Back in October 2011, when I released Reviving PURPA’s Purpose , commissioned by the Southern Alliance for Clean Energy, I was hard-pressed to find any scholarly works or FERC decisions discussing methodologies for setting avoided cost rates for qualifying facilities that had been published more recently than five years ago. And no wonder. To paraphrase Thomas Hobbes , the avoided cost ratemaking process is nasty (as in frequently contentious), brutish (as in extremely complicated) and anything but short (except perhaps in those jurisdictions with statutes establishing avoided cost rates as the market price for energy and capacity transactions in regional markets).

Yet, lately, there’s been a small rush of QF activity. Though I’d like to credit my paper for “reviving” discussion on QF ratemaking, in my view, the conversation finds its genesis back in the 2010 California PUC feed-in tariff case. There, FERC determined that the Federal Power Act preempts states from setting feed-in tariffs for wholesale transactions but that states may set avoided cost rates pursuant to PURPA. Subsequently, FERC overruled earlier precedent that required states to base avoided cost rates on all power sources and held that states could establish resource-specific avoided cost rates. In addition, FERC reaffirmed that states may establish QF rates to reflect verifiable costs associated with avoided transmission construction or environmental compliance resulting from the purchase of QF power.

FERC’s California CPUC ruling represents the first step to making PURPA more relevant in today’s markets. Allowing states the ability to set technology-specific rates can help boost QF rates even at a time of declining natural gas prices. Likewise, with utilities now subject to more stringent EPA emissions requirements, environmental compliance costs are verifiable and can be included in QF rates as well. Still, the California CPUC ruling does not force states to revise their avoided cost methodologies but merely provides an option for them to do so.

As summarized below, the most recent quad of FERC orders and pronouncements continue in the same vein — interpreting PURPA in a manner favorable to QFs, but stopping short of interfering with states’ avoided cost practices:

Projects One Mile Apart Are Separate Facilities for QF Certification
Potential New FERC Policy Directive on Avoided Cost for DG
According to this summary, FERC Chairman Jon Wellinghoff announced at a March 2012 ACORE-sponsored webinar that he has directed FERC lawyers and policy experts to research whether QF avoided cost rates should include additional compensation for distributed generation in light of avoided transmission costs and other value provided to consumers.

Chair Wellinghoff’s initiative could possibly boost rates for smaller or newer green technologies that have been left out of carve-out programs. Though some types of DG like solar are the beneficiaries of carve-outs and favorable REC programs, others such as marine hydrokinetics (for which I have a soft spot) are not. Therefore, Chair Wellinghoff’s proposal could potentially boost revenues for new and emerging QF technologies.

QFs Can Smile if Separated by A Mile
In Pioneer Wind issued March 15, 2012, FERC rejected a petition seeking to strip two wind park facilities developed and owned by the same entity of QF status because collectively,the two 46.8 MW projects which had each been self-certified as a QF exceeded the 80 MW size ceiling for QF eligibility under PURPA and FERC’s regulations. The challengers contended that because the two facilities were developed at the same time and owned by the same entity, they should have been treated as a single unit for purposes of PURPA eligibility. While agreeing that the projects were developed and owned by the same entity, FERC nevertheless, found that the because the projects were located more than a mile apart from each other, they were each properly certified separately as QFs under FERC’s regulations. FERC also emphasized that the “one-mile rule” is not a presumption that can be rebutted by a showing of common ownership or operation, but rather, is a bright-line test that FERC must abide irrespective of the relationship or operational dependency of the project units.

RECs Are Separate from Avoided Cost Rates
Ever since its ruling in Am-Ref Fuel Co., American Ref-Fuel, 105 FERC ¶ 61004 (2003), FERC has taken the position that avoided cost rates do not include compensation for renewable energy credits (RECs). FERC reasons that avoided cost rates compensate only for energy and capacity and not the environmental attributes reflected in the RECs. Thus, states are free to assign ownership of RECs associated with QF power to the utility or the QF, or to allow the parties to negotiate ownership by contract. What the state is preempted from doing under PURPA, however, is to adopt a policy or rule, holding that avoided cost rates include compensation for RECs – or any costs other than those associated with avoided energy and capacity.

