FERC Clarifies Order Relating to California CHP Procurement Obligation

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 rates."

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.