[BETA] Fortnightly

This fight is for the heart and soul of regulation everywhere. The Federal Energy Regulatory Commission (FERC) won the first round on February 22, but I think there's more to come.

The fight involves incentives for nonutility generators (NUGs). It also touches on PURPA (em the Public Utility Regulatory Policies Act of 1978 (em which guarantees a market to cogenerators or power producers (QFs) who qualify. But more important, this battle involves regulatory philosophy. It pits electric utilities on the East and West coasts against the two commissions traditionally viewed as most supportive of NUGs.

In California

You may recall last April, when the California Public Utilities Commission (CPUC) released its "Blue Book" proposal for electric restructuring, that the CPUC acknowledged conflict over the way electric utilities acquire generating resources. Thus, the CPUC proposed to eliminate the Biennial Resource Plan Update (BRPU) (em the process by which it requires major investor-owned electric utilities (IOUs) to buy power from renewable or favored generating sources, such as solar, geothermal, or wind energy. The CPUC said the BRPU would place utilities at risk for revenues from electric generation. All of this implied that before California embarked on a serious attempt at electric restructuring, including a competitive market for generation, it would at least consider ending regulatory incentives given out to NUGs for some resource categories.

So you can imagine the disappointment of California's IOUs late last year when the CPUC essentially upheld bids in its most recent BRPU auction (except for wind energy and nonfirm power). See, Re FlowWind, I. 89-07-004, Decision 9412051, Dec. 21, 1994 (order denying rehearing). The auction would stand, despite objections that the winning bids exceeded current market prices. And what about competition? Well, the CPUC put the onus on industry. It said that both utility and nonutility parties "have the primary responsibility to shape their response to perceptions of a changing market for electric services ... and to renegotiate the key factors in these contracts." Buy your way out.

The order didn't sit lightly with Southern California Edison or San Diego Gas & Electric (SDG&E). In January, Edison petitioned the FERC to block the auction. See, Re So. Calif. Ed. Co., FERC Dkt. No. EL-95-16-000, filed Jan. 6, 1995. SDG&E followed suit on January 18 in Docket EL-95-19-000. Both petitions claimed that the CPUC violated PURPA and FERC rules that impose a mandatory avoided-cost ceiling on utility payments to QFs. SDG&E said the auction would burden its customers with $511 million in higher electric costs over the life of the offending contracts. Edison predicted an extra $4 billion in potential stranded costs, and asked the FERC to force the CPUC to suspend its auction.

In New York

On St. Valentine's Day, New York State Electric & Gas Corp. (NYSE&G) took up where California left off. It filed its own petition asking the FERC to cut certain prices that NYSE&G pays to buy power from NUGs (em or force the New York Public Service Commission (PSC) to cut the rates. The NYSE&G case involves two specific QFs: Lockport Energy Associates, L.P.,