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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