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FERC Clarifies Order Relating to California CHP Procurement Obligation Email This
Story October 22, 2010
FERC clarified its decision regarding the California PUC's Combined
Heat and Power purchase obligation and associated pricing, currently only applicable
to the investor owned utilities, to hold that, "the concept of a multi-tiered avoided
cost rate structure is consistent with the avoided cost requirements set forth in
section 210 of PURPA and in the Commission's regulations."
FERC said that an avoided cost rate may not include a "bonus" or "adder" above the
calculated full avoided cost to reflect environmental externalities above avoided
costs. However, if the environmental costs, "are real costs that would be incurred
by utilities," then they, "may be accounted for in a determination of avoided cost
While the FERC made no judgment on the PUC's program, FERC did explain that if the
PUC bases the avoided cost "adder" or "bonus" on an actual determination of the expected
costs of upgrades to the distribution or transmission system that the QFs will permit
the purchasing utility to avoid, such an "adder" or "bonus" would constitute an actual
avoided cost determination and would be consistent with PURPA.
"We also note that, although a state may not include a bonus or an adder in the avoided
cost rate unless it reflects actual costs avoided, a state may separately provide
additional compensation for environmental externalities, outside the confines of,
and, in addition to the PURPA avoided cost rate, through the creation of renewable
energy credits (RECs)," FERC said.