Update – September 20, 2019 – FERC Determines that New Hampshire Biomass Law is Preempted

Last November, a group calling itself the New England Ratepayers Association filed a petition for a declaratory order requesting that FERC find that New Hampshire SB 365: (1) establishes a wholesale rate for energy and is, thus, preempted by the Federal Power Act (FPA); and (2) violates PURPA by setting a rate that exceeds the avoided cost rate. Yesterday, FERC granted the petition.

New Hampshire SB 365 requires electric distribution companies (EDCs) to offer to purchase energy from in-state biomass plants at rates set at a specific percentage of each EDC’s retail rate. Merchant generators and Eversource, a New Hampshire EDC, were among the entities filing in support of the petition. The biomass generators defended the law, arguing that it promotes fuel diversity through oversight of utility portfolios and targets utility purchases rather than wholesale sales.

FERC concluded that SB 365 “establishes a rate for wholesale sales of electric energy in interstate commerce, which intrudes on the Commission’s exclusive jurisdiction over wholesale sales of electric energy in interstate commerce.” It emphasized that “SB 365 directly establishes a predetermined rate and requires utilities within the state to offer to purchase electricity at that specific state-established rate.” PURPA does not save the statute from FPA preemption because the “SB 365 rate is not based on the purchasing utilities’ avoided cost, [as PURPA requires], but rather is based on the state’s retail default energy rate.”

FERC’s order should have limited consequences for other state laws. While numerous state incentives affect revenues earned by generators selling at a wholesale, few if any laws so directly set a rate for wholesale sales of electric power. For instance, FERC’s order notes that recent federal appeals court decisions upholding states’ zero emission credits (ZEC) “involved state programs that provided generators payments for something other than the provision of wholesale energy and capacity.”

Opponents of SB 365 could file a lawsuit in a federal district court, which has the power to enjoin state regulators from enforcing the law. According to FERC, a declaratory order such as the one it issued yesterday is a “binding statement of policy that provides direction to the public and [ ] staff regarding the statutes [it] administers and the implementation and enforcement of [its] orders, rules and regulations.” Litigants would bolster their legal arguments in court by pointing to FERC’s order. The Fifth Circuit has downplayed the significance of FERC’s declaratory orders, concluding that a declaratory order is “akin to an informal guidance letter” and declining to adopt FERC’s reasoning in that case.

A lawsuit may be unnecessary. Eversource has not entered into any contracts with the biomass generators. The New Hampshire PUC determined that it has no authority to compel Eversource and the generators to reach agreements. Generators have appealed the PUC’s order to the state’s supreme court. New Hampshire’s governor vetoed a subsequent biomass subsidy law that would have required EDCs to purchase “baseload credits” from the biomass plants. Earlier this week, the legislature fell a few votes short of overturning the Governor’s veto.