In re Investigation to Review the Avoided Costs That Serve

Decision Date30 April 2021
Docket NumberNo. 2020-134,2020-134
Citation2021 VT 28
CourtVermont Supreme Court
PartiesIn re Investigation to Review the Avoided Costs that Serve as Prices for the Standard-Offer Program in 2020 (Allco Renewable Energy Limited & PLH LLC, Appellants)

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

On Appeal from Public Utility Commission

Anthony Z. Roisman, Chair

Thomas Melone of Allco Renewable Energy Limited, New York, New York, for Appellants.

Alexander W. Wing, Special Counsel, Department of Public Service, Montpelier, for Appellee.

PRESENT: Reiber, C.J., Robinson, Eaton, Carroll and Cohen, JJ.

¶ 1. ROBINSON, J. Allco Renewable Energy Limited and PLH, LLC (collectively, Allco), challenge the Vermont Public Utility Commission's (PUC) decision establishing the avoided-cost price caps and parameters of the 2020 standard-offer program. Specifically, Allco argues that the PUC failed to make a required annual determination that its pricing mechanism complies with federal law, and that its 2020 standard-offer request for proposal (RFP) was invalid because the market-based pricing mechanism used in the standard-offer program violates federal law. We affirm.

I. Background

¶ 2. A general understanding of applicable federal and state law is critical to understanding the facts and issues in this case.

A. Federal Power Act and "PURPA"

¶ 3. The Federal Power Act (FPA) grants the Federal Energy Regulatory Commission (FERC) the exclusive power to regulate the sale of electric energy at wholesale in interstate commerce. 16 U.S.C. § 824(b)(1); see also Federal Power Comm'n v. S. Cal. Edison Co., 376 U.S. 205, 215 (1964) (holding that FPA left no power to the states to regulate licensees' sales for resale in interstate commerce).

¶ 4. In 1978, Congress amended the FPA with the Public Utility Regulatory Policies Act of 1978 ("PURPA"), Pub. L. No. 95-617, 92 Stat. 3117, with the goal of reducing dependence on fossil fuels, in part by encouraging the development of cogeneration and small power production facilities,1 Winding Creek Solar LLC v. Peterman (Winding Creek Solar II), 932 F.3d 861, 863 (9th Cir. 2019). One particular barrier to developing alternative energy facilities that Congress sought to eliminate was traditional electricity utilities' reluctance to purchase power from and sell power to nontraditional facilities. FERC v. Mississippi, 456 U.S. 742, 750-51 (1982). To address this barrier, PURPA directs FERC, in consultation with state regulatory agencies, to promulgate "such rules as it determines necessary to encourage cogeneration and small power production," including rules requiring electric utilities to offer to sell electric energy to and purchase it from certain power production facilities that meet FERC's requirements, called "qualifying facilities" (QFs). 16 U.S.C. § 824a-3(a); see also 18 C.F.R. § 292.203 (outlining these rules). PURPA requires that the rates utilities pay to QFs be "just and reasonable to the electric consumers of the electric utility and in the public interest," and "not discriminate against qualifying cogenerators or qualifying small power producers." 16 U.S.C. § 824a-3(b). The statutespecifically states that no rule prescribed to implement the statute may "provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy." Id.

¶ 5. In 1980, FERC promulgated regulations pursuant to PURPA. See 18 C.F.R. pt. 292. These regulations give state regulatory authorities flexibility to determine how to implement the regulations. See Mississippi, 456 U.S. at 751 ("These [regulations] afford state regulatory authorities . . . latitude in determining the manner in which the regulations are to be implemented."). Under this regulatory scheme, utilities must pay QFs a rate derived from the utility's "avoided cost"—that is, "the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility . . ., such utility would generate itself or purchase from another source." 18 C.F.R. § 292.101(b)(6); see also Allco Fin. Ltd. v. Klee, 805 F.3d 89, 92 (2d Cir. 2015). Put more simply, it is the cost a utility would otherwise incur in obtaining the same quantity of electricity from a different source.2

¶ 6. PURPA requires that each state regulatory authority implement FERC's PURPA regulations, including establishing the avoided cost. See 16 U.S.C. § 824a-3(f)(1).

