The Federal Energy Regulatory Commission (FERC) has upheld its February 22 ruling that the California Public Utilities Commission (CPUC) violated federal law by not considering all electric power sources in determining the avoided costs of electric utilities (Docket Nos. EL95-16-001 and EL95-19-001). A unanimous FERC had found the CPUC's Biennial Resource Plan Update auction in violation of the Public Utility Regulatory Policies Act (PURPA).
In its May ruling, the FERC offered further guidance and reaffirmed that its order does not preclude states from making policy decisions that favor particular generation technologies, as long as such actions do not result in rates above avoided costs. It added that state action may influence costs incurred by a utility. For example, a state may impose a tax on all generation produced by a particular fuel or may subsidize renewables through a tax credit.
Commissioner William L. Massey concurred with the majority, but disagreed about allowing states to consider "real"environmental costs in setting avoided costs, but not environmental adders or subtractors. According to Massey, the guidance given to the states comes dangerously close to a rule that says "only cheap power is good." He noted that many factors are difficult to quantify, such as plant location, outage rates, and startup costs. Massey called for a generic proceeding to prevent price from becoming the only relevant factor.