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District court finds CPUC feed-in tariff violates PURPA, FERC's regulations

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District court finds CPUC feed-in tariff violates PURPA, FERC's regulations

A federal district court on Dec. 6 found that a California feed-in tariff program designed to facilitate investment and deployment of renewable energy in the state violates the Public Utility Regulatory Policies Act and the Federal Energy Regulatory Commission's rules implementing that statute.

The United States District Court for the Northern District of California's order granting summary judgment on behalf of Winding Creek Solar, which seeks to develop the 1-MW Winding Creek Solar Project in Lodi, Calif., explained that the "renewable market-adjusting tariff," or Re-MAT, program "is not [Public Utility Regulatory Policies Act, or PURPA] compliant in at least two independent ways."

In particular, District Judge James Donato, who penned the order, took issue with the program because it caps the amount of power the state's three largest investor-owned utilities must buy from small renewable generation projects and allows those utilities to buy that power at a rate not based on their avoided costs.

Enacted in 1978, PURPA was designed to ensure that renewable, combined heat and power and certain other nonutility generators known as qualifying facilities, or QFs, have a reliable means of selling the electricity they produce. FERC's regulations implementing that law require utilities to buy power from QFs in their service territories — frequently referred to as a "must-take obligation" — at rates that are equivalent to the amount those utilities would have to pay to buy that same power from other generators or produce it themselves.

Under California's Re-MAT program, Pacific Gas and Electric Co., Southern California Edison Co. and San Diego Gas & Electric Co. are required to buy power from small renewable generation projects until a collective statewide cap of 750 MW is reached. The 750 MW is allocated among the utilities based on their customers' share of the state-wide peak electricity demand. Moreover, in order to provide "market supply signals" aimed at encouraging generators to enter or leave the market, the prices paid for each bimonthly program period are based on the outcome and price adjustments of the previous program period.

Winding Creek in June 2013 asked (FERC docket EL13-71) FERC to bring an enforcement action against the California Public Utilities Commission, or CPUC, over the state regulator's orders establishing the Re-MAT program. FERC declined to do so, and instead advised Winding Creek that it was free to initiate its own enforcement action in the appropriate court. Winding Creek ultimately took the matter back to FERC in March 2015 (FERC docket EL15-52) based on that agency's more recent findings that certain caps can violate PURPA. FERC again refused to intervene, and this time went a step further by declaring that Winding Creek had not demonstrated the Re-MAT program violates PURPA.

Winding Creek responded by turning to the federal district court, instituting a lawsuit (Winding Creek Solar LLC v. Michael Peevey, et al.; Case No. 13-cv-04934-JD) that Donato in his order on summary judgment said "has been fought hard over a number of years." But "despite the complex regulatory and factual background here, the key legal issues turned out to be straightforward, and the scope of the parties' actual dispute quite narrow," Donato added.

Noting that PURPA and FERC's regulations specify that a utility must buy "any energy and capacity which is made available from a qualifying facility" within its service territory, the court said it "does not require significant legal analysis to conclude that CPUC's imposition of caps in the Re-MAT program violates the must-take obligation."

Donato found the other issue raised by Winding Creek to be similarly straightforward, noting that the complex "reverse auction" process used to set Re-MAT prices is "burdened with arbitrary rules, such as a randomly selected two-month time period (as opposed to any other) and price adjustments applied in $4 increments — a method that even the CPUC witness acknowledged was without a reasoned basis." That procedure "strays too far from basing prices on a utility's but-for cost, which the statute and regulations require," according to the order.

The court rejected the CPUC's argument that whether the Re-MAT program is PURPA-compliant is irrelevant because QFs also have the choice of entering into a "standard contract for QFs 20 MW or less." While the CPUC argued that the standard contract fully satisfies PURPA, Donato insisted it "does not — and cannot — offer" QFs the option of receiving an avoided cost rate calculated either at the time of delivery or at the time the obligation is incurred, as FERC's regulations mandate.

The energy price for the standard contract is a formula rate, and "defendants acknowledge, as they must, that 'a single formula or pricing mechanism does not comply with both'" the required pricing options, Donato said.

Finally, among other things, the court dismissed the CPUC's reliance on FERC's order stating that Winding Creek failed to show that the Re-MAT program violates PURPA, finding that the decision does "not speak to the salient issues here." Donato noted that FERC merely found the Re-MAT program is an alternative to the standard contract — the primary PURPA program — which provides "a long-term PURPA contract at an avoided cost rate."

FERC never "mentions, let alone meaningfully discusses, the two pricing options that are required ... or how the standard contract, the Re-MAT program, or some combination of the two, satisfies those requirements," the court said.