Massachusetts Federal Court Ruling Helps Clarify QFs’ Rights to Avoided Cost Rates
In Allco Renewable Energy Ltd. v. Massachusetts Electric Company d/b/a National Grid (2016 WL 5346937), Allco Renewable Energy Limited (Allco) filed a lawsuit in federal court in Massachusetts against National Grid and the Commissioners of the Massachusetts Department of Public Utilities (MPDU) and the Massachusetts Department of Energy Resources (MDOER) claiming:
National Grid violated the Public Utility Regulatory Policies Act (PURPA) by refusing to enter into a long-term contract to purchase electric energy from Allco’s solar energy projects at a specified rate
the MDPU regulations National Grid cited to refuse to enter into the long-term agreement were inconsistent with PURPA and therefore invalid.
Congress enacted PURPA in 1978 to reduce dependence on traditional fossil fuels by encouraging development of nontraditional electricity generating resources, such as renewable generation. One problem for renewable project developers was the traditional utilities’ reluctance to do business with such non-utility generating projects, so PURPA included a directive that the Federal Energy Regulatory Commission (FERC) promulgate rules requiring utilities to purchase electric energy from such qualifying facilities (QFs).
PURPA requires that those electric energy purchases be at rates not above the avoided cost, which is the cost to the utility of the electric energy it would have otherwise generated or purchased from a source other than the QF. The related FERC rules provide two options for how QFs can provide energy to utilities:
at rates based on the purchasing utility’s avoided costs calculated at the time of delivery
under a legally enforceable obligation for the delivery of energy or capacity over a specified term in which case the rates shall be, at the QF’s option, based on either the avoided costs calculated at the time of delivery or the avoid costs calculated at the time the obligation is incurred.
State public utility commissions must implement the FERC rules, which the MDPU did under its regulations at 220 C.M.R. § 8.00. In Massachusetts, a QF may sell to a utility under either a standard contract for all QF sales at the short-run rate or under a negotiated contract between a QF and a utility. The short-run rate is the hourly market clearing price for energy and the monthly market clearing price for capacity as determined by ISO New England, Inc. (ISO-NE), the regional transmission operator for New England. For QFs one megawatt or greater, the output must be metered and purchased at rates equal to what the utility received from ISO-NE for the output for the hours in which the QF generated electricity above its requirements, making the avoided cost rate for those facilities the same as the ISO-NE spot market rate.