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FIT in the USA

Constitutional questions about state-mandated renewable tariffs.

Fortnightly Magazine - June 2010

indifferent to the amount of renewable power purchased at these rates, because the rates are identical to the utility’s costs. PURPA, therefore, specifically provides that no rule requiring a utility to purchase energy from a QF, “shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.” 23 “Alternative” in this context doesn’t refer to renewable energy sources, but rather to electricity produced by any generator but that utility.

Congressional hearings emphasized the use of avoided-cost methodologies to determine the cost of acquiring alternative electric power, and showed the desire that no particular electricity producer would subsidize the inefficiency of another. 24 These hearings also illustrated that Congress’ intent was to avoid promoting alternative energy sources beyond the cost of other power. During hearings on PURPA, Senator Percy stated that “[i]t would be wrong to subsidize small [power] producers at the expense of other customers.” 25 The Congressional Record reported, “Senator Durkin added during floor debate that utilities should be required to set purchase rates for hydroelectric generators at cost, rather than at a subsidized rate.”

Only two very limited exceptions legally allow states to require that utilities pay in excess, of avoided costs to a QF for renewable energy produced and delivered. These exceptions are necessary unless the state is acting in a proprietary, rather than regulatory, manner, regarding a utility. The first exception is if the excess cost is for a green-energy program in which utility customers individually voluntarily agree to higher rates covering the costs above the utility’s avoided cost. 26 A cost-recovering and appropriately-priced green electricity purchase likely would be prohibitively expensive to many consumers, compared to the rates for conventional purchases of electricity. For example, voluntary programs consisting of RPS-eligible RECs and future RECs can vary in cost much less than $0.01 per kWh in some states to as much as approximately $0.05 in Massachusetts during certain years. In March 2010, according to the Boston Globe , the price rose dramatically for those 8,000 customers electing to purchase renewable power in the greater Boston area from regulated entity NSTAR (the owner of Boston Edison). 27 Of that one-quarter of the nation’s utilities that offer such renewable energy purchase options, it’s typical that only about 2 percent of customers elect this more expensive option.

The second exception applies to net metering. On March 28, 2001, FERC held that state net metering decisions weren’t preempted by federal law, because no sale occurs when an individual installs distributed generation and accounts for its dealings with the utility through the practice of netting. 28 FERC deemed that a netted transfer of title to power doesn’t constitute a “sale.”

Eighty percent of the states have electively adopted net metering, which runs the retail utility meter backwards when a renewable energy generator puts power back to the grid. Net metering can pay the eligible renewable energy source as much as four times more for this power when it rolls backwards at the retail rate than paid to any other independent power generators for wholesale power, and