3. Federal Law and Proceeding Scope

This proceeding was initiated in part to fulfill the statutory requirements that EISA added to PURPA and in part to develop state policies that develop a Smart Grid in ways beneficial to California and consistent with state policies towards renewable energy, distributed generation, combined heat and power, demand response, and other programs already in place.

The September 28, 2009, Joint Ruling proposed a legal analysis of what the federal statutes require the Commission to consider and invited parties to comment. Because EISA creates specific tasks for this Commission, we repeat this analysis.

3.1. The EISA Amendments to PURPA Create Five Tasks for This Proceeding

Section 1307 of EISA amended § 111(d)25 of PURPA by adding two paragraphs regarding the Smart Grid. After corrections of initial clerical errors,26 these became paragraphs 18 and 19 in 16 U.S.C. § 2621(d). For clarity, we include them here:

16 U.S.C. § 2621(d)(18) Consideration of Smart Grid investments.

(A) In general. Each State shall consider requiring that, prior to undertaking investments in nonadvanced grid technologies, an electric utility of the State demonstrate to the State that the electric utility considered an investment in a qualified smart grid system based on appropriate factors, including -

      (i) total costs;

      (ii) cost-effectiveness;

      (iii) improved reliability;

      (iv) security;

      (v) system performance; and

      (vi) societal benefit.

(B) Rate recovery. Each State shall consider authorizing each electric utility of the State to recover from ratepayers any capital, operating expenditure, or other costs of the electric utility relating to the deployment of a qualified smart grid system, including a reasonable rate of return on the capital expenditures of the electric utility for the deployment of the qualified smart grid system.

(C) Obsolete equipment. Each State shall consider authorizing any electric utility or other party of the State to deploy a qualified smart grid system to recover in a timely manner the remaining book-value costs of any equipment rendered obsolete by the deployment of the qualified smart grid system, based on the remaining depreciable life of the obsolete equipment.

and

16 U.S.C. § 2621(d)(19) Smart Grid information.

(A) Standard. All electricity purchasers shall be provided direct access, in written or electronic machine-readable form as appropriate, to information from their electricity provider as provided in subparagraph (B).

(B) Information. Information provided under this section, to the extent practicable, shall include:

      (i) Prices. Purchasers and other interested persons shall be provided with information on - (I) time-based electricity prices in the wholesale electricity market; and (II) time-based electricity retail prices or rates that are available to the purchasers.

      (ii) Usage. Purchasers shall be provided with the number of electricity units, expressed in kWh, purchased by them.

      (iii) Intervals and projections. Updates of information on prices and usage shall be offered on not less than a daily basis, shall include hourly price and use information, where available, and shall include a day-ahead projection of such price information to the extent available.

      (iv) Sources. Purchasers and other interested persons shall be provided annually with written information on the sources of the power provided by the utility, to the extent it can be determined, by type of generation, including greenhouse gas emissions associated with each type of generation, for intervals during which such information is available on a cost-effective basis.

(C) Access. Purchasers shall be able to access their own information at any time through the Internet and on other means of communication elected by that utility for Smart Grid applications. Other interested persons shall be able to access information not specific to any purchaser through the Internet. Information specific to any purchaser shall be provided solely to that purchaser.

Because of the structure of PURPA, the obligations imposed upon states by regulatory standards adopted in paragraphs 18 and 19 become clear only through a reading of the introductory section of 16 U.S.C. § 2621 and 16 U.S.C. § 2611:

16 U.S.C. § 2621:

(a) Consideration and determination. Each State regulatory authority (with respect to each electric utility for which it has ratemaking authority) and each nonregulated electric utility shall consider each standard established by subsection (d) and make a determination concerning whether or not it is appropriate to implement such standard to carry out the purposes of this chapter. For purposes of such consideration and determination in accordance with subsections (b) and (c), and for purposes of any review of such consideration and determination in any court in accordance with section 123 [16 USCS § 2633], the purposes of this title supplement otherwise applicable State law. Nothing in this subsection prohibits any State regulatory authority or nonregulated electric utility from making any determination that it is not appropriate to implement any such standard, pursuant to its authority under otherwise applicable State law.