B. Vermont's PUC, Rule 4.100, and the Standard-Offer Program

¶ 7. The PUC is the Vermont regulatory authority charged with implementing PURPA and regulating the sale to electric companies of electricity generated by QFs in Vermont. 30 V.S.A. § 209(a)(8). In 1983, the PUC promulgated Rule 4.100 to implement PURPA.3 See Small PowerProduction and Cogeneration, Code of Vt. Rules 30 000 4100 [hereinafter Rule 4.100], http://www.lexisnexis.com/hottopics/codeofvtrules. Rule 4.100 "applies to all contracts and obligations formed pursuant to [the PUC's PURPA-implementing authority], except standard-offer contracts formed pursuant to 30 V.S.A. § 8005a." Id. § 4.102(C). The rule requires distribution utilities to purchase the generation output of QFs to the extent required by the regulations implementing PURPA. Id. § 4.104. It establishes the various rates payable to a QF depending on the type of contract the QF elects. Id.

¶ 8. In 2009, the Legislature established a standard-offer requirement as part of the Sustainably Priced Energy Enterprise Development (SPEED) Program to promote the rapid development of renewable energy in Vermont. 2009, No. 45, § 4. In 2012, the Legislature made significant changes to the standard-offer program, now codified at 30 V.S.A. § 8005a. 2011, No. 170 (Adj. Sess.), § 4. The program is administered by a statewide purchasing agent (standard-offer facilitator), appointed by the PUC. See 30 V.S.A. § 8005a(a). Under this program, the PUC issues standard-offer contracts for the construction of renewable energy plants that meet certain eligibility requirements, and Vermont distribution utilities are required to buy the renewable power from selected plants at a designated price for a set period of time. Id. § 8005a. Eligible renewable energy generation plants must be located in Vermont and have a plant capacity no greater than 2.2 megawatts (MW). Id. § 8005a(b).

¶ 9. The standard-offer program provides for standard-offer contracts accounting for a cumulative capacity of 127.5 MW of electricity, allocated in annual statutorily designated increments ranging from five MW in 2013-2015 to ten MW in 2019-2022. Id. § 8005a(c)(1)(A). A portion of each year's new renewable electricity generation capacity is reserved for plants proposed by Vermont utilities, called the provider block; the remainder is left for new plants proposed by others, called the developer block. Id. § 8005a(c)(1)(B).

¶ 10. Under the standard-offer program, the PUC is directed to allocate the 127.5-MW cumulative plant capacity among different categories of renewable-energy technologies, including: methane derived from a landfill; solar power; wind power with a plant capacity no greater than 100 kilowatts (kW) (small wind); wind power with a plant capacity greater than 100 kW (large wind); hydroelectric power; and biomass power.4 Id. § 8005a(c)(2). In establishing annual allocations of capacity among the different technologies, the PUC considers multiple goals and directives, including supporting a diversity of renewable energy projects, as well as the varying market interest in developing projects from each technology category. See Investigation into Programmatic Adjustments to the Standard-Offer Program, No. 8817, 2017 WL 1365063, at *4-5 (Vt. Pub. Util. Comm'n Mar. 2, 2017) [hereinafter 2017 Order]. The PUC calculates avoided costs to serve as price caps for each technology category. Section 8005a(f)(2)(B) defines avoided costs as:

[T]he incremental cost to retail electricity providers of electric energy or capacity, or both, which, but for the purchase through the standard offer, such providers would obtain from distributed renewable generation that uses the same generation technology as the category of renewable energy for which the Commission is setting the price.

Thus, in contrast to the must-take requirements of Rule 4.100, which define avoided costs without regard to the specific generation technology involved, the standard-offer program sets technology-specific avoided-cost caps.

¶ 11. In addition, the PUC is authorized to use a market-based mechanism, "such as a reverse auction or other procurement tool" to fill the capacity for each category of renewable energy if it finds that such mechanism is consistent with federal law and "the goal of timely development at the lowest feasible cost." 30 V.S.A. § 8005a(f)(1). Since 2013, the PUC has usedsuch a market-based approach; in particular, it has issued an annual request for proposal (RFP), defining the program capacity, technology allocations, and the technology-specific avoided costs, to fill the available capacity for that year under the program. The lowest-priced bidders are awarded a standard-offer contract at their bid price. See Investigation into Programmatic Adjustments to the Standard-Offer Program for 2018, No. 17-3935-INV, 2018 WL 1452283, at *1 (Vt. Pub. Util. Comm'n Mar. 16, 2018) [hereinafter 2018 Order].5

¶ 12. Pursuant to its 2017 order, in managing the standard-offer program the PUC designated a portion of the developer block capacity as the "price-competitive developer block," available to projects of any technology category, with contracts...

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