On September 20, 2012, FERC granted Idaho Wind Partners 1, LLC’s (“Idaho Wind”) June 15, 2012 petition for declaratory order finding that Idaho Power Company’s (“Idaho Power”) proposed Schedule 74 curtailment policy, if approved by the  Idaho Public Utilities Commission (“Idaho PUC”), would be inconsistent with section 210 of the Public Utility Regulatory Policies Act (“PURPA”) and the Commission’s regulations.

The dispute between the parties focused on differing interpretations of Section 304(f) of the Commission’s PURPA regulations, which states that a utility “will not be required to purchase electric energy or capacity during any period which, due to operational circumstances, purchases from qualifying facilities will result in costs greater than those which the utility would incur if it did not make such purchases, but instead generated an equivalent amount of energy itself.”

In the petition, Idaho Wind argued that PURPA does not allow a utility to unilaterally curtail purchases from fixed avoided cost contracts, and instead Section 304(f) applies only to those qualifying facility (“QF”) contracts where the avoided cost rate is determined at the time of delivery.  This interpretation of Section 304(f) would then give utilities a way to notify a QF with an avoided cost rate determined at the time of delivery that it should not deliver, as doing so would mean the QF would have to pay the utility to take its power.  Idaho Wind argued that parties to a fixed avoided cost rate contract have opted to calculate the rate on an average or composite basis that already reflects variations in the value of the purchase, and the parties intend that rate to be locked in for the entire term.

In contrast, Idaho Power had argued that Section 304(f) does apply to both fixed avoided cost contracts and those determined at the time of delivery, a position that was supported by Idaho PUC staff.  As such, Idaho Power argued that Section 304(f) gives it the authority to unilaterally curtail QF purchases based on a claimed negative avoided cost rate at the time of delivery for all contracts.  (See June 30, 2012 edition of the WER.)

Though the Idaho PUC has not yet ruled on the proposal, FERC found it appropriate to exercise its discretion at this time “to remove uncertainty” and to rule on the potential PURPA violation.  Specifically, FERC stated that “[l]eaving resolution of this issue until after the conclusion of the Idaho Commission proceeding would result in more uncertainty and, as Idaho Wind’s petition alleges, could lead to unnecessary and potentially significant financial consequences for Idaho Wind and similarly situated QFs.”   FERC clarified that the purpose underlying Section 304(f) is to preserve contractual and other legally enforceable obligations that are incurred by the electric utility when purchasing from a QF.  FERC went on to state that “a utility may not curtail unilaterally where the QF electric energy is purchased, as here, pursuant to a long-term obligation.”  As such, FERC granted Idaho Wind’s petition and found that Idaho Power’s proposed Schedule 74 curtailment policy would be inconsistent with PURPA.

Commissioner Tony Clark dissented from the order, questioning the wisdom of FERC’s intervention in a pending state proceeding.  He said FERC should not put its “thumb on the scale prior to the state commission even finishing its work….”

To read the FERC Order, click here.