United States: Electric Cooperatives Seek FERC Determination On PURPA Preemption Of Maryland's Community Solar Program

On August 23, 2016, two Maryland electric cooperatives filed a Petition for Declaratory Order asking the Federal Energy Regulatory Commission (FERC) to find that the Maryland Public Service Commission's (MPSC) recently promulgated regulations implementing Maryland's community solar pilot program violate federal law. Specifically, the cooperatives allege that the regulations are pre-empted by the Public Utility Regulatory Policies Act of 1978 (PURPA) and/or the Federal Power Act (FPA) by requiring the cooperatives to purchase the excess generation of community solar projects at rates other than their "avoided costs."1

Under Maryland's community solar program, electric utilities are required to compensate community solar generators for the power produced in excess of the generator's needs, effectively purchasing and taking title to the power. The utilities must then "use" that excess power. As the cooperatives explain in their Petition, in order to use such power, an electric utility must sell it to others. The cooperatives then conclude that, because they are reselling the power, the original purchase of the excess generation must constitute a wholesale sale under the FPA, under which FERC has exclusive jurisdiction.

The cooperatives recognize that Section 210 of PURPA provides states with the authority to establish wholesale rates if the electric generator is a qualifying facility (QF). However, PURPA requires that the state set wholesale rates no higher than a utility's avoided costs. Hence the issue: if the MPSC's regulations require that an electric utility use, or purchase, the excess power of a community solar generator—a "wholesale" sale—then that generator must be a QF, and the rates for the sale must be less than or equivalent to the cooperative's avoided costs. If the generator is not a QF, then the MPSC lacks jurisdiction to set the rates for a wholesale sale, because only FERC has the authority to set wholesale rates for non-QF generators. The cooperatives argue, however, that neither the community solar statute nor the MPSC's regulations "contain an express requirement that a [community solar generator] must be a QF."

If FERC determines that a generator participating in Maryland's community solar program must be a QF, then the cooperatives state that the next step is to ensure that they are purchasing the excess power at their avoided cost, as set forth by PURPA.1 Instead, they argue, the current MPSC regulations are ambiguous as to whether or not the costs paid for excess generation would exceed the avoided costs. As the MPSC regulations are written, "an electric company shall pay a subscriber [of the program] a dollar amount of excess generation as reasonably adjusted to exclude the distribution, transmission, and non-commodity portion of the customer's bill unless the electric company records subscriber credits as kilowatt hours."2 While the first half of the text, by nature of "excluding" wires-related costs, implies a rate that could be less than or equal to the cooperatives' avoided costs, the cooperatives take issue with the italicized portion of the regulation, claiming that it "sets payments potentially at a level other than the actual avoided costs at the time of delivery," thus "creat[ing] an exception to the avoided cost standard under PURPA." The cooperatives' solution is to simply add language to the MPSC regulations mirroring the language of PURPA, noting that it is well within the authority of the MPSC to do so.

The cooperatives lastly note that the MPSC regulations are at odds with the language of the community solar program's statute, which states that excess generation "shall be purchased under the [utility's] process for purchasing the output from qualifying facilities at the amount it would have cost the electric company to procure the energy,"3 or, simply put, the avoided cost. Since the statute is compliant with the standards of PURPA, the cooperatives argue that the MPSC regulations could be revised to comply with their own statute, as well as federal law.

The Petition comes shortly after FERC reviewed PURPA's provisions on mandatory purchase obligations and avoided cost calculations at a June 29, 2016, technical conference and further highlights the growing tension between the federal and state jurisdiction of electricity sales.4 Depending on the outcome of FERC's ruling on the Petition, the case could have large effects on the growing number of state-implemented community solar programs, particularly on the ways in which state regulatory authorities establish the costs for purchases of excess generation in compliance with PURPA.


1 "Avoided costs" are the costs that the cooperatives would have paid either to generate the electricity themselves or purchase it from another source.

2 18 C.F.R. § 292.304(a)(2).

3 Md. Code Regs.

4 Md. Code Ann., Pub. Util. § 7-306.2(d)(7).

5 See our blogs on federal & state jurisdictional issues here and here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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