12. Changes Needed to Contracts in Light of Subsequent FERC Orders
The FERC Declaratory Order states that the AB 1613 program is not preempted by the FPA or PURPA as long as: (1) the CHP generators from which the CPUC is requiring the Joint Utilities to purchase energy and capacity are QFs pursuant to PURPA; and (2) the rate established by the CPUC does not exceed the avoided cost of the purchasing utility."20 Furthermore, FERC clarifies that "any ruling on the extent of federal preemption of the CPUC's AB 1613 program does not apply to public agency sellers that are exempt from Commission jurisdiction under section 201(f) of the FPA."21
In addition, the FERC Clarification Order supports a wide degree of latitude for the Commission to establish a utility's avoided cost; found that the concept of a multi-tiered avoided cost rate structure is consistent with the avoided cost requirements set forth in Section 210 of PURPA and FERC regulation; and recognizes that full avoided cost need not be the lowest possible avoided cost and can properly take into account real limitations on alternate sources of energy imposed by state law.22
The significance of the FERC's Clarification Order is that in contrast to its Southern California Edison Company decisions in the 1990s, where FERC required states to consider purchases from "all sources," including coal-fired generation, in setting avoided costs, the FERC's Clarification Order rules that all sources can be limited to those that are available to the utilities under state law.23
In consideration of the FERC Declaratory Order, the Commission's September 2010 Amended Scoping Memo asked parties to comment on two questions:
1. What changes are necessary to the contracts approved under D.09-12-042 to reflect the requirement for QF certification in addition to the already mandated certification from California Energy Commission (CEC)?
2. If a QF already certified for and participating in the
feed-in-tariff program loses its CEC certification under
AB 1613 but maintains QF certification by FERC, what should the contract provide as the alternative rate for the QF (e.g., should the QF receive short run avoided cost pricing)?
Several parties commented that the contract should be amended to ensure that the Seller is in compliance with QF requirements. PG&E suggested specific changes to the definition of "eligible CHP facility" to address this issue. Furthermore, CCDC and FCE point out that public entities need not obtain QF certification and any contract changes should make this clear. SCE suggests that all QFs, including the AB 1613 QFs, utilize the QF standard contract developed in accordance the global QF Settlement.
Regarding the event that a QF loses its AB 1613 certification, CCDC, San Joaquin, and FCE contend that the QF would be eligible for the applicable QF rate, namely Short Run Avoided Cost as developed in D.07-09-040. SDG&E and PG&E contend that in such a situation, the facility would be in default of a material term of the contract and no longer entitled to participate in the AB 1613 program.
12.1. Discussion
In light of the FERC Declaratory Order, CHP facilities not exempt from FERC jurisdiction, which are participating in the AB 1613 feed-in-tariff program, must obtain QF status under PURPA requirements in order to be eligible for the avoided cost rates assigned by the Commission. The requirement to obtain QF status does not preclude the requirement for a CHP facility to also obtain certification from the CEC that it meets the higher efficiency standards as prescribed in AB 1613.
We agree with PG&E's suggested edits to the definition of "eligible facility" as applicable to address this issue. Specifically, we adopt the following change to the definition of "eligible facility" in the standard and simplified contracts for AB 1613:
"Eligible CHP Facility" means a facility, as defined by Public Utilities Code Section 2840.2, subdivisions (a) and (b) that,
(1) meets the guidelines established by the California Energy Commission pursuant to Public Utilities Code § 2843 and,
(2) meets the requirements of 18 Code of Federal Regulations
§ 292.201, et seq., if applicable.
In the event that a facility is decertified by CEC, we agree with parties that this constitutes an event of default of the AB 1613 feed-in tariff rates under the contract. However, the CPUC cannot decertify a facility from its QF status; only the FERC can decertify a QF. If a facility were to fall below the minimum
AB 1613 contract requirements, but still meet the requirements needed to retain its QF status, it would still be eligible to obtain a QF standard offer contract with a short-run avoided cost rate as ordered in D.07-09-040, if still in effect, or participate in any programs that supersede D.07-09-040. In no event may a utility unilaterally declare a default under the AB 1613 contract without the CEC decertifying the facility, just like a utility may not unilaterally declare a QF is in default under a QF contract without the FERC finding that the facility has lost its QF status. If the utility believes that a QF is not in compliance with federal standards, the utility may petition FERC to revoke the QF's status.24
In this regard, consistent with the "flexible pricing mechanisms," which the Ninth Circuit found were proper remedies for states25 and the "multi-tiered avoided cost rates structure," which the FERC Clarification Order explained states may adopt for CHP generators,26 we find that an AB 1613 compliant CHP facility is entitled to the AB 1613 pricing formula provided herein. However, in the event of decertification by the CEC, the contract should provide that the CHP generator should then be entitled to the established short-run avoided cost rate at the time of the CEC's decertification, and the utility should offer the CHP generator the standard offer contract associated with that rate. To the extent that the FERC were to revoke the QF status of the CHP generator, then the utility's obligation would be governed by the remedy provided at the time of the FERC's revocation of QF status. The utilities are directed to modify the AB 1613 contracts to be consistent with this discussion.
We do not agree with SCE's comments that changing the contract option reflects an alternative avoided cost based on facility efficiency. This is an improper assumption because avoided cost is based not on the facility's performance but on the cost avoided by the utility. As explained in D.09-12-042 and D.10-04-055, the pricing in this program represents a long-run avoided cost. D.10-04-055 states that short run avoided cost prices "adopted in D.07-09-040 do not accurately reflect the price avoided by an eligible CHP facility under the
AB 1613 program."27 In addition, D.10-04-055 reaffirms that a new
combined-cycle gas turbine "represents a reasonable proxy for the generation source that a utility would have to procure if not for a CHP facility participation in the AB 1613 program."28 FERC's Clarification Order also allows for this
multi-tiered approach to avoided cost.
20 California Public Utilities Commission et al., 132 FERC ¶ 61,047 at 67.
21 Id. at 71.
22 California Public Utilities Commission et al., 133 FERC ¶ 61,059 at 26-30.
23 Id. at 30.
24 Independent Energy Producers Association, Inc. v. CPUC (9th Cir. 1994) 36 F.3d 848, 859.
25 Id.
26 California Public Utilities Commission, 133 FERC ¶ 61,059 at 30.
27 D.10-04-055 at 11.
28 Id. at 8.
