(November 2008) Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
and Saranac Power Partners, L.P. NYSE&G alleged that state policy under PURPA would force it to incur some $2 billion in excess purchased-power costs (over the life of the projects, 1992-2009). See, Re NYSE&G, FERC Dkt. No. EL95-28-000, filed Feb. 14, 1995.
NYSE&G has more to explain than the California utilities. Its long-term contracts with Lockport and Saranac mandate purchased-power prices at about 6 cents per kilowatt-hour (rising to 7 cents next year; later by about 4 percent per year), or about double the utility's claimed alternative cost. The blame apparently lies with escalator clauses. The utility says it is "well aware" that the case looks like a private contract dispute, but claims the PSC "compelled" it to sign the deals: "Although [we] could not have shown definitively at the time [we signed the contracts] that ratepayer interests were jeopardized, the passage of time has made that situation abundantly clear."
At the FERC
The fight at the FERC puts a lot at stake. It asks federal regulators to oversee state-level energy planning. It also opens PURPA to scrutiny.
In one sense, the FERC started the fight. Earlier this year, in a case involving a resource recovery (municipal waste) generating plant, the FERC preempted a Connecticut law that imposed a rate floor that could allow a QF to charge rates above avoided cost. See, Conn. Light & Pwr. Co., FERC Dkt. No. EL93-55-000, Jan. 11, 1995, 70 FERC 61,012.
Some reporters say the CL&P case banned any QF rates that exceed the PURPA avoided cost. But some lawyers voice caution. They feel the case might have turned out the other way if the state had deemphasized PURPA and instead passed a law that stressed resource planning. That strategy, the lawyers say, might have given the FERC enough slack to uphold the law. In that sense, the California and New York cases are different. Out West, the BRPU philosophy extends beyond PURPA. It confers incentives for renewable energy. But that distinction may prove small consolation to NUGs. The egg is broken.
Ed Guiles, SDG&E's senior v.p. of energy supply, seized the moment in January. He noted that incentives "contradict the CPUC's own proposal to enhance competition in the electric utility industry." James Carrigg, chairman, president, and CEO of NYSE&G, questions whether PURPA makes sense "at a time when Congress is moving aggressively to cut taxes and streamline federal regulation." Vikram Budhraja, Edison's v.p. of planning and technology says his company will use "all appropriate means, including regulatory and legal actions and negotiations," to avoid the QF auction prices. In January he noted that Edison had already negotiated (bought out) agreements with six of the 10 "winning" bidders, representing 558 of the 686 megawatts mandated under the BRPU auction.
By mid-February, the Edison Electric Institute, the National Coal Association, and others had intervened to support Edison's FERC petition. But the Electric Generation Association (EGA) filed a protest on February 6. EGA argued that the two-stage CPUC auction allowed nonqualifying (non-PURPA) power producers to participate. It added that the FERC's PURPA regulations grant the states wide