What would
you do if you were a mid-size electric cooperative that wanted to purchase
power from a small local renewable energy generator (in this case a small
hydroelectric plant) but were prevented from doing so by the terms of a
contract with your wholesale provider that limited third-party purchases to 5%
of your total load? That was the
situation facing Delta-Montrose Electric Association (DMEA), a central Colorado
electric cooperative which sought to support a small hydro project being
constructed in its service territory.
The actors
in our little drama include DMEA – a Colorado distribution coop with
approximately 35,000 members (customers), Tri-State Generation
and Transmission Association – a 44 member wholesale cooperative G&T of
which DMEA is a member, and Percheron Power, LLC – the developer of a 990kW hydro
project seeking to connect with and sell power to DMEA.
Without
going into all of the intricacies of the law and contracts surrounding our
story, suffice it to say that DMEA was faced with conflicting obligations and
social responsibilities. On February 9,
2015, DMEA petitioned the Federal Energy Regulatory Commission (FERC) seeking a
declaratory order stating that
- Tri-State is a public utility subject to the provisions of the Federal Power Act (FPA) and regulation by FERC, and
- DMEA’s obligation to purchase power from small qualifying facilities (QF) under the Public Utility Regulatory Policies Act (PURPA) supersedes a contractual obligation with Tri-State limiting its third-party energy acquisitions and self-generation to no more than 5% of its load.
For its
part, Tri-State argues that it is exempt from the provisions of the FPA due to
a clause that provides for exemption from such regulation for utilities that
are owned by members that sell fewer than 4 million MWh of electricity per
year. Naturally,
our audience included a plethora of spectators and fans of either suasion
including other Tri-State coops, local governments, renewable energy advocacy
organizations, the public at large, and one objective observer/storyteller
(me).
Comes now
(that’s a term of highly legal obfuscatory vernacular) the FERC who, like the
Supreme Court, issues a narrowly scoped decision, ruling partly in favor of
both sides, that appears to decide the case at hand without truly addressing
the issues and the ramifications thereof (you can find the FERC order here).
On the one hand, they decide that a strict interpretation of the law
means that Tri-State is not a regulated jurisdictional utility based on the
exemption that excludes regulation of utilities that are in turn owned by exempt
utilities – regardless of how large the entity is (consider that each of the 44
Tri-State members sells fewer than 4 million MWh per year but collectively…?).
Thus, based on a strict interpretation of the law this may be the correct
outcome – even if it is an undesirable one.
But, all
hope is not lost for several pages later, FERC goes on to rule that PURPA does
require DMEA to purchase the power from Percheron at DMEA’s avoided cost or at such
other price as mutually agreed to. While this implies that DMEA’s PURPA obligation supersedes its agreement
with Tri-State, the ruling does not explicitly state that – even though it seems logical
that one party should not impose a contractual obligation upon a counterparty
that would cause it to violate the law.
Also not
stated, but apparently implied, is that the purchase from Percheron effectively
voids the Tri-State Board Policy 109 purchase obligation that requires DMEA to
obtain 95% of its energy from Tri-State.
Left unaddressed in the order is Tri-State’s contention that DMEA must
first seek alternative dispute resolution with Tri-State before petitioning FERC.
FERC neither agrees nor disagrees with
this contention. They simply don’t
address it.
Metaphorically
speaking however, this appears to open up a mile-wide chasm in Tri-State’s Policy 109 limiting third party purchases to no more than 5% of a member’s
load. With plummeting PV and wind
prices, any small generator it seems could build a system and require the coop
utility to purchase its power and in so doing constantly diminish the amount
that the utility must purchase from Tri-State… do I hear 90%, 85, 80, going
once, twice… sold!
Perhaps at
this point I might also note that Colorado’s net metering law allows coops to limit
the size of net metered systems to 10kW for residential and 25kW for commercial
customers. But, with today’s rapidly
declining PV costs, why would I worry about net metering when I could construct
a system and sell all the electricity to the coop at its avoided cost? Do I sense a business opportunity here? With today’s FERC ruling, the coop appears to
no longer have a defense and the QF – or any prospective net metering customer –
would appear to have an end-around on Colorado’s net metering restrictions.
Rest assured, these are more than just nuanced
distinctions. There are many ramifications
that go beyond the narrow scope of this decision and it would have been helpful
if FERC had considered them and circumvented some of the obvious disputes that
are sure to follow.
