Update – December 7, 2017 – Federal Court Preempts California Feed-In Tariff

Yesterday, a federal district court held that California’s “Renewable Market-Adjusting Tariff” program (Re-MAT) is preempted because it is inconsistent with PURPA. The court concluded that two aspects of the state’s feed-in tariff program for resources smaller than three megawatts conflict with the statute and FERC’s regulations: 1) the program has a statewide 750 MW cap; and 2) the tariff rate is not based on a utility’s “avoided cost.” California may appeal the decision to the Ninth Circuit.

The Re-MAT program implements California Public Utilities Code section 399.20, initially passed by the Legislature in 2002 and subsequently amended. The program provides ten to twenty year feed-in tariffs for renewable generators sized up to 3 megawatts in three categories: baseload (e.g. geothermal), peaking as-available (e.g. solar), and non-peaking as-available (e.g. wind). Rates vary by category and purchasing utility and may be adjusted based on auctions held every two months and California Public Utilities Commission (CPUC) rules that the court found had “no reasoned basis.”

PURPA, enacted by Congress in 1978, opened the generation market to non-utility-owned generators. The statute directed FERC to promulgate rules requiring utilities to purchase electricity from renewable generators smaller than 80 megawatts and cogenerators. The district court focused on two of the law’s requirements: 1) Utilities have an obligation to purchase from qualifying facilities (referred to by the parties as the “must-take obligation”); and 2) FERC’s regulations (at the time) require that generators be provided with the option of selling at a rate based on the “utility’s avoided costs calculated at the time of delivery” or “avoided costs calculated at the time the obligation is incurred.”

The plaintiff, a renewable energy developer, argued that the Re-MAT program’s 750 MW cap is contrary to the statute’s must-purchase obligation and the price is inconsistent with FERC’s avoided cost rate options. The court agreed. Regarding the statewide cap, the court stated that “it does not require significant legal analysis to conclude that CPUC’s imposition of caps in the Re-MAT program violates the must-take obligation.” The court found the pricing issue similarly “straightforward” – “prices generated by the Re-MAT program’s reverse auction procedure do not satisfy the definition of ‘avoided costs’ in FERC’s regulations.” According to the court, the “complex auction procedure burdened with arbitrary rules. . . strays too far from basing prices on a utility’s but-for cost, which the statute and regulations require.”

The state’s primary defense was that it’s “standard offer contract” meets PURPA’s requirements. FERC has determined states may offer rates that depart from FERC’s PURPA regulations if the state also has a PURPA-compliant option. (See 146 FERC 61,192). The court, however, found that the CPUC’s standard offer contract does not satisfy FERC’s requirements because it does not offer a rate based on a “utility’s avoided costs calculated at the time of delivery.”

The decision is available on the California page.