V. Relevant Federal Decisions and Pending Dispute Between Edison and Commerce

A. The Federal Decisions

Edison states that the need for filing this petition arose out of a pending dispute between Edison and Commerce, as well as a recent federal appellate court decision, Connecticut Valley ⁹. At issue in Connecticut Valley was whether a QF could sell its gross generator output, including the amount necessary for station use, to the purchasing utility and still retain its QF status. In Connecticut Valley, the Federal Energy Regulatory Commission (FERC) confirmed that, in accordance with its earlier precedent in Turners Falls Limited Partnership, 55 FERC ¶ 61, 487 (1991) (Turners Falls), a QF may only sell its entire generator output, less the facility's station use, at avoided cost rates to the purchasing utility. FERC recognized that to permit a QF to sell its entire generator output, including power necessary for the QF's station use, at avoided cost rates would be inconsistent with the requirements of PURPA and FERC's implementing regulations that utilities and their ratepayers be in the same financial position as if they had not purchased QF power.

Because there may have been some ambiguity on this issue when FERC's regulations first became effective in the early 1980s, and Turners Falls was the first case to definitively announce the consequences of a QF engaging in "simultaneous buy-sell," FERC stated that it would not revoke the QF status of any facility which made sales in excess of this output pursuant to a contract entered into on or before June 25, 1991 (the date of issuance of Turners Falls), if those agreements permitted "simultaneous buy-sells." This is so even though a QF does so for the first time pursuant to an option in the original contract, which option is exercised or after the issuance of Turners Falls. (Connecticut Valley, 82 FERC ¶ 61,116 at pp. 61,418-61,420.)

In denying rehearing in Connecticut Valley, FERC explained that it "grandfathered in" pre-Turners Falls contracts because FERC believed that invalidating the parties' obligations under an executed PURPA contract was inconsistent with Congress' directive of encouraging cogeneration and small power production.

"In the event that a court were to determine that a QF with a pre-Turners Falls contract that has not previously sold up to gross output does in fact have the contractual right to sell up to gross output, and that right has not been modified through, for example, the parties' course of performance, we would consider that contract to be `grandfathered in,' as is the case for those pre-Turners Falls contracts under which a QF has consistently sold up to gross output. On the other hand, were a court to determine that a QF has effectively waived its contractual right to sell up to gross output (or lacked such a right in the first instance), then that contract would not be `grandfathered in.' This approach is consistent with our desire not to upset the settled expectations of parties to pre-Turners Falls contracts. We note, however, that we doubt that many QFs, which have operated, from the time they entered into the contracts before issuance of Turners Falls in 1991 until the date of issuance of our February 11 order, as if their contracts provide for the sale of only net output, could now show that their contracts require or permit sales up to gross output." (Connecticut Valley, 83 FERC ¶ 61, 136 at p. 61,611.)

Turners Falls involved whether a QF could sell to the utility its gross output, including station use, and still maintain its QF status. Well before the issuance of Turners Falls, FERC concluded that its regulations did not permit QFs to sell its gross output to utilities at avoid cost prices. In 1981, prior to this Commission issuing the decisions at issue in this decision, FERC stated that the "power production capacity" of a QF facility is:

"[T]he maximum net output of the facility which can be safely and reliably achieved under the most favorable operating conditions likely to occur over a period of years. The net output of the facility is its send out after subtraction of power used to operate auxiliary equipment in the facility necessary for power generation (such as pumps, blowers, fuel preparation machinery, and exciters) and for other essential electricity uses in the facility from the gross generator output." (See Connecticut Valley, 82 FERC ¶ 61,116 at p. 61,416-61,417, citing Occidental Geothermal, Inc., 17 FERC ¶ 61,231 at p. 61,445. )¹⁰

In Power Developers, Inc., 32 FERC ¶ 61,101 (1985), FERC reiterated its conclusion which it found implicit in Occidental:

"Our regulations do not contemplate a qualifying facility selling its gross output to a utility. Although section 292.303(a) states that electric utilities are required to purchase 'any' energy and capacity which is made available from a qualifying facility, the Commission has interpreted the capacity of a qualifying facility for purposes of obtaining qualifying status to be its net power production output, rather than its gross output. In Occidental Geothermal, Inc., 17 FERC P 61,231 (1981), the Commission considered whether the applicant's facility was within the 80 MW limit for `power production capacity' of small power production facilities in section 292.204(a) of the regulations. The Commission there stated that the `power production capacity' of a facility is `the maximum net output of the facility which can be safely and reliably achieved under the most favorable operating conditions likely to occur over a period of several years. [footnote omitted]




"Occidental Geothermal does not specifically state that qualifying facility sales are limited to net output. However, this limitation is implicit in that order. Were a qualifying facility to sell its gross output to a utility and purchase power for internal use from the utility it would, in essence, be selling more power than the facility, standing alone, is capable of delivering." (Id. at p. 61,276.)

B. Commerce Case

Edison states that all of its active SO2 and ISO4 QF contracts were executed before Turners Falls issued. Commerce is a QF who holds a nonstandard ISO4 with Edison. A nonstandard ISO4 is a contract based on the ISO4, with some differing terms negotiated by the parties. Commerce's facility generates electricity from burning waste diverted from landfills.

Commerce has sued Edison in Los Angeles Superior Court alleging that the Operating Options terms of its contract, which Edison states are taken directly from the ISO4, permit it to engage in "simultaneous buy-sell" (i.e., sale to Edison of its gross generating output, including station use.) Like Edison's other active ISO4 contracts, the parties executed this contract before Turners Falls issued.