In response to the recent article, "FERC Defines States' Feed-In Tariff Authority," I argue that the July 15th Federal Energy Regulatory Commission (FERC) ruling was a very narrow decision that tested but one of a variety of paths, addressing possible federal preemption of state-set, above avoided cost, wholesale pricing for renewable energy. Above avoided cost pricing is a mandatory feature of the policy mechanism known as a feed-in tariff (FIT). Additionally, it is critical to note that a FIT payment reflects the value of both wholesale energy and environmental attributes from the renewable source. While FERC has jurisdiction over the wholesale energy portion, it has clearly acknowledged that it has no authority over the valuation of the environmental and economic development attributes.
Feed-in tariffs (where tariff equals a rate paid, not a tax) are time-tested as the world's most cost-effective and equitable policy tool for accelerating deployment of distributed renewable energy (RE) generation, at no cost to the government or utilities, and negligible cost to ratepayers.
Properly designed FITs guarantee that any renewable energy facility -- whether a home, a business, a government entity or school, a Native American community, a co-op, or even a utility-owned facility -- is assured access to the grid and will be paid a fixed rate for each kilowatt hour of renewable electrical energy produced and fed into the grid for a contract period of typically 20 years. Further, the fixed rate must be based on the actual cost of generation and ensure the operator a reasonable rate of return on their investment.
Two federal laws, the "Public Utility Regulatory Policies Act of 1978" (PURPA) and the "Federal Power Act of 1935" (FPA), as administered by FERC, have preemptive features that regulate wholesale price setting of energy at the state-level.
The door was closed by the FERC ruling to one path tested by the California Public Utilities Commission (CPUC) in their recent petition; footnote number 93 of the ruling, however, is a clear invitation by FERC to explore alternate paths.
The take-home message here is this: the ruling in no way whatsoever should be construed as the final word on state-level establishment of FIT pricing reflecting both wholesale energy and environmental attributes as necessary to implement a properly designed FIT program.
Alternate paths to properly designed FITs
As detailed in the National Renewable Energy Laboratory (NREL) technical report "Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions" earlier this year, there are several PURPA and FPA workarounds outlined that state public utility commissions may explore. The summary table on page 40 of that document is especially useful for those wishing to learn more.
Also in play is the American Council On Renewable Energy's (ACORE) Renewable Energy Standard Offer (RESO), an "Americanized FIT that is based in the old Federal Power Act and avoids the complications of using PURPA." Micheal Eckhart, president of ACORE, continues: "If we divide the term 'setting rates' into 'determine rates' and 'approve rates,' and think about the solution being state and federal authority instead of state or federal authority, it all could work."
ACORE has been working with FERC over the last several months on the RESO, a solution that holds a lot of promise but has yet to be tested.
And finally, there's growing interest in amending PURPA and the FPA in Congress. Representative Jay Inslee (D-WA) and others have been attempting to offer amendments for inclusion in various iterations of the energy and climate bills winding their way through Congress to further clarify that states have the authority to set a FIT rate at above avoided costs to reflect both the wholesale energy and environmental and economic development attributes of the renewable resource. However, given the present gridlock in Congress, this clarification is not likely to take place this year.
A note of caution
Please don't fall into the Reverse Auction Mechanism (RAM) trap like lawmakers in Oregon did. Auctions are not FITs -- they are not elegant -- and they are no better than the complicated, shadowy, and inaccessible policy mechanisms such as for Request for Proposals (RFPs) under which we presently labor, and which have stymied renewable energy development in the United States for the last three decades.
Real FITs must be simple, transparent, and accessible to all. If the policy being proposed doesn't satisfy each of those three attributes, it's the antithesis of the proven policy tool known as a renewable energy FIT.
* With real FITs, everyone is a winner!
* With RAMs, there is only one or perhaps a few winning bidders -- and lots of losers.
Real FITs create stable policies with fixed prices and contracts that inspire investor confidence, an attribute which will benefit your state or jurisdiction with capital investment in manufacturing, accelerated deployment of RE generation capacity, and lots of local, long-term jobs.
RAMs only create opportunities for the very largest and most sophisticated developers, who loathe the competition of a vibrant and equatable renewable energy marketplace that FITs create. Additionally, RAMs are more likely to result in short-term construction jobs and absentee-owned facilities that do little for local economies.
In fact, the new July 2010 NREL technical report, "A Policymaker's Guide to Feed-in Tariff Policy Design," agrees with these contentions, as it contains no mention of auction mechanisms as an efficacious design element to achieve either primary, secondary, or tertiary renewable energy goals of policymakers or society.
To knowledgeable FIT advocates, RAMs are Really A Monopoly.
Bob Tregilus is a self-funded advocate of properly designed feed-in tariffs in his home state of Nevada and has absolutely no financial, economic, development, business, or investment interests in renewable energies of any kind. Bob is also co-host the international weekly show, This Week in Energy (TWiEpodcast), and he co-chairs the Electric Auto Association of Northern Nevada.