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New Front In Western Wind War: FERC Files Suit Against Idaho PUC, Finds Second PURPA Violation

March 28, 2013 posted by Eric Christensen

Fulfilling a promise made in a November order, the Federal Energy Regulatory Commission ("FERC") on March 22 filed suit against the Idaho Public Utilities Commission ("IPUC"), asserting that the IPUC violated FERC rules under the Public Utility Regulatory Policies Act ("PURPA"). The lawsuit follows on the heels of a March 15 FERC order (Grouse Creek Wind Park LLC, EL13-39-000), in which FERC found another IPUC PURPA violation, meriting a second enforcement action against the IPUC. FERC's actions are extraordinary, marking the first time FERC has exercised its PURPA enforcement authority directly against a state commission. PURPA, passed in 1978, was the first blow struck against the traditional industry model of regulated, vertically-integrated utility monopolies. Passed in response to the energy crises of the 1970s, PURPA was intended to open the generation market to small, independent producers. Thus, PURPA mandates that utilities purchase power from "Qualifying Facilities" ("QFs") -- generally, smaller, independently-owned renewable generation facilities -- at "avoided cost" rates, equal to the cost of the marginal resource the utility would have to purchase if it did not buy from the QF. This purchase obligation lies at the heart of the FERC-IPUC controversy. In 2010, several utilities filed a petition with the IPUC claiming that wind developers in Idaho were artificially dividing up large wind projects into smaller increments so that the projects could qualify under Idaho's 10 aMW ceiling for published avoided-cost PURPA rates. On December 3, 2010, the IPUC announced that it would investigate the complaint. While it did not immediately reduce the 10 aMW eligibility cap, it announced that any future decision would be retroactive to December 14, 2010. Subsequently, on February 7, 2011, the IPUC announced it would temporarily reduce the eligibility cap to 100 kW, effective as of December 14, 2010. In the meantime, on December 13, 2010, a group of wind developers building solar projects at Murphy Flats in southwest Idaho filed signed agreements with Idaho Power Company seeking 20-year PURPA contracts at Idaho Power's published avoided cost rate. But Idaho Power did not countersign the contracts until December 15, 2010, a day after the December 14 cut-off date imposed by the IPUC. In subsequent litigation, the IPUC determined that no legal obligation had been incurred until Idaho Power signed the contract, and the Murphy Flats generators were therefore ineligible for published PURPA rates because they exceeded the new 100-kW capacity ceiling. In its November 20, 2012, order (Murphy Flat Power LLC, No. EL12-108-000), issued in response to a complaint filed against the IPUC by the Murphy Flats generators, FERC found that, under its PURPA regulations, a legally enforceable obligation was created on December 13, when the Murphy Flats generators submitted the signed contracts. FERC rejected the IPUC's position that a legally enforceable obligation was not created until the contracts were signed by Idaho Power because such a requirement is contrary to FERC's PURPA regulations. Those regulations are intended to prevent utilities from avoiding PURPA obligations through delay in signing PURPA contracts. Under long-standing FERC policy, FERC generally does not take enforcement action into its own hands. Rather, it typically issues an order declaring its view of what the statute and regulations require, leaving enforcement in the hands of the affected QF. In Murphy Flats' case, however, FERC had already twice issued orders declaring that the IPUC had violated its PURPA regulations by refusing to honor PURPA contracts that had been signed by the producer prior to the December 14 deadline. Apparently reacting to the IPUC's intransigence, FERC declared that it would launch its own enforcement action against the IPUC. The March 22 complaint, filed in Idaho's U.S. District Court (Docket No. 1:13-cv-141), embodies that enforcement action. And the District Court action also seeks a remedy against the IPUC for similar violations FERC found in the March 15 Grouse Creek proceeding. There FERC found, once again, that the IPUC violated FERC regulations by refusing to honor an agreement in which a QF committed to a legally enforceable obligation prior to the December 14 cutoff. Further, FERC found, IPUC's continued unwillingness to follow FERC's requirements merited another FERC enforcement action. Although the particular issue involved in FERC's complaint -- the date on which a PURPA obligation becomes effective -- is somewhat mundane, the larger context of the litigation is not. In fact, the National Association of Regulatory Utility Commissioners, which represents state utility commissioners, has already issued a statement letting it be known that it is "deeply disappointed" that FERC has taken "drastic and unprecedented" action against the IPUC. This suggests that the Idaho litigation may become a major battleground between state and federal regulators. If you have any questions about the FERC complaint, the IPUC, or the underlying PURPA controversy, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group.