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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

market run by the California Independent System Operator. And the utilities say that this lower avoided-cost price cap should apply both for PURPA QFs, as well as for renewable or green power producers selling under a state-mandated FIT operating outside the context of PURPA:

“If states have the right to dictate from whom purchases are made and at what price outside of PURPA, then why has FERC rejected state attempts to dictate a price greater than avoided cost, inside of PURPA?”

And if FERC should OK a FIT tariff at rates above avoided cost, they foresee nothing but trouble:

“One state might ask FERC to allow mandatory purchases at slightly above avoided-cost rates from small renewable generators [and] the next state, with a goal to eliminate all greenhouse gases, might set mandate that all power be purchased from nuclear power plants at a rate three times avoided cost.” ( See, Petition of So.Cal.Ed., PG&E, SDG&E, p. 22, filed in FERC Docket EL10-66, May 11, 2010 .)

The Edison Electric Institute adds its voice to the mix in comments opposing the CPUC petition. EEI argues that California’s FIT isn’t only unlawful ( i.e., pre-empted by federal authority), but that even if not, the price is impermissibly high: “The CPUC admits that it is purposefully adopting a price above the utilities’ short-run avoided cost to compensate for ‘societal benefits,’ thereby acknowledging that the rate exceeeds avoided cost.”

Don’t Ask, Don’t Tell

Case law precedent evolved under PURPA is unequivocal: Power producers need a FERC-authorized agreement to sell power at wholesale at a specific rate unless exempted from the FPA by FERC rule or special legislation, as is the case for exempt wholesale generators, sellers with market-based pricing authority, or QFs certified under PURPA. Absent that, states can’t actually compel a utility buyer or a power-producing seller to execute a purchased power contract at a specific price.

Of course, the states retain authority to regulate or dictate power procurement decisions by retail utilities. State laws mandating renewable portfolio standards serve as the prime example. This retained authority gives rise to the notion of a state-mandated FIT to force utilities to buy renewable or green energy. However, for the state FIT law to stick, it must regulate the buyer—not the seller. The legislative wording must dance around the edges of an actual completed deal; it must effectuate the desired result while appearing not to have forced the parties to execute an actual contract at a stated price. Forcing buyer and seller to sign a contract at a specific price would be tantamount to state regulation of interstate power at wholesale. Instead, the state must be careful to extend regulation only over the utility buyer and its procurement practices.

As California Attorney General (and former Governor) Jerry Brown puts it, the CPUC isn’t setting a rate for the wholesale generator: “Rather, the CPUC is setting a price that the [utility] must offer the generator in order to meet then environmental goals of the state law.

“The generator, he adds, “retains authority to sell at any rate