On July 15, 2010, FERC ruled that sections of the Federal Power Act (“FPA”) and the Public Utility Regulatory Policies Act of 1978 (“PURPA”) do not preempt the California Public Utilities Commission’s (“CPUC”) decision to require utilities to offer a minimum price for power from certain small combined heat and power (“CHP”) generators if they are Qualifying Facilities (“QF”) under PURPA.
Earlier this year, the California legislature passed Assembly Bill 1613 (“AB 1613”), the Waste Heat and Carbon Emission Reduction Act, which mandates that regulated investor-owned utilities (“IOUs”) offer to buy power from CHPs at a price to be set by the CPUC. The CPUC required IOUs to submit 10-year standard purchase contracts (“feed-in tariffs”) for qualifying CHP generators. To qualify for the minimum price, a CHP generator may not have a generating capacity greater than 20 MW, and the facility must meet certain environmental and efficiency guidelines. The CPUC order implementing AB 1613 stated that it is not setting wholesale prices for power sales, but only is requiring utilities to offer to buy CHP power at a CPUC-set price designed to reduce greenhouse gas emissions and encourage an increase in CHP generation.
Several utilities sought rehearing of the CPUC implementation order, claiming the CPUC violated the Supremacy Clause and the FPA by attempting to set wholesale prices for energy, a power reserved for FERC. The CPUC denied rehearing and explained that they are exercising jurisdiction over the utilities’ procurement practices, not trying to govern the conduct of the CHP generators. A group of utilities and the CPUC both sought declaratory orders from FERC on whether the CPUC is preempted by federal law in this matter.
In its declaratory order, FERC stated that the CPUC implementation order was preempted by the FPA because it sets rates for wholesale power in interstate commerce. However, FERC went on to state that the CPUC could require the feed-in tariffs be set at avoided cost rates without being preempted by the FPA as long as the CHP generators qualify as QFs (which most do) under PURPA. FERC did make the caveat that its declaratory order does not address whether the CPUC’s offer price is inconsistent with the avoided cost rate requirement in section 210 of PURPA.
FERC also stated that the CPUC is not preempted from requiring IOUs to purchase power from non-QF CHPs, but the CPUC may not set wholesale rates for those generators. Non-QF CHP facilities that want to participate in the state program must file its wholesale rates under FPA Section 205 with FERC.
Finally, FERC clarified that although public agency wholesale generators are generally exempt from FERC’s jurisdiction, FERC does have authority over their distribution-level facilities and feed-in tariffs pursuant to the FPA.
FERC’s order is expected to fuel considerable debate. In response to the FERC declaratory order, the National Association of Regulatory Utility Commissioners (“NARUC”) adopted a resolution to allow its staff to advocate before FERC for its position that individual states should be allowed to determine whether public utilities within a state should be required to offer to buy power at prices set by a state commission.
The full opinion is available on FERC’s website under dockets EL10-64 and EL10-66 and here.