From a Legal
The State of States’
Elizabeth Teuwen, Attorney, Jennings Strouss & Salmon PLC
Editor’s Note: “From a Legal Perspective” appears regularly in
District Energy magazine to address legal issues of current importance to the district energy industry. It is intended for educational
purposes only and does not constitute legal advice.
Afeed-in tariff is a policy tool used to incent the develop- ment of certain generation resources by giving those resources a ready market for their output. Feed-in tariffs,
which are established by legislation, require that utilities purchase
the output of qualifying generators and provide specific terms
under which such purchases must be made.
Feed-in tariffs have been used for years in other parts of the
world to promote the development of renewable and energy-efficient
resources. Many European countries, Germany in particular, have
used feed-in tariffs specifically for the purpose of encouraging the
development of combined heat and power facilities used in conjunction with district heating and cooling systems, offering a premium on
the price of the electricity generated by the CHP plants.
Feed-in tariffs are less prevalent in the United States. A handful
of states have adopted feed-in tariff legislation, although when
compared to their European counterparts, the benefits associated
with these feed-in tariffs appear more limited. This is due to federal
law that trumps – or in legal parlance, preempts – the purchase
terms that states are authorized to dictate in these policies.
In the past year, the Federal Energy Regulatory Commission
(FERC) issued orders addressing a California feed-in tariff proposal,
which highlight the interplay between federal and state authority
and provide additional guidance to states designing feed-in tariff
policies. This column will discuss those orders and the general framework under which states influence purchase prices in feed-in tariffs.
FERC’s orders addressing a California feed-in tariff
The California Proposal
proposal highlight the interplay between federal and
state authority and provide guidance to states.
In 2009 and 2010, the California Public Utility Commission
(CPUC) issued policies and procedures implementing the requirements of California’s Waste Heat and Carbon Emissions Reduction
Act (referred to as AB 1613). The purpose of AB 1613 was to
encourage the development of CHP systems as a means of reducing overall greenhouse gas emissions. The CPUC program implementing AB 1613 established a feed-in tariff requiring utilities to
offer 10-year purchase deals to CHP systems of 20 MW or less that
meet specified efficiency and environmental standards. The purchase price would be set by the CPUC and would include the costs
of complying with the environmental standards. In addition, CHP
resources located in transmission-constrained areas would receive
a 10 percent price adder, reflecting the avoided cost of upgrading
insufficient transmission facilities.
The purchasing utilities challenged the CPUC program, arguing that states do not have the authority to set the price of what
is essentially a wholesale sale of electric energy. Such sales, argued
the investor-owned utilities, are under the exclusive jurisdiction of
FERC. The CPUC disagreed with this characterization of its feed-in
tariff program and sought a ruling from FERC that its authority to
set the purchase price had not been preempted by federal law.
FERC’s Ruling on the California Proposal
Among the arguments made by the CPUC to FERC was that
it did not seek to regulate a wholesale sale of electricity but rather
the offer price of a purchase of such electricity by the utilities.
FERC viewed this theory as a distinction without a difference and
deemed the California feed-in tariff proposal unlawful under the
Federal Power Act. The Federal Power Act grants FERC exclusive
jurisdiction over the sales for resale of electric energy. For this
reason, states are preempted from legislating in this same arena.
Under this legal framework, FERC determined the CPUC was
attempting to engage in wholesale rate setting in violation of the
Federal Power Act.
However, FERC did not nullify the CPUC proposal altogether.
Rather, FERC found that with certain adjustments, the feed-in tariff program could be considered a lawful exercise of state power