment would be to create exceptions from PURPA, the FPA, or both, for renewables sellers in states that promulgate tariffs having certain characteristics. The result would be to vest in the sellers an automatic right to sell under state programs.”
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