News Analysis
According to the solar industry, a U.S. appeals court decision—and a Southern California Edison petition pending at the FERC—might put them out of business.
"If Edison were to prevail in this, it would have hugely negative implications for the solar operators."
That was Les Nelson, executive director of the California Solar Energy Industries Association, referring to Southern California Edison's June 30 petition for declaratory order asking the Federal Energy Regulatory Commission to apply to all small power production facilities (SPPFs) a 1999 federal appeals court decision involving a landfill SPPF. That decision disallowed the SPPF from burning natural gas to improve the efficiency of its "essential fixed assets" and still enjoy qualifying facility status under the Public Utility Regulatory Policies Act of 1978, thus calling into question FERC policy in place since the mid-'80s that had endorsed natural gas use for such purposes.
While Edison contends that in asking for across-the-board application of the decision it is not intending to fatally harm an entire segment of small power producers currently enjoying QF status, it nevertheless appeared braced for an onslaught of protest upon filing its petition. "SCE recognizes that this Petition is likely to be contested vigorously by those entities that have taken advantage of the Commission's essential fixed assets standard," it said in its original filing.
Pernicious Power Play
SCE got just what it had anticipated. The California Solar Energy Industries Association, for example, fired back that applying the Laidlaw decision in the manner proposed by SCE would "cripple" solar facilities. And the language from the solar side got stronger and even accusatory.
In short, SCE says that the solar facilities are cheating the system, burning natural gas simply to boost output and augment revenues. "The simple question posed by [SCE's] Petition É is whether small power producer QFs should be able, routinely and indefinitely, to continue using unlawful amounts of natural gas to generate power for which they collect a PURPA rate intended to foster development of non-fossil generation," Edison says in its Aug. 28 response to the intervenors' protests.
But according to Sunray Energy Inc., SCE's petition is purely a power play. Sunray says in its motion to intervene that nine of the solar facilities "targeted" by SCE make up almost 90 percent of the world's large-scale, solar generating capacity. "If Edison's request were granted, these projects would be severely harmed, imperiling an entire industry," it argues.
Sunray and other intervenors' accusations go beyond mere suspicion of SCE's motives, which, they point out, have shifted during the last decade. SCE, Sunray notes, until now never questioned the FERC's allowance of natural gas use by the facilities in question. SCE even worked with the owners to develop the projects, way back in the days before competition, Sunray says. And yet, "It is only now, almost two decades later, when Edison apparently wants to break these QF contracts in order to serve its own purposes and, perhaps, benefit its own affiliated generation, that Edison seeks to challenge these long closed cases."
Sunray, pointing to Edison's "enthusiastic" endorsements of solar projects a decade ago as evidence that it has done an about-face, suggests that a profit motive lies at the heart of its recent FERC action.
"The striking inconsistency between Edison's claims of harm to ratepayers and its prior enthusiastic assessments of the benefits that would flow to the consumers from the development of [solar] projects, clearly suggest that Edison is primarily concerned with its own bottom line rather than consumer welfare." And to spell it out even more clearly, the solar company adds that "it is well known that alternative energy producers have become key competitors of traditional utilities and their affiliated generation assets."
At the heart of the simmering debate is whether the 1999 federal appeals court Laidlaw decision was intended to be applied beyond that case, thereby striking down FERC orders from the mid-'80s that allowed a solar plant to burn fossil fuels for such uses as operating a gas-fired superheater, an oil-fired "emergency" steam generator, and an auxiliary gas-fired steam boiler, in order to make the plant more efficient.
The California Solar Energy Industries Association asserts that the decision, which involved not a solar facility but a landfill gas-to-energy plant, only applied to the subject QF in the case, and that "the Court was neither asked, nor did it provide, that any retroactive or generic application was appropriate. ..." But to Edison, the across-the-board application of Laidlaw is clear. "The D.C. Circuit found in Laidlaw that there is not, and never has been, any justification in the language of PURPA ... for the use of fossil fuel to improve the efficiency of the 'essential fixed assets' of a small power production qualifying facility."
In general, the intervenors defend the FERC orders allowing efficiency-enhancing fossil fuel use by citing the "core purpose" of PURPA's QF provisions: to encourage the development of small power production facilities. What does Edison have to say about that argument? That it's the same old mantra always dragged out when "excessive QF profits are threatened."
Yet for a decade-and-a-half, the solar side argues, the solar industry has developed and constructed its plants based on the "essential fixed assets" standard. "These plants were developed based on the certifications they got," says Eric Wills, president and chief executive officer of Sunray. And back when they got these certifications, Wills contends, Edison "knew exactly what was going on," and did not act until now, years later.
"You have in excess of $1.5 billion invested in these facilities, based on certifications that are final," he says. "You're talking about applying a 1999 law—which we view as in error anyway—to facilities that were certified almost two decades ago. It's not appropriate, it's not fair."
Take Away Generation—Now?
Ironically, the eruption of this, a generation issue, coincided almost perfectly with the event that has taken up virtually all the ink in the realm of California energy: skyrocketing wholesale power prices and the resulting high consumer bills.
"Every day the news reports the increasingly dire straits of the California electric system and its inability to meet consumer demand in a reliable and cost-effective manner," the California Solar Energy Industries Association observes in its intervenor filing. Calling SCE's long-term contracts with qualifying facilities "one of the best hedges against price volatility and supply shortages that the utility has," it says that "[i]n the face of such problems, and the California Governor's personal appeal to regulators to look for ways to increase generation, SCE's efforts to reduce electric generation ... [seem], at best, irrational." The association points out further that SCE recently went to the state PUC requesting permission to buy even more power from the QFs to help it meet high summer demand.
Says association executive director Nelson, "At a time when we're desperately casting the vote for new capacity [in California], it's a hugely inopportune time for [SCE] to have done this from a public relations standpoint."
In a sense, though, the battle was lost a year ago, when first came out, according to solar advocates. In Wills' view, thanks to SCE's calculated efforts that began with initiating the case, the solar industry can only hope to maintain the ground it already owned, never mind working toward further expansion.
"Basically, has killed the solar industry [from] going forward. My hat's off to Edison for killing an industry."
The solar camp had until Sept. 12 to file a response to Edison's most recent filing.
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