FERC declares QF rights

Federal energy regulators have issued an advisory opinion regarding the rights of Qualifying Facility electric generators to sell power to their local utility under the Public Utility Regulatory Policies Act (PURPA).  The Federal Energy Regulatory Commission's declaratory ruling illustrates how the Commission interprets PURPA and QF rights, in the context of state renewable energy portfolio standards and

PURPA was enacted by Congress in 1978 to promote goals including energy conservation and greater production of domestic and renewable energy.  It established a new class of generating facilities called QFs, to receive special rate and regulatory treatment. A chief benefit of QF status is the
right to sell energy and capacity to a utility, usually at either at the utility's avoided cost or at a negotiated rate.  By regulation, QFs generally have the option to sell energy either "as-available," or as part of a long-term contract or other legally enforceable obligation for delivery of energy or capacity over a specified term.

The Federal Energy Regulatory Commission oversees this program, although state energy commissions play important roles.  Section 210 (H)(2)(A) and (B) of PURPA give the Commission discretionary power to enforce its PURPA rules, including the power to require state commissions and non-regulated utilities to comply.  But the Commission may also decline to initiate an enforcement action, on a case by case basis.

Earlier this year, a group of QFs filed a complaint to the Commission against the Connecticut Public Utilities Regulatory Authority.  Windham Solar LLC and Allco Finance Limited alleged that Connecticut law and PURA’s regulations violate the Commission's PURPA regulations regarding an electric utility’s mandatory purchase obligation and a QF’s ability to sell pursuant to a legally enforceable obligation. Complainants effectively alleged that they couldn’t get a long-term contract to sell energy and capacity at avoided cost rates on a forecasted basis, unless the energy and capacity were bundled with renewable energy certificates (RECs), or unless the energy and capacity were provided under a short-term contract not to exceed one year.

Some of those basic facts were contested by PURA and others, and the Commission noted a history of dispute and litigation among the complainants and Connecticut energy regulators. So the Commission declined to initiate an enforcement action on the complaint.

But the Commission did issue a declaratory ruling, reciting case law and interpretation on two points: the relationship between state RECs and PURPA, and QF opportunities to secure long-term contracts.  The Commission noted that RECs exist under state law and not PURPA, but that avoided cost contracts do not automatically include RECs.  It also noted that winning a competitive solicitation cannot be the only way a QF may be allowed to obtain long-term avoided cost rates.

The original comes with robust citations to precedent, omitted for convenience below:

4. The Commission has previously addressed issues regarding the relationship between state-created RECs and PURPA. The Commission has stated that the states have the authority to determine who owns RECs in the initial instance and how they are transferred, and has explained that the automatic transfer of RECs within a sale of power at wholesale must find its authority in state law, not PURPA. The Commission has also held, however, that a state regulatory authority may not assign ownership of RECs to utilities based on a logic that the avoided cost rates in PURPA contracts already compensate QFs for RECs in addition to compensating QFs for energy and capacity, because the avoided cost rates are, in fact, compensation just for energy and capacity. Moreover, while the Commission has made clear that states have the authority to regulate RECs, states cannot impede a QF’s ability to sell its output to an electric utility pursuant to PURPA. Thus, regardless of whether a QF has previously sold its RECs under a separate contract, that QF has the right to sell its output pursuant to a legally enforceable obligation.

5. The Commission has also held that “requiring a QF to win a competitive solicitation as a condition to obtaining a long-term contract imposes an unreasonable obstacle to obtaining a legally enforceable obligation.” The Commission likewise has determined a state regulation to be inconsistent with PURPA and the Commission’s PURPA regulations “to the extent that it offers the competitive solicitation process as the only means by which a QF . . . can obtain long-term avoided cost rates.” Accordingly, regardless of whether a QF has participated in a request for proposal, that QF has the right to obtain a legally enforceable obligation. 

As noted in the declaratory ruling, the Commission's "decision not to initiate an enforcement action means that Petitioners may themselves bring an enforcement action against the Connecticut Authority in the appropriate court."

June 10, 2011 - Idaho restricts wind/solar incentive

Regulators in Idaho have restricted an incentive for certain small wind and solar projects, but renewable projects can still qualify for the right to sell their power to utilities.  At its heart, the issue is an old one: who should pay for renewable development, and how much should they pay.

The federal Public Utilities Regulatory Policy Act of 1978 (PURPA) authorizes FERC to require utilities to purchase power from renewable “qualifying facilities”.  Under PURPA, utilities must sign contracts  with qualifying facilities to buy their output at a rate capped at the utility's "avoided cost", or marginal cost to produce the next incremental kilowatt-hour.

Because utilities’ avoided costs are typically set based on the default fleet of generators, a qualifying facility cannot use PURPA to receive a price premium over the marginal conventional resource.  However, having the right to require a utility to buy your power is a valuable incentive for developing a renewable project. 

Each state sets the avoided cost rates for its own qualifying facilities.  In Idaho, large generators have to negotiate individual avoided cost rates with utilities.  To help smaller qualifying facilities, projects smaller than a specified threshold don’t have to negotiate, but can sell power to utilities at “published” avoided cost rates which are generally more favorable for project developers.

