On the surface, this appears to be a major blow to non-utility wind power development in the United States; it gives utilities hostile to renewables and independent power producers new ammunition. But FERC's claim that the BRPU violated provisions of the Public Utility Regulatory Policy Act (PURPA), the law passed in 1978 that mandated that electric utilities buy power from independent power producers at avoided cost, appears to be on shaky legal ground.
The BRPU was an energy auction that was widely praised by renewable energy advocates and environmentalists. But it was routinely criticised by utilities, particularly Southern California Edison and San Diego Gas & Electric, because it locked them into long term power purchase commitments at a time when de-regulation reforms promised greater flexibility in resource procurement.
While the California Public Utilities Commission (CPUC) had finally blessed the controversial BRPU last December -- but put 585 MW of nameplate wind power capacity on hold pending a review of unusual developer bidding strategies -- the FERC decision puts more obstacles in the way of new wind development all across the vast American landscape. Most US wind developers, however, predict the FERC order will not be sustained, but just adds yet another chapter in this never-ending saga of bureaucratic bumbling.
The essence of the move by FERC, issued on February 22 on a 5-0 vote, was that the BRPU violated PURPA because it was not an "all source bid." The federal agency, however, did not define what all-source bidding should be. The order also expressed concern about saddling utilities with new long term power purchase commitments when the industry is making the transition to a competitive marketplace.
The Independent Energy Producers (IEP) have filed for a re-hearing of the case. "It is fundamentally unfair that the utilities have brought this matter to FERC at this later date," says Jan Smutny-Jones, IEP executive director. "California's bidding methodology has been in place since 1988, the same year that FERC considered, but made no decision on, rule making on competitive bidding, specifically addressing all source bidding. Then, not seven years after the fact, was the time to challenge the BRPU methodology," says Smutny-Jones.
SCE had petitioned FERC after exhausting lobbying resources in California. The key argument used, apparently successfully, is to do with definitions of avoided cost. "A fundamental flaw in the solicitation structure is its assumption that a new QF [qualified facility, a term referring to PURPA projects] contract that is priced below the utility's assumed cost of providing the same power itself through the construction of new resources is necessarily below avoided cost," argued the utility in its filing before FERC. Ironically, SCE referred to its own proxy resource costs, the targets against which BRPU participants bid, as "artificially inflated benchmark prices." The utility also argued that the imposition of payments to account for external environmental costs, as well as separate bidding arenas earmarked for wind resources, is evidence of "systematic favouritism" toward renewables.
Hap Boyd, director of regulatory and policy affairs for wind company Zond Systems, describes the FERC's ruling as a "political decision" that "could have a chilling effect all over the country." He says, however, that the legal underpinnings were "poor" and pointed out that FERC had a less than stellar record when its decisions have been appealed to the courts.
One of Boyd's concerns was a new attack by Iowa state utilities on a law passed in the early 1980s providing renewable resources with $0.06/kWh avoided cost payments fixed over a 33 year power period. "The Iowa Supreme Court has stated that this approach was legal," says Boyd. But the FERC ruling has promoted the utility attack, which threatens 60 MW of potential Zond projects. Boyd predicts that the National Association of Regulatory Utility Commissioners (NARUC) would join IEP in petitioning for a re-hearing because, as state regulators, they are offended by federal bureaucrats meddling with regulatory issues that have long been under the purview of state regulatory commissions. Boyd notes that though Congress, now dominated by penny-pinching Republicans, has vowed to revisit PURPA, support for state rights has long been a major plank of the Republican party and therefore wind developers may still find some legislative allies.
Not that important
Director of business development at Kenetech, Eric Miller, downplays the importance of the FERC order. "We don't know what it means yet," he says, arguing that states could still, as a matter of public policy, promote wind power outside of PURPA. He also maintains that under the BRPU, "all sources of power were taken into account." Miller claims that BRPU projects are far from dead. "There have been dozens of orders during the six-year life of this process, and this [the FERC order] is not the end-all or be-all." The FERC order also does not affect a separate negotiated deal between SCE and Kenetech for roughly the same amount of capacity -- about 460 MW -- which the firm won under the BRPU, 37.5 MW of which could be under development as soon as next year, notes Miller. Bud Grebey, spokesman for the company, adds: "There is a fear that absent BRPU-type mandatory purchase programmes, wind power loses. From Kenetech's standpoint, the fallacy in that argument is that wind power is not competitive with other resources. We believe we have a technology that is fully competitive with newly built power plants."
Jeff Ghilardi, vice president of a third wind plant developer, SeaWest, comments that the eventual outcome of the FERC order "really depends on the CPUC." He, as well as other observers, wonder whether the CPUC will defend the BRPU. Though CPUC president Dan Fessler was among those commissioners whose support for the BRPU has been less than enthusiastic, his recent comments at a NARUC conservation committee meeting indicated that regardless of his own trepidations about the process itself, the issue of state's rights might compel him to challenge FERC.
On March 8, the CPUC issued an "interim stay" in response to motions filed by all three of the state's investor-owned utilities. The CPUC listed four possible options: terminate the BRPU; perform a new "all source" bid; allow utilities and independent developers to negotiate settlements consistent with PURPA; or shift legal justification for the BRPU to intrinsic state authority and away from PURPA. Comments on which of these four options the CPUC should pursue are due this month.
Ghilardi suggests the best defence of the BRPU is not to seek clarification of what the FERC order meant, but to establish, on a case-by-case basis, that "states can implement a system of different avoided costs for different resources." Once that legal principle is clearly established as not violating PURPA, whether the example is the BRPU or Iowa's law, wind developers will have some firm footing to fight utility attempts to discredit solicitations for new power that recognise the public policy benefits of wind and other renewable resources.
A tactical withdrawal
Ghilardi also continues to question the wisdom of re-evaluating the wind bids associated with the BRPU. "It's not in the best interest of the industry," he says. Disqualifying bids at this time, with slim hopes of a re-bid, would, he claims, lead to a bid "not limited to wind technology and if limited to renewables, would probably need to be considered an all source bid," which would mean utilities would enter the fray. He hopes the US wind industry could reach some sort of negotiated settlement.
A January 30 pre-hearing conference on BRPU wind bids revealed great gaps in wind developer responses to the CPUC's proposed re-review of bids. Kenetech joined SeaWest Industries in claiming that such retroactive evaluation of bids was improper and questioned the CPUC's jurisdiction over independent power producers. Zond and FloWind continued to push for a "real world" evaluation of bids submitted by Kenetech and SeaWest that included negative energy price offers and annual capacity factors as high as 90%. In comments filed on February 17, FloWind claims that if the CPUC determines that BRPU wind bids must be based on realistic engineering and economic factors, "then 75% of the winning bids will be disqualified." FloWind continues, despite the FERC order, to call for a re-bid.