Update – June 5, 2018 – California PUC Defends Distributed Generation Program in Ninth Circuit Brief

Last Friday, the California Public Utilities Commission (CPUC) defended its Renewable Energy Market Adjusting Tariff (Re-Mat) program in a brief filed in the Ninth Circuit Court of Appeals. In December, a district court concluded that the program is invalid because its rate design and eligibility cap are inconsistent with the Public Utility Regulatory Policies Act (PURPA). The CPUC’s brief argues that the lower court’s “narrow” focus on PURPA’s technical rules ignores both the wide discretion that states have to implement the law and California’s long history of exceeding the statute’s goals of promoting efficiency and renewable energy.

The Re-MAT program provides a feed-in tariff to renewable facilities sized up to three megawatts. For each program procurement, the CPUC may adjust the rate based on generator offers. Each procurement is capped, and the total program is limited to 750 MW across the state. The district court held that these two features violate PURPA, a 1978 law that requires utilities to purchase energy from certain renewable generators and cogenerators. It concluded that the rate was untethered to a utility’s avoided costs and the program caps were inconsistent with a utility’s obligation under the statute to purchase all energy from Qualifying Facilities (QF).

The CPUC defended Re-MAT, in part, by pointing to its “Standard Contract” and arguing that it satisfies the state’s obligation to provide a PURPA-compliant option for QFs. Citing FERC’s regulations, the district court found that a state must offer QFs a rate based on utility avoided costs calculated either “at the time of delivery” or “at the time the obligation is incurred.” According to the court, California’s Standard Contract offers only the former, essentially denying QFs the certainty of a long-term fixed price locked when the utility incurs a legal obligation to purchase energy, and therefore does not excuse the CPUC for Re-MAT’s non-compliance with PURPA.

The CPUC’s brief recounts California’s forty-year history of PURPA implementation and concludes that Re-MAT is “the CPUC’s most mature attempt to capture the coequal goals under PURPA [of affordability and investor attraction] that are inherently in tension with each other.” In the 1980s, the CPUC established long-term contracts with rates based on long-term forecasts of utility avoided costs. While this scheme resulted in massive private investment in QF capacity, the forecasted higher costs never materialized and the contracts ultimately obligated ratepayers to pay above-market prices. The CPUC’s efforts to alter its PURPA implementation triggered years of litigation and ultimately culminated in a settlement with utilities and QFs about the current Standard Contract.

The CPUC argues that the complainant and lower court erroneously focus on “one, narrow, technical aspect of the PURPA equation: that [a QF] is entitled to a contract at an administrative determined price based on forecasts at the moment it wants it,” and ignore how the Standard Contract is consistent with PURPA’s underlying goals, Supreme Court precedent, and FERC’s other regulations. The CPUC also argues that even if the Standard Contract does not provide a complete defense to complainant’s Re-MAT challenge, Re-MAT itself is consistent with states’ “broad authority” to set rates under PURPA.

The CPUC’s brief is available on the California page.