May a qualifying facility (QF) under the Public Utility Regulatory Policies Act (PURPA) insist that a public utility purchase its energy even if, contrary to state law, the QF has previously sold its renewable energy credits (RECs)? And, if the QF has not participated in the state's competitive bidding process may it nonetheless insist that the utility enter into a long-term "legally enforceable obligation" to buy the QF's energy? Although it refused to initiate an enforcement action against the Connecticut Public Utilities Regulatory Authority (PURA), the Federal Energy Regulatory Commission answered "yes" to both questions in an advisory opinion that the complaining QFs may use if they choose to bring their own enforcement action in federal court.
Windham Solar LLC (Windham) and Allco Finance Limited (Allco) filed a petition against PURA alleging that state law and prior PURA decisions violate PURPA by preventing QFs from utilizing forecasted rates to which they are entitled unless the QF provides energy and capacity as part of a bundled product that includes RECs, or the energy and capacity is provided under a short-term contract not to exceed one year. A decision from PURA's predecessor had held that the purchase of electricity at avoided cost automatically entitles a utility to the associated RECs, interpreting the term "electricity" under Connecticut's PURPA statute and regulations to include the renewable component of the electricity. Because Windham previously sold its RECs to the interconnected utility under a separate contract, the petitioners alleged that Connecticut's treatment of RECs in this context prevented them from selling energy and capacity at avoided cost rates on a forecasted basis.
FERC declined to initiate an enforcement action, instead issuing a declaratory order that built upon previous decisions addressing the interaction between state regulation of RECs and avoided cost rates under PURPA. In a 2003 order, FERC stated that RECs exist outside the confines of PURPA, and that the ownership and transfer of RECs is a matter of state law. America Ref-Fuel Co., 105 FERC ¶ 61,004 (2003). The agency also held, however, that avoided cost contracts do not inherently convey RECs to the purchasing utility, absent an express provision to the contrary, explaining that the environmental attributes of the QF is not a factor in determining avoided cost rates under PURPA regulations. FERC followed up its decision in America Ref-Fuel Co. with a 2012 declaratory order which further held that a state cannot automatically assign ownership of RECs to a purchasing utility on the grounds that the avoided cost rates already compensate the QF for those RECs. Morgantown Energy Assocs., 140 FERC ¶ 61,223 (2012). Drawing on this precedent, the agency declared in the instant order that an electric utility must comply with its purchasing obligations under PURPA regardless of whether the utility had previously acquired RECs from the QF under a separate contract. The upshot of FERC's ruling is that if state law requires QFs to include their RECs in any energy sale to the local utility, the utility cannot engage in self-help to enforce state law. That is, the utility's recourse would seem to be in state court, not in refusing to purchase the QF's output.
FERC also declined to initiate an enforcement action regarding petitioners' second argument that Connecticut regulations impermissibly require QFs to participate in a RFP process to obtain a legally enforceable obligation. Although the agency declined to address the specifics of the dispute, it declared that a QF has a right to obtain a legally enforceable obligation regardless of whether it had participated in a RFP, and that a state could not require that the QF participate in a competitive solicitation as the sole means of obtaining a long-term legally enforceable obligation from the utility to pay avoided cost rates. Because FERC declined to initiate an enforcement action on these issues, Windham and Allco may now address the merits of their dispute in federal court.
