After feed-in tariff legal uncertainty, a recent 2010 report by the National Regulatory Research Institute finds that states can successfully and legally implement feed-in tariff programs to accelerate renewable energy projects.
by Jeremy Gross, Green Economy Post
As states search for ways to legally implement “feed-in tariffs,” a January 2010 report was issued called, “Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions.” The report, mostly written by Scott Hempling of the National Regulatory Research Institute (NRRI) and co-authored by the National Renewable Energy Laboratory (NREL), looked to reduce legal uncertainties that surround states and their desire to use feed-in tariffs.
Basically, feed-in tariffs are a possibility for states who want to build up and accelerate renewable energy projects. The tariffs would require (with specific prices and terms) that utilities buy electricity generated via renewable energy methods. Two of the benefits are that revenue is guaranteed making it easier to persuade producers to build out projects as well as decreased financing costs.
The report explains that two federal acts – the Public Utility Regulatory Policies Act of 1978 (PURPA) and the Federal Power Act of 1935 (FPA) – have limiting rules around selling electricity and creating tariffs. This is where states have run into problems implementing feed-in tariffs.
However, the author says there are two paths for legally implementing feed-in tariffs: the PURPA path, and the FPA / Federal Energy Regulatory Commission (FERC) path.
The PURPA Path
In order for feed-in tariffs to be possible under PURPA, a few things need to happen:
- Sellers must get FERC certification to be a “qualifying facility” (QF) – which are exempt from most FPA price regulation.
- Prices can be set by the state (and the state’s prices can’t be greater than the utility’s “avoided cost”).
- Or prices can be negotiated with the utility – which can be greater than avoided cost.
Note: Avoided costs are costs the utility would have had anyway if it supplied the energy or bought from another party.
Avoided costs can also be supplemented by providing: Renewable Energy Credits, cash grants, utility tax credits. This can make the deal more attractive for the seller and the utility.
The FPA / FERC Path
The report goes on to say that since 1935, the Federal Power Act has given FERC the authority to regulate “the sale of electric energy at wholesale in interstate commerce” and says that it is illegal to sell wholesale without a contract, and without FERC approval of that wholesale contract.
However, there are exemptions from FPA Sections 205 or 206 for a “qualifying facility” (QF) with a capacity of 20 megawatts (or less). At that capacity, QF’s can sell without FERC approval. The author says that seller’s could participate in a state program without any federal involvement or extra steps.
Another Possibility
The reports explains that federal laws only apply to wholesale transactions, and that state’s could establish retail transaction programs to allow renewable energy generators to sell to retail customers. In this situation, non-utilities could sell power to retail customers – such as in ‘net metering’ agreements. Net metering is when a customer’s meter runs backwards and offsets utility purchases. FERC sees the non-utility generator as making only retail sales as long as the customer’s usage doesn’t exceed their purchases.
Report Conclusion
The report concludes by stating a fact that is clear when you look at many current laws and acts: “statutes enacted in 1935 (FPA) and 1978 (PURPA) do not apply neatly to market situations and feed-in tariff policy proposals in 2010.”
And of course, all the dancing around laws and finding a clear path through the gridlock can be avoided if Congress updates PURPA and FPA to meet today’s needs!
The Full Report
For detailed information, you can find the report here: Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions
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