APPA News

by Ethan Howland
APPA News
Posted August 8, 2019

A California renewable energy program and a related standard offer contract violate the Public Utility Regulatory Policies Act, according to the Ninth Circuit Court of Appeals.

The July 29 decision could affect renewable energy developers in the West and comes as the Federal Energy Regulatory Commission is considering revamping its rules governing PURPA.

Under PURPA, electric utilities are generally required to buy power from renewable and cogeneration generating facilities, called qualifying facilities, or QFs, at a utility's avoided cost rate set by state regulators. The court noted that PURPA requires utilities to purchase all power that QFs produce. PURPA became law in the late 1970s in an effort to promote domestic power production.

There are about 20,000 megawatts of existing renewable PURPA generation and about 24,000 MW is under development, including 5,900 MW in North Carolina, followed by 2,900 MW in Oregon and 2,400 MW in Utah, according to a 2018 report by the Brattle Group, a consulting firm.

The court decision centers on the California Public Utilities Commission's Renewable Market Adjusting Tariff (Re-MAT), a feed-in tariff program for generators under 3 MW that includes a 750-MW cap.

Under the Re-MAT program, PURPA qualifying facilities are placed in a queue on a first-come, first-served basis. Every two months, utilities offer QFs at the head of the queue in their service territories a pre-defined price. QFs that reject the price keep their place in the queue for the next offering.

The PUC also offers a standard contract for QFs as an alternate to the Re-MAT program. The contract is based on an avoided-cost rate based on six variables. In a key factor in the court’s decision, three of the variables — burner tip gas price, market heat rate, and a location adjustment factor — cannot be determined at the time contracts are entered into.

The lawsuit was brought by Winding Creek Solar, an Allco Renewable Energy subsidiary developing a 1-MW solar project near Lodi, California. The project was in the Re-MAT queue and in 2014 received an offer of $77.23 per megawatt-hour, according to the court decision. Allco rejected the offer and other ones the company said were too low to enable development of the project to move forward.

Initially, Allco challenged the Re-MAT program at FERC, arguing the program violated PURPA by setting a 750-MW statewide cap under the feed-in tariff.

FERC in 2015 found the Re-MAT program did not violate PURPA because QFs could opt for a standard contract.

However, in December 2017 the U.S. District Court for the Northern District of California ruled the Re-MAT program and the standard contract violated PURPA. The PUC in response suspended the Re-MAT program and launched a rulemaking to craft a new standard contract.

The appeals court upheld the district court decision, finding the Re-MAT program violates PURPA in two ways. First, the cap is impermissible under the law’s must-take provision, the court said.

Second, Re-MAT’s pricing scheme strays from the requirement that utilities buy electricity from QFs at their avoided cost, according to the court.

“The Re-MAT price, which is arbitrarily adjusted every two months according to the QFs’ willingness to supply energy at the pre-defined price, strays too far afield from a utility’s but-for costs to satisfy PURPA,” the court said.

The court rejected the PUC’s argument that the Re-MAT program is nonetheless permissible because QFs can opt to sell their power under a standard contract.

The standard contract program also violates PURPA because it fails to give QFs the option to calculate avoided cost at the time of contracting, the court said.

Meanwhile, FERC is considering possible changes to its regulations implementing PURPA.

In an Aug. 2 interview with the American Public Power Association, FERC Commissioner Richard Glick said some PURPA regulations should be updated, including the so-called one-mile rule that allows projects at least a mile apart to be treated as separate facilities. Utilities and others contend project developers use the rule to break up what is effectively a single, large project in order to stay within PURPA’s size limits.

Any major changes to PURPA need to come from Congress, according to Glick.