(b) Procedural requirements for consideration and determination.

    (1) The consideration referred to in subsection (a) shall be made after public notice and hearing. The determination referred to in subsection (a) shall be -

      (A) in writing,

      (B) based upon findings included in such determination and upon the evidence presented at the hearing, and

      (C) available to the public.

    (2) Except as otherwise provided in paragraph (1), in the second sentence of § 112(a) [16 USCS § 2622(a)], and in §§ 121 and 122 [16 USCS §§ 2631, 2632], the procedures for the consideration and determination referred to in subsection (a) shall be those established by the State regulatory authority or the nonregulated electric utility.

(c) Implementation.

    (1) The State regulatory authority (with respect to each electric utility for which it has ratemaking authority) or nonregulated electric utility may, to the extent consistent with otherwise applicable State law -

      (A) implement any such standard determined under subsection (a) to be appropriate to carry out the purposes of this chapter, or

      (B) decline to implement any such standard.

    (2) If a State regulatory authority (with respect to each electric utility for which it has ratemaking authority) or nonregulated electric utility declines to implement any standard established by subsection (d) which is determined under subsection (a) to be appropriate to carry out the purposes of this title, such authority or nonregulated electric utility shall state in writing the reasons therefore. Such statement of reasons shall be available to the public.

    (3) If a State regulatory authority implements a standard established by subsection (d)(7) or (8), such authority shall-

      (A) consider the impact that implementation of such standard would have on small businesses engaged in the design, sale, supply, installation or servicing of energy conservation, energy efficiency or other demand side management measures, and

      (B) implement such standard so as to assure that utility actions would not provide such utilities with unfair competitive advantages over such small businesses.

Thus, this section of PURPA sets rules on how the Commission, acting for the state of California, is to "determine" whether to adopt a particular requirement. The Commission is to "make a determination concerning whether or not it is appropriate to implement such standard to carry out the purposes of this chapter." In making this determination, PURPA requires the Commission to provide public notice, make the determination in writing, make findings that support the determination based on evidence presented, and make the determination available to the public.

Furthermore, the "purposes of this chapter" are defined not in EISA, but in § 2611 of PURPA. It reads as follows:

16 U.S.C. § 2611:

The purposes of this chapter are to encourage: (1) conservation of energy supplied by electric utilities; (2) the optimization of the efficiency of use of facilities and resources by electric utilities; and (3) equitable rates to electric consumers.

In addition, even if the Commission determines that a requirement would advance the purposes of the act, the Commission has authority under PURPA to either implement or decline to implement the standard. If the Commission declines to implement a standard deemed as advancing the purposes of the act, however, the Commission must explain its reasons for so doing.

To summarize, the EISA amendments, in the context of PURPA, impose on states an obligation to determine whether to adopt a specific statutory standard as consistent with the purposes of the act and then to determine whether to impose the standard on each utility subject to state ratemaking jurisdiction. The law delegates to the state broad power, to the extent consistent with state law, to determine the specific requirements of the standards as long as they are "consistent with the purposes of this chapter."

Finally, 16 U.S.C. § 2622 requests that the states make the determinations required by 16 U.S.C. § 2621. EISA amended 16 U.S.C. § 2622(b), which generally contains time limitations, to add a timetable for a state's determinations of whether to adopt the standards proposed in 16 U.S.C. § 2621(d)(18) and (19). Specifically, 16 U.S.C. § 2622(b)(6) now reads:

    (6) (A) Not later than 1 year after December 19, 2007, each State regulatory authority (with respect to each electric utility for which it has ratemaking authority) and each nonregulated utility shall commence the consideration referred to in section 2621 of this title, or set a hearing date for consideration, with respect to the standards established by paragraphs (17) through (18) of section 2621(d) of this title.

In addition, we note that 16 U.S.C. § 2622(d) states:

(d) Prior State actions. Subsections (b) and (c) of this section shall not apply to the standards established by paragraphs (11) through (13) and paragraphs (16) through (19) of section 111(d) [16 USCS § 2621(d)] in the case of any electric utility in a State if, before the enactment of this subsection -- (1) the State has implemented for such utility the standard concerned (or a comparable standard); (2) the State regulatory authority for such State or relevant nonregulated electric utility has conducted a proceeding to consider implementation of the standard concerned (or a comparable standard) for such utility; or (3) the State legislature has voted on the implementation of such standard (or a comparable standard) for such utility.

