On September 23, 2016, the US District Court in Massachusetts granted summary judgment in favor of Allco, a Qualifying Facility (QF) Petitioner, who challenged the avoided-cost pricing regime of the Massachusetts Department of Public Utilities (MDPU). Eligible QFs are entitled to provide energy on an “as available basis” or energy or capacity pursuant to a legally enforceable obligation (e.g., a contract). If the latter option is used, the rate, at the option of the QF, must be at the utility’s avoided cost either calculated at the time of delivery or calculated at the time the obligation is incurred. 18 C.F.R. § 292.304(d)(2)(i-ii).
The MDPU adopted a regulation that included a standard power purchase contract, with a rate for QFs larger than 1 MW that compensated QFs based on the price the utility paid for power from the “ISO power exchange” (i.e., ISO-New England). Allco argued that this MBPU regulation is in direct conflict with FERC’s rule that QFs are entitled to a rate calculated at the time an enforceable obligation is incurred and that the rate should be based on a forecast price, not a fluctuating market price. Allco moved for summary judgment on whether the MDPU regulation complied with FERC’s rule.
Allco argued that because the spot market rate fluctuates hourly and cannot be determined in advance, the rate is “calculated at the time of delivery” and denied QFs the option of choosing a rate calculated at the time of contracting. The district court agreed with Allco that the State did not have the authority to eliminate one of the FERC options. The court rejected the argument that the MDPU regulations effectuated congressional intent by eliminating the possibility that utilities would be locked into contracts in excess of avoided cost (market price) to the detriment of consumers. The court focused on FERC precedent that a fixed contract price provides a potential investor in a QF with reasonable certainty about the expected return on its investment.
This decision may have repercussions in states that rely on short-term market prices to set QF avoided cost rates with no other pricing options for the QF. If you have any questions or for further information, please feel free to contact Jennifer Key at +1 202 429-6746 or Rick Roberts at +1 202 429-6756.