Overview
One very significant set of cases seems to have been overturned in Order No. 872, although more clarity could have been provided and a regulation is needed to make any reversal binding on the courts.
In 2010, in CPUC, FERC reversed 15 years of precedent and found that an avoided cost rate could be based on a subset of resources, as opposed to all resources. FERC, speaking permissively, said that a state with a renewable portfolio standard (RPS) may set an avoided cost rate foe renewables if the utility had not yet met the mandate. In short, the concept the tiered avoided costs was born. Several years later, the Ninth Circuit interpreted this permissive wording as mandatory, holding that if an RPS existed and a QF could meet that need, the avoided cost rate has to be based on only renewables.
In Order No. 872, commenter Harvard Electricity Law is noted as asking for clarification on tiered rates generally. In answering the question, FERC does not mention Harvard Electricity Law by name but states that “Because the Commission already requires states to set QF rates at full avoided costs, it is barred from requiring QF rates set higher than that based on the non-energy benefits that QFs may also provide. However, nothing in PURPA, the PURPA Regulations as they currently exist, or this final rule would prevent states from rewarding QFs for such non-energy benefits so long as that is done outside of PURPA, such as is now done for renewable energy credits (RECs) to compensate QFs for providing unique environmental or other non-PURPA benefits.” This statement may well be a rejection of Harvard Electricity Law’s position, indicating that benefits of renewables cannot be taken into account in avoided cost pricing.
Harvard Electricity Law also sought clarity that a competitive solicitation could be limited to renewables in accordance with CARE v. CPUC. FERC indicated that it was requiring “that solicitations must be open to all sources to satisfy the purchasing electric utility’s capacity needs, taking into account the required operating characteristics of the needed capacity,” but declined “to remove the phrase ‘taking into account the operating characteristics of the needed capacity.’” Emphasis added. FERC explained the caveat to mean that “[t]here may be times when a utility needs capacity with specific attributes, such as specific ramping capability, that cannot be filled by certain types of generators. However, we agree with Public Interest Organizations that this phrase may not be used to define characteristics of only non-QF generation or to allow a utility to select favored generators.”
Although it may be obvious that FERC meant that a state could only exclude resources if operationally they could not meet a need, QFs and their supporters may read this wording in their favor, leaving the question ripe for a clarification request, as FERC did not state explicitly that it was reversing the two above-referenced cases. Likely we will see demands that the “all resource” policy be codified in the regulations, given the Ninth Circuit’s decision.
