FERC Rules on Delta-Montrose Coop Complaint Targeting Tri-State (Sort of)

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

1. Tri-State is a public utility subject to the provisions of the Federal Power Act (FPA) and regulation by FERC, and
2. 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.