Courts have differed on the standard of review applicable to contracts between individual parties where the contracts are silent with respect to the rights of the parties to seek a change in the contract rates, terms and conditions. On December 27, 2005, the Federal Energy Regulatory Commission (the "FERC") issued proposed rules providing that, unless parties explicitly reserve the contractual right to seek modification under the lower "just and reasonable" standard, FERC will apply a "public interest" standard. (Docket No. RM05-35-000.) This would change the previous default assumption that the "just and reasonable" standard applied.
However, according to the proposed rule, FERC will continue to review transmission service agreements and agreements for transportation of natural gas (in each case executed pursuant to the standard form of service agreements) under the lower "just and reasonable" standard. Comments on the proposed rule are due by February 3, 2006.
Commissioner Kelly strongly dissented from the Notice of Proposed Rulemaking, declaring the proposal to be "an abdication of the statutory authority and obligations entrusted to the Commission by Congress." Commissioner Kelly relies on the language of the Federal Power Act and the language of the Natural Gas Act, which direct FERC to fix by order any unjust, unreasonable, unduly discriminatory or preferential rate or contract. She expresses further concern that the "public interest" standard has not been clearly defined, creating the potential for extensive litigation to resolve its meaning. By contrast, the "just and reasonable" standard has been well-defined through its use over the last 70 years.
FERC Proposes Rules Revising Purpa’s Mandatory Purchase Obligation
As previously reported, the Energy Policy Act of 2005 amends the Public Utility Regulatory Policies Act of 1978 ("PURPA")1 to eliminate, in certain circumstances, a utility’s mandatory electricity purchase obligation.
Specifically, the amendment eliminates a utility’s obligation to enter into a new contract to purchase electricity from a qualifying cogeneration facility or qualifying small power production facility (collectively, a "QF") if FERC finds that the QF has non-discriminatory access to (i) wholesale markets, and (ii) transmission services provided by a FERC-approved regional transmission entity.
On January 19, 2006, FERC issued proposed rules to implement the provision. (Docket No. RM06-10.) In the proposed rules, FERC makes the following preliminary findings:
1. The Midwest ISO, PJM, ISO – New England, and New York ISO meet the requirements relating to wholesale markets and to transmission services because (a) they administer day ahead and real time markets, and (b) bilateral long term contracts for the sale of capacity and electricity are available to QFs in these markets. In short, FERC is preapproving termination of the mandatory purchase obligation in these areas.
2. The California ISO and Southwest Power Pool meet the requirement relating to transmission services. Electric utilities in these areas will need to show that they are members of these organizations and that QFs in the region have a meaningful opportunity to sell energy and capacity.
3. For all other areas, an Open Access Transmission Tariff and reciprocity tariff will be sufficient to assure nondiscriminatory access by a QF to transmission services, and an organized procurement process will be sufficient to demonstrate access to competitive short term and long term energy and capacity markets.
FERC also seeks comment as to whether the mandatory purchase obligation should be retained for certain QFs, such as those having 5MW of capacity or less. Comments on the proposed rule are due February 27, 2006.
Performance-Based Incentives For Solar Energy Offered In California And New Mexico
In 2006, both California and New Mexico will launch programs designed to promote solar development. These programs are unique because the incentives are based on actual production of solar energy, not on the installed size of the systems.
On December 27, 2005, the New Mexico Public Regulation Commission approved an innovative plan proposed by Public Service Company of New Mexico ("PNM") to encourage customer-owned solar generation. Under the plan, any customer with a 10kw (or smaller) photovoltaic system will be able to: (1) sell to PNM the environmental attributes associated with the electricity generated (known as a renewable energy certificate), and (2) receive from PNM a credit at a fixed rate until 2018 for all excess energy delivered to PNM’s grid (determined through net metering).
On January 12, 2006, the California Public Utilities Commission (the "CPUC") approved a regulatory program proposed by Governor Schwarzenegger. It includes $2.9 billion in rebates over the next 10 years for solar projects. Initially, the rebates will go toward the installation of solar photovoltaics, with solar hot water heating and solar heating and cooling systems to follow.
A photovoltaic system works by collecting solar radiation from the sun and actively converting that energy to electricity. The energy generated from photons striking the surface of the solar panel allows electrons to be knocked out of their orbits. Electric fields in the solar cells then pull these free electrons in a directional current from which metal contacts in the solar cell can generate electricity.
Footnotes
1 PURPA was intended to encourage the conservation and efficient use of energy resources and to encourage the development of alternative power supplies capable of displacing the inefficient use of oil and natural gas by electric utilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.