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PURPA's Changing Climate

California defends its cogen feed-in tariff—complete with its own virtual carbon tax.

Fortnightly Magazine - July 2010

price under the CHP FIT program is based on a concept unique to California known as the market price referent. The MPR operates a little like PURPA’s avoided-cost concept, but not quite. Rather than measure a utility’s actual alternative cost of purchasing or generating its own power, the MPR presumes an opportunity cost for wholesale power that mirrors the hypothetical cost of owning and operating a base-load combined-cycle gas turbine (CCGT) unit, over a 10-, 15- 20- or 25-year period, on the theory that utility resource portfolios shouldn’t produce greater GHG emissions overall than would a portfolio made up entirely of CCGT plants. Moreover, the MPR also includes a price component designed to reflect the likely future cost of GHG emissions-control efforts.

Thus, with its FIT, the CPUC created a sort of state-enabled and “shadow” PURPA program for super- efficient CHP facilities, which pays a higher avoided-cost to qualifying CHP units than would be the case under PURPA’s avoided-cost scheme for ordinary QFs. California’s FIT price is set high enough, in fact, to cover the estimated likely current and future costs of greenhouse-gas compliance at both the state and federal levels.

In essence, the CPUC with its FIT has remade the traditional PURPA cogeneration program, but with a carbon tax thrown in. And it’s this higher price, much more so than constitutional niceties, that riles California’s retail utilities.

According to the CPUC, the justification stems from the different purposes behind PURPA and the California FIT law:

“The primary purpose of AB 1613 [and the CPUC’s FIT implementing orders] is environmental protection, particularly the reduction of GHG emissions. In contrast … the purpose of PURPA [was] to decrease dependency on foreign oil and avoid an energy crisis.” ( See Petition of CPUC, FERC Docket EL10-64, filed May 4, 2010. )

Thus, as the CPUC explains, its higher FIT rate naturally reflects the additional costs necessary to meet all the environmental requirements under AB 1613: the GHG and NOx emission standards, the 60-percent energy conversion efficiency standard for CHP facilities, plus an allocation of any more stringent carbon emissions compliance costs mandated by the California Air Resources Board under Assembly Bill 32, California’s Global Warming Solutions Act of 2006, or even by Congress or the U.S. EPA.

The tariff even includes a 10-percent bonus ( i.e., an adder to avoided costs under the FIT rule), for purchases from CHP systems located in congested areas, to reflect avoidance or deferral of future upgrades to distribution or transmission networks.

The CPUC claims that FERC’s PURPA case law precedent is now “outdated” since “these mid-1990s decisions were prior to the extensive knowledge of the devastating effects caused by the acceleration of climate change.”

California’s three major retail utilities—Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric—believe the CPUC’s FIT intrudes unlawfully on FERC authority. But they also stress how PURPA always has capped the price paid to QFs at avoided cost—what the utility would have had to pay if buying power elsewhere, such as the day-ahead energy price that clears in the