Energy project developers interested in securing qualifying facility (QF) contracts in California for small power projects of 20 MWs or less may soon have new commercial opportunities because of a new Order Instituting Rulemaking issued on August 1 by the California Public Utilities Commission (CPUC). A wide range of power projects can qualify as QFs, including solar, wind, geothermal, biomass, hydroelectric, and co-generation facilities.
The new rulemaking will focus on the CPUC's implementation of the Public Utility Regulatory Policies Act (PURPA). The CPUC will consider adoption of a new QF standard offer contract (QF Contract), which would allow any QF of 20 MW or less the right to sell its electric output to a Commission-jurisdictional utility pursuant to a set of standard terms and conditions and at a rate based on avoided cost. The rulemaking will also consider the adoption of a price to be paid at the time of delivery where a QF has opted to sell as-available energy to the utility without a contract.
The new QF Contract could essentially guarantee a QF's right to enter into a contract to sell electricity to California investor-owned utilities (IOUs) and guarantee a contract if a developer could build and interconnect a QF energy project in California under 20 MWs in size.
The CPUC's rulemaking follows Winding Creek Solar LLC v. Michael Peevey, et al., a federal district court decision issued in December 2017 which found that one of the CPUC's major regulatory programs to foster renewable energy development (the "Re-MAT" program) was unconstitutional because the pricing provisions and statewide MW cap violated PURPA. The district court also found that the CPUC's existing standard offer contract for QFs 20 MW or less failed to provide QFs the option to choose energy rates determined either at the time of contract execution or at the time of product delivery.
Following the decision, the CPUC suspended the Re-MAT program and instructed the IOUs to refrain from executing any new Re-MAT contracts, holding any new Re-MAT program periods, or accepting any new Re-MAT applications. The matter was appealed and is currently before the 9th Circuit Court of Appeals.
The CPUC's present rulemaking appears to take a second shot at PURPA compliance, aiming to develop a new QF Contract that would be the "foundation" of PURPA compliance and meet all contracting regulations as established in FERC regulations.
The Nuts and Bolts
The rulemaking will not make any changes or interfere with the Re-MAT program, existing PURPA contracts between the IOUs and QFs, any currently-available PURPA contracts, any existing PURPA program, or any aspect of the QF Settlement approved in D.10-12-035. The CPUC has not provided any indication of when and how a new QF Contract would be implemented or be available to developers.
The rulemaking will consider whether PURPA requires that any of the non-price terms of the existing standard offer contract for QFs 20 MW or less be modified before they are incorporated into the new QF Contract, and/or whether the CPUC should use this opportunity to modify any of the non-price terms of the new QF Contract to ensure implementation of PURPA consistent with state and federal laws.
The specific issues that will be addressed in the course of the proceeding as they relate to a new QF Contract and the price for as-available energy sold to a utility without a contract are based on the CPUC's Staff Proposal, which advocates methodologies to establish four avoided cost price options for QFs seeking a contract – a time of delivery and a time of execution price for both energy and as-available capacity.
The Procedural Road Ahead
The CPUC is seeking comments from parties regarding the following initial scoping questions:
- Whether the proposed energy price at the time of delivery and at the time of contract execution is consistent with PURPA
- Whether the proposed capacity price at the time of delivery and at the time of contract execution is consistent with PURPA
- Whether the proposed energy price for as-available energy sold by a QF to the utility without a contract is consistent with PURPA
- Whether there are any other terms for the Standard Contract for QFs 20 MW or less that should be modified to ensure that the new QF Contract is consistent with PURPA
Interested parties can file comments in response to the initial scoping questions in the rulemaking within 30 days from the issuance of the decision, by August 31. Reply comments are due 45 days from the issuance of the decision, by September 15. A prehearing conference is anticipated for September or October 2018.