by Emma Foehringer Merchant
May 11, 2020

The Public Utility Regulatory Policies Act, a 1978 law commonly referred to as PURPA, has encouraged the build-out of about 6 gigawatts of large-scale solar in the U.S. Two-thirds of that total is in California.

But the Golden State has been on the wrong side of the law since 2017, when a court ruled that the state’s Renewable Market Adjusting Tariff (ReMAT) program, which guided the development of projects 3 megawatts or smaller, violated PURPA’s requirements. A higher court affirmed that ruling last year.

In a unanimous vote last week, the state’s Public Utilities Commission approved a new program intended to bring the state into compliance with PURPA. Solar developers hope the decision will clear the way for new contracts as California plods towards its target of 100 percent clean energy by 2045.  

“This will get the utilities back in the business of procuring,” Ed Smeloff, director of grid integration at advocacy organization Vote Solar, told Greentech Media. “It will reinvigorate PURPA in California.”

California's PURPA problem

The U.S. Congress passed PURPA in 1978 amid an energy crisis. Originally, the law was designed as a method to promote energy reliability and loosen the grip of utility monopolies on the generation of electricity. It required utilities to purchase power from small, independent generators at set “avoided cost” rates determined at the state level.

Over its four-decade history, PURPA has persisted in pushing renewables development forward, even as other incentives came and went.

But over the years, as renewables became cheaper and more prevalent, utilities increasingly pushed for changes to the law’s implementation in a bid to erode its requirements. That’s led to regulatory and legal challenges in states as far-flung as Michigan, Montana and South Carolina.

Interestingly, the challenge that upended California’s program actually came from a developer who was looking to build a project under the state’s ReMAT program.

The California Public Utilities Commission established ReMAT in 2013 as a successor to another feed-in tariff program. ReMAT applied to projects under 3 megawatts and had a cap of 750 megawatts, divided between the state’s three investor-owned utilities and its public utilities. In 2017, when a project that developer Winding Creek Solar had planned in the San Joaquin Valley failed to secure a ReMAT contract, the developer sued regulators, arguing that ReMAT conflicted with PURPA guidelines.

The court agreed, finding that the ReMAT program’s cap violated PURPA. Further, the court ruled that California’s other PURPA program, the “standard offer contract” available to projects of 20 megawatts or less didn’t provide the proper pricing mechanisms as required by federal law.

The ruling left the state with no PURPA-compliant program, and regulators have been at work on a fix since the summer of 2018.

Utilities back in the solar procurement business

Over the years, PURPA has become something of a flashpoint between clean-energy advocates and utilities, which generally prefer as much control as possible over clean energy developments in their service territories. Those disagreements exist even in California, where investor-owned utilities are relatively progressive when it comes to buying renewables.

Within that context, last week’s decision appears to offer a little something for everyone. Vote Solar’s Smeloff calls it an “elegant, well-thought-out program.”

Contracts for qualifying facilities will range from seven to 12 years. Projects can calculate “avoided cost,” the amount the utility must pay for electricity generated, using both the price at the time a contract is signed and when the electricity is delivered (remedying California’s previous contract structure). The fixed prices that utilities must pay will be recalculated each year, using an average of power prices in the previous three years.

The state’s investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Electric & Gas, had asked for contract lengths of no more than three years (tussles over contract durations are commonplace in state PURPA battles).

Though the commission didn’t give IOUs a win on contract lengths, the order did shorten the timeframe used to calculate avoided prices from five years to three years. Since renewable prices have continued to decline in recent years, that method of calculation will lower the price utilities must pay to third-party generators. That should ameliorate some, but not all, of the IOUs' concerns.

In the end, though, their approval doesn’t really matter. PURPA is a requirement.

“PURPA is a federal mandate,” said Smeloff. “The state of California has been told by the court [that it must] implement compliant PURPA programs.”

Although California's big utilities argue that the state's renewable portfolio standard provides better support for solar and wind development than PURPA, they’ll now have to get to work calculating the prices they’re required to offer to qualifying facilities. Then developers can start working through the program.

Renewables procurement in California has been on hold for several years because the state’s regulated utilities have already met requirements under California’s renewable portfolio standard and utilities are increasingly losing demand to the state’s community-choice aggregators. SDG&E has not held a solicitation since 2015, according to a document published by the CPUC in the PURPA rulemaking. All three of the state’s utilities won’t need to procure more renewables until the 2030s, the document notes.

Solar watchers say the new approval should compel utilities to start buying again. PURPA's “must-take” provision requires utilities to buy from third-party generators. Under California’s interpretation of PURPA, qualifying facilities can also count toward the state’s RPS obligations.  

FERC’s proposed rulemaking looms

Though a federal law, the particulars of PURPA have long been left to states. But this fall, the Federal Energy Regulatory Commission proposed changes to PURPA’s implementation.

Federal regulators recommended significantly decreasing the size of eligible projects, from 20 megawatts to 1 megawatt, and varying avoided-cost rates based on forecast energy prices throughout the length of a project’s contract.

The clean-energy industry largely opposes those changes, which look similar to what utilities in many states have sought in order to limit PURPA development. Because FERC has gone silent on its notice of proposed rulemaking since September, it’s unclear when and if it will follow through with any of the adjustments.

Vote Solar’s Smeloff said even if FERC does pursue the changes, California’s program should be permissible under the current draft.

“Nothing in the FERC order would undermine what California is doing currently," he said.

Next up, California may consider reopening its ReMAT program, which has been idled since 2017. Both solar advocates and IOUs support reopening the ReMAT program now that California has an alternative way to comply with PURPA. For now, though, the CPUC said that possibility must wait. 

“As we have stated, ReMAT is beyond the scope of this rulemaking and it is inappropriate to consider changes to ReMAT here,” the commission said in its final decision.