Where that threshold is set affects who can qualify for those published rates.  Originally, facilities whose average output was 10 MW or smaller qualified for the published rates.   However, utilities complained to the Idaho Public Utilities Commission, asking for the threshold to be lowered to 100 kW.  Utilities complained that ratepayers should not have to bear above-market costs, particularly not costs in excess of the actual avoided cost limit set by PURPA.  Commenters also complained about large projects trying to circumvent the threshold by characterizing themselves as a series of smaller projects in order to qualify for the incentive.  At the end of 2010, the Commission temporarily reduced the threshold to 100 kW for wind and solar resources, leaving it at 10 aMW for other resources. 

This week, the Idaho Public Utilities Commission has issued an order (Order No. 23362, 10 page PDF) leaving the lowered 100 kW threshold for wind and solar in place.  The Commission noted that it would be "illegal pursuant to PURPA" to allow large projects to obtain a rate that does not accurately reflect the utility's avoided cost.  As a result, Idaho wind and solar projects' right to sell power at the more favorable published avoided cost rates is now limited to projects smaller than 100 kW.  Larger projects can still avail themselves of negotiated avoided cost rates.

December 2, 2010 - a deeper look at the Cape Wind PPA complaint

Yesterday, the news broke that a group called "Californians for Renewable Energy" (CARE) filed a complaint with the Federal Energy Regulatory Commission (FERC) challenging Cape Wind's power purchase agreement with National Grid.  In its complaint, CARE asks FERC to set aside the November 2010 order of the Massachusetts Department of Public Utilities (DPU) approving Cape Wind's power purchase agreement with National Grid.  CARE also points serious allegations against a variety of parties including National Grid, Cape Wind, and the DPU itself.  These allegations range from technical legal points (e.g. that FERC alone has "exclusive jurisdiction to regulate the rates, terms and conditions of sales for resale of electric energy in interstate commerce by public utilities") to rather disjointed but sensational accusations of connections between wind developers and Italian organized crime.

I've read the Complaint, and this morning, I had a pleasant discussion with Mark Rodgers, Cape Wind's Director of Communications.  Mark described CARE's complaint as "baseless", and characterized CARE's allegations of an Italian mafia connection as "false, malicious, and defamatory".

Looking at the Complaint itself, I would personally characterize it as a mix of legal argument and wild conspiracy-theory accusations.  On the legal argument side, the Complaint appears to allege that the Massachusetts DPU exceeded its jurisdictional authority in approving the PPA.  This argument is based on the recent precedent in which FERC told the California Public Utilities Commission that its feed-in tariff program was invalid because it purported to set wholesale rates for power at the state level.  Reasoning by analogy, CARE appears to argue that the DPU improperly set a wholesale rate for power in excess of the utility's avoided cost.

Other legal arguments asserted by CARE strike me as more tenuous.  For example, CARE asserts that renewable energy credits (RECs) are "greenhouse gas (GHG) offsets", as well as "a type of energy ancillary service that Mass DPU maintains authority over in regard to the price that is paid wholesale Sellers [sic]".  CARE goes on to say, "The REC’s purpose therefore is to offset greenhouse gas emissions by avoidance." This is a troubled argument at best.  In general, RECs are distinct from GHG offsets; RECs represent the attributes associated with the generation of energy from state-qualified renewable resources, not the specific amount of GHG emission reductions associated with that generation. RECs exist in compliance markets because state legislatures establish renewable portfolio standards requiring specified amounts of energy to be sourced from renewable resources, and do not generally have an explicit GHG tie-in.  Further, REC pricing is generally established through bilateral contracts between parties.  While a state utility commission like the DPU does retain authority over utilities in its jurisdiction, state commissions do not necessarily specify the price of RECs.

The second half of the Complaint gets even farther out.  In a rambling set of long sentences and quotes from emails sent by CARE and its co-complainant Barbara Durkin, CARE alleges that National Grid and the DPU aided and abetted "fraudulent actions and claims to defraud taxpayers of ARRA stimulus funds".  This section, which appears largely to be a rehash of the complainants' earlier position before the DPU, includes a request for FERC to "investigate Cape Wind, National Grid, the Massachusetts Attorney General, and Mass DPU for actions they have taken to aid and abet (act as an accessory to) Cape Wind’s fraudulent actions and claims whose purpose is to defraud taxpayers and ratepayers alike of ARRA stimulus funds".  CARE goes so far as to assert that when a National Grid representative said “We have every reason to believe that [the production and investment tax credits] are going to be extended and supported by Congress,” this somehow constituted an admission of a violation of the prohibition on energy market manipulation.  (This claim is a real head-scratcher.)

Then, if possible, things get even stranger.  CARE devotes 24 pages (nearly the remainder of the complaint) to a series of purported quotes from news media stories and other documents about various wind developers (puzzlingly, including developers other than Cape Wind Associates) and connections to Italian organized crime.  I won't bother to recite those allegations further here.  Suffice to say that this section of CARE's complaint is wild, disorganized, and fails to effectively illustrate any concrete misdeeds by any of the parties against whom CARE complains.

Clearly, this complaint is sensational.  Even trying to read between the lines, it is hard to make sense of many of CARE's claims.  While the legal issues regarding whether a state has the authority to approve such a PPA are indeed interesting, particularly in the wake of FERC's restrictions on the California feed-in tariff program, the conspiracy claims tend to detract from CARE's credibility.  It will be interesting to see how FERC's review of this complaint proceeds.