On July 15, 2010, the Federal Energy Regulatory Commission
(FERC) issued its first major ruling on state feed-in tariffs,
partially rejecting a California Public Utilities Commission (CPUC)
decision which would have required investor-owned utilities to
offer to purchase, at prices set by the CPUC, electricity generated
by eligible combined heat and power (CHP) generators using solar
and other renewable energy sources. In California Public
Utilities Commission, 132 FERC ¶61,047 (Docket Nos.
EL10-64-000 and EL10-66-000), FERC ruled that the CPUC's
decision constituted impermissible wholesale rate-setting by the
CPUC and was preempted by the Federal Power Act (FPA). However, the
order also defined certain limits within which a state could
establish a feed-in tariff that would not be preempted by federal
law and FERC regulations.
Utilities and other entities should be mindful of developing
federal issues as they consider implementing feed-in tariffs,
making investments, or entering into transactions involving the
sale or purchase of electricity at wholesale from small solar and
other renewable energy facilities.
Background
California adopted legislation (AB 1613) requiring all
investor-owned electric utilities (IOUs) to purchase, at a price
set by the CPUC, electricity generated by eligible CHP generators.
The IOUs were required to file standardized ten-year contracts, or
feed-in tariffs, with the CPUC. The CPUC filed a petition with FERC
seeking a declaratory order that the CPUC's decision
implementing AB 1613 was not preempted by the FPA or section 210 of
the Public Utility Regulatory Policies Act of 1978 (PURPA). The
CPUC argued that it was not establishing wholesale rates, but
rather was merely requiring a utility to "offer" to buy
wholesale power at a CPUC-set price. A number of parties, including
numerous electric utilities and various environmental groups,
intervened in the proceeding.
FERC's Order
In its July 15 Order, FERC reiterated that it has exclusive
jurisdiction to regulate the rates, terms and conditions of sales
for resale of electric energy in interstate commerce by public
utilities. FERC disagreed with the CPUC's characterization of
its decision as merely establishing an "offering price"
by the utility and found that the CPUC was in reality setting
wholesale rates in interstate commerce. Thus, the CPUC decision was
preempted by federal law. However, FERC found that the CPUC's
program is not preempted by the FPA, PURPA or FERC regulations as
long as the program meets certain requirements: (1) the CHP
generators from which the CPUC is requiring the utilities to
purchase energy and capacity are Qualifying Facilities (QF)
pursuant to PURPA; and (2) the rate established by the CPUC does
not exceed the avoided cost of the purchasing utility. To the
extent that a CHP generator is not a QF, FERC ruled that the
CPUC's decision is not preempted by the FPA only to the extent
that the CPUC is ordering the utilities to purchase capacity and
energy from certain resources.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
