|November 18, 2013|
Previously published on November 14, 2013
Winding Creek Solar, a California solar developer, recently filed suit in federal court in California, claiming that the California Public Utilities Commission's (CPUC) fixed price for energy from small renewable energy developers violates the federal Public Utility Regulatory Policies Act of 1978 (PURPA).
At issue in the lawsuit is a series of decisions by the CPUC this year that adopt wholesale prices for energy that the state's investor-owned utilities are required to pay for renewable energy from facilities generating 3.0 megawatts or less. The CPUC based the rate on the costs the CPUC determined was sufficient to build a renewable energy project, instead of being based on the purchasing utility's long-term "avoided costs."
Under PURPA, enacted to encourage renewable energy development, investor-owned utilities are required to purchase all electric energy and capacity made available from small co-generation and renewable power production facilities, known as qualifying facilities, or "QFs." Federal regulations provide QFs with an option to sell at what is known as the utilities' full "avoided costs" - the cost the utility would have incurred had it generated the electricity itself or purchased the electricity from another source. The avoided costs are supposed to be determined "at the margin," i.e., the highest marginal cost being avoided. PURPA also allows the QF to sell at a rate based either on the time of delivery or the utility's estimated long-term avoided costs.
In the lawsuit, Winding Creek claims that the CPUC's rate, which is based generally on a measure of the cost of developing a 20 MW renewable energy facility, focuses in the wrong direction. In order to answer the question of what costs the utility is avoiding, Winding Creek argues the focus must be on the transaction from the utility's side, not from the renewable energy developer's side.
The CPUC has yet to answer the complaint. The lawsuit is important for at least two reasons. First, tension over PURPA continues, as utilities more and more seek administrative solutions to relieve them of their PURPA obligations. And second, California is a huge energy and renewables market, and is often a bellwether for renewable energy policies throughout the country.