16 U.S.C. § 2622 also states:

In the case of the standards established by paragraphs (16) through (19) of section 111(d) [16 USCS § 2621(d)], the reference contained in this subsection to the date of enactment of this Act shall be deemed to be a reference to the date of enactment of such paragraphs [enacted Dec. 19, 2007].

As a result, this proceeding will determine for each electric utility under the Commission's ratemaking authority the following questions pertaining to ratemaking:

1. Whether to require a consideration of Smart Grid investments before making any new investment in the grid;

2. Whether to adopt a special ratemaking treatment for Smart Grid investments; and

3. Whether the Commission should adopt a policy authorizing a utility to recover the remaining book value of equipment made obsolete by Smart Grid investments.

In addition, the proceeding must also consider requirements for information disclosure to customers by electric utilities. Specifically,

4. Whether to require utilities to provide customers with access in written and/or electronic form to information concerning

    (i) Prices.

    (ii) Usage.

    (iii) Daily updates of prices with details on hourly basis and day ahead projections to the extent available.

    (iv) Sources - annually with written information on the sources of the power provided by the utility, to the extent it can be determined, by type of generation, including greenhouse gas emissions associated with each type of generation, for intervals during which such information is available on a cost-effective basis.

5. Whether to impose a requirement on utilities to provide purchasers of electric power with access to their own information at any time through the Internet and on other means of communication elected by that utility for Smart Grid applications and whether to provide to other interested persons access to information on electricity use and prices not specific to any purchaser through the Internet. Whether Information specific to any purchaser should be provided solely to that purchaser.

For each of these requirements, the Commission will consider whether, in the California context, the requirement is consistent with the purposes of EISA and whether to impose the requirement.

3.2. Comments Pertaining to Legal Analysis in the Joint Ruling

Few parties to the proceeding commented on the legal analysis contained in the Joint Ruling.

DRA states that "[t]he Ruling accurately describes the Commission's legal obligations under the Public Utilities Regulatory Policies Act (PURPA), as amended by the Energy Information and Security Act."27 DRA argues that the "ruling fails to mention that for PURPA Section 111(d) paragraph 18, the prior state actions must have occurred before August 8, 2005."28 This comment, however, overlooks 16 U.S.C. § 2622, which states "the reference contained in this subsection to the date of enactment of this Act shall be deemed to be a reference to the date of enactment of such paragraphs [enacted Dec. 19, 2007]." This section effectively changes the August 8, 2005 date to December 19, 2007.

CFC argues that full evidentiary hearings are needed to comply with the requirements of EISA.29

CFC fails to identify a factual dispute that would warrant hearings. For example, CFC asks for hearings, because, among other things "[w]e don't know how SDG&E defines `smart grid.'"30 This, however, is not a factual dispute. Moreover, we see no reason to define smart grid at this time beyond the characteristics contained in EISA. We further note that no party joins CFC in this request of hearings.

Concerning the federal requirements to provide public notice, to make determinations in writing, and to make findings that support determinations based on evidence presented, we note that the Commission's standard procedures comport with state statutory requirements that impose these requirements on the Commission. Moreover, the record on several of the EISA topics is already quite extensive.

We further note that Commission procedures guarantee that the conclusions the Commission reaches will be publicly available in the form of a written decision, which will be subject to public notice and comment. For these reasons, Commission deliberation creates a process that conforms to the procedural requirements of PURPA as amended by EISA.

For these reasons, there is no reason to amend the legal analysis contained in the Joint Ruling.

25 16 U.S.C. 2621(d).

26 The corrections to the numbering of paragraphs were made in the Recovery Act.

27 DRA Comments on Joint Ruling at 2.

28 Id.

29 CFC Comments on Joint Ruling at 2.

30 Id. at 3.

Previous PageTop Of PageNext PageGo To First Page