On June 16, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) allowed three utilities to terminate their mandatory purchase obligations that would have required new contracts with qualifying cogeneration and small power production facilities (“QF”) with over 20 MW of net capacity under the Public Utility Regulatory Policies Act of 1978 (“PURPA”).

According to PURPA, utilities have to buy from QFs with a net capacity greater than 20 MW within their service territory, unless there is a showing that the QFs have non-discriminatory access to competitive wholesale markets for the sale of capacity and electricity.  On March 18, 2011, Pacific Gas and Electric Company (“PG&E”), San Diego Gas & Electric Company (“SDG&E”), and Southern California Edison (“SoCal Edison”) applied to FERC to have their mandatory purchase obligations terminated on the basis that their territories offer competitive and comparable wholesale markets to those outlined in PURPA section 293.309.  The investor-owned utilities (“IOUs”) argued the wholesale markets are available through four components:

  1. California’s Combined Heat and Power (CHP) Program;
  2. California’s Renewable Portfolio Standard (RPS) Program;
  3. California’s Resource Adequacy (RA) requirements; and
  4. California Independent System Operator Corporation’s (CAISO) implementation of the Market Redesign and Technology Upgrade (MRTU) day-ahead market. 

In approving the applications of PG&E, SDG&E, and SoCal Edison, the Commission considered that none of the affected QFs protested the IOUs’ application.  Also, FERC noted that the parties that did protest were concerned with the potential for buyers to lose choice once IOUs are not required to purchase from QFs.  However, the Commission responded that FERC was statutorily obligated to focus on the QF perspective, not the buyer’s.

Chairman Wellinghoff concurred with the majority, and acknowledged the hard work of the California Public Utilities Commission while noting the importance of the QFs in California.  Chairman Wellinghoff also took the opportunity to promote demand response as a vehicle for California to “bring efficiencies to all market customers.”

A copy of the full order and Wellinghoff’s concurrence is available here.