In Southern California Edison Company v. Public Utilities Commission, issued April 4, 2005, the Second District California Court of Appeal upheld several decisions by the California Public Utilities Commission ("CPUC") requiring Southern California Edison Company ("Edison") to enter into wholesale power contracts at administratively determined prices with certain generators known as "qualifying facilities."

Background

The Public Utility Regulatory Policies Act, or PURPA, requires utilities such as Edison to purchase power from certain alternative energy generators, known as "qualifying facilities" or QFs, at a price that must not exceed the cost the utility would otherwise pay for such power from other sources, called the utility’s "avoided costs." Pursuant to PURPA’s mandate, the CPUC developed terms and conditions under which California utilities would purchase power from QFs, known as Standard Offer No. 1, or SO1. In 2001, the CPUC developed an updated pricing formula for QF contracts, including SO1. This pricing formula is commonly known as "Short-Run Avoided Cost," or SRAC. In Southern California Edison Company v. Public Utilities Commission, 101 Cal.App.4th 384 (2002), the Second District Court of Appeal reviewed and approved the application of SRAC pricing to SO1 QF contracts.

In a series of decisions in late 2003 and 2004, the CPUC required Edison to renew existing SO1 contracts based upon the SRAC formula adopted in 2001. Edison filed a petition for writ of review challenging the decisions on the ground that the present SRAC formula exceeded Edison’s "avoided costs," in violation of PURPA. Edison noted that the CPUC itself had criticized the SRAC formula at various times, and had instituted a new proceeding (R.04-04-025) to review the SRAC formula

In response, the CPUC argued that SRAC pricing was not at issue in the proceeding from which the challenged decisions issued. According to the CPUC, the decisions simply extended application of the SRAC formula approved by the CPUC in 2001. Furthermore, even though the SRAC formula was not at issue, the CPUC did specifically note in one of the decisions that it had considered the parties’ evidence concerning SRAC pricing and concluded that it failed to demonstrate that those prices violated PURPA.

On November 1, 2004, the Second District issued a Writ of Review to consider the decisions, and subsequently affirmed them in a decision issued April 4, 2005.

The Court of Appeal’s Rationale

The Court noted that none of the challenged decisions made any change to the SRAC formula adopted by the CPUC in 2001. The Court found that substantial evidence did not support Edison’s claim of a PURPA violation, and upheld the CPUC’s finding there was no evidence that SRAC prices systematically and continuously exceeded Edison’s avoided costs. The Court further found that the CPUC’s prior criticism of the SRAC formula did not establish that the formula was necessarily flawed, nor did the CPUC’s decision to open a new proceeding to review the SRAC formula. The Court noted that the CPUC had stated that if R.04-04-025 established that the SRAC formula systematically violated PURPA, then Edison would be given a credit compensate for such violations. The Court also commented, however, on what it characterized as a "lengthy delay" in R.04-04-025, and urged the CPUC to expedite the proceeding.

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