ARTICLE
17 January 2011

FERC Clarifies Ruling on California's CHP Regulations

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On October 21, 2010, the Federal Energy Regulatory Commission clarified a prior ruling on California's Waste Heat and Carbon Emissions Reduction Act, Assembly Bill (AB) 1613, a decision that had threatened to derail California's efforts to set a feed-in tariff for electricity from combined heat and power ("CHP") generating facilities.
United States Energy and Natural Resources

The Climate Report - Winter 2011

On October 21, 2010, the Federal Energy Regulatory Commission clarified a prior ruling on California's Waste Heat and Carbon Emissions Reduction Act, Assembly Bill (AB) 1613, a decision that had threatened to derail California's efforts to set a feed-in tariff for electricity from combined heat and power ("CHP") generating facilities. FERC previously found that federal law did not preempt the California Public Utility Commission's ("CPUC") proposed regulations, but only to the extent that the CHP generators were "qualifying facilities" and the rates imposed by California did not exceed the "avoided costs" of the purchasing utility. Avoided costs are the incremental costs that an electric utility would pay, but for the purchase from the qualifying facility.

CPUC sought clarification. First, CPUC wanted assurance that it could require retail utilities to consider different factors in the avoided cost calculation in order to promote the development of more efficient CHP facilities. Second, CPUC wanted clarification that "full avoided cost" did not need to be the lowest possible avoided cost.

In its clarification order, FERC confirmed that a multi-tiered avoided cost rate structure could be consistent with the avoided cost rate requirements set forth in federal law. FERC further clarified that in establishing the avoided cost rate, CPUC could take into account obligations imposed by the state, such as those requiring utilities to buy energy from particular sources of energy or for a long duration. While FERC stressed that it was not ruling on whether the rates established by CPUC would satisfy the avoided cost rate requirement, the clarification establishes a stable basis from which CPUC can implement a CHP feed-in tariff.

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