Thus, in Morgantown Energy Associates , the Commission found inconsistent with PURPA the Public Service Commission of West Virginia’s reasoning that a utility is entitled to REC ownership where a contract with a QF is silent because avoided cost payments compensate the QF for avoided capacity and energy and also RECs. The aggrieved QFs argued that under PURPA and the AmFuel precedent, avoided cost compensation does not include payment for RECs. In response, the utilities argued that the case is not about PURPA but rather, the state’s ability to determine which party owns RECs when a contract is silent. Because RECs are a creature of state law, the state can assign ownership, contend the utilities.

Significantly, FERC did not find that the West Virginia Commission’s determination that the utilities owned the RECs in violation of PURPA. Rather, FERC deemed the West Virginia Commission’s reasoning – that avoided cost payments include compensation for RECs, inconsistent with PURPA. Still, FERC did not initiate an enforcement action against West Virginia as requested by the QFs, and instead ruled that the parties could bring an action in federal court.

Two factors militate against a FERC enforcement action, in my view. For starters, the parties sought review of the West Virginia Commission’s decision in the West Virginia Supreme Court which must determine whether state law supports utility ownership of RECs where the contract is silent. FERC is unlikely to intercede in these matters without first giving the state an opportunity to sort out matters of state law. Second, if it turns out that state law unequivocally deems utilities owners of RECs where the contract is silent, then West Virginia Commission’s statement that avoided cost rates include QF payments amounts to little more than dicta and doesn’t warrant a full on enforcement action by FERC. Still, that FERC went the extra mile to issue an order essentially to correct a statement by the West Virginia Commission that may not even be material to the ultimate outcome shows commitment to ensuring that PURPA’s role is not compromised by inaccuracies.

PURPA Not State Law Defines Date of Firm Obligation to Purchase
Just as it did with a West Virginia Commission ruling, FERC took issue with a decision by the Idaho Commission in n Rainbow Ranch, finding that the Idaho Commission’s ruling that the utility was not legally obligated to purchase power from two QFs was inconsistent with PURPA.

The arises out of the Idaho Commission’s decision in February 2011 to reduce the size cap for QF rates from 10MW for wind and solar to 100kw, effective retroactively to December 14, 2010. Meanwhile, on December 10, 2010, Idaho Power and 2 QFs, Rainbow Ranch Wind and Rainbow West Wind submitted to the Idaho Commission two 20-year power purchase agreements for approval. In February 2011, the Idaho Commission rejected the contracts, finding that the projects exceeded the 100 kwh eligibility cap, and that the parties did not formally execute the contracts before the December 14, 2010 reductions in the cap size.

The aggrieved QFs asked FERC to initiate an enforcement action against Idaho Power for PURPS violations. The QFs argued that the Idaho Commission decision is inconsistent with FERC’s rules which hold that a utility’s legally enforceable obligation to purchase attaches when the parties filed the agreement even if it was not formally executed. Thus, FERC’s rules on the meaning of “legally enforceable obligation” under PURPA preempt the Idaho Commission’s contrary interpretation.

Again, FERC took no enforcement action here – albeit for different motivations than in Morgantown Associates. As I described, the West Virginia Commission’s ruling didn’t (in my view) violate PURPA; rather, a potentially immaterial statement by the West Virginia Commission was inconsistent with FERC’s PURPA precedent. By contrast, in Rainbow Associates, the Idaho Commission’s finding of no legally enforceable obligation to purchase is not only directly contrary to FERC precedent, but was also dispositive of the question of the QF’s eligibility for PURPA based rates. In addition, whereas state law governed the question of REC ownership in Morgantown, PURPA preempts state law on the question of whether a legally enforceable obligation has been created.

Even so, FERC declined enforcement action. Most likely, it’s because the Idaho Commission had already stated to take steps to comply with PURPA. FERC noted that since the issuance of the Cedar Creek decision, in which FERC resolved an identical issue, the Idaho Commission had gone back and reinstated many contracts. Given that the Idaho Commission was willing to abide FERC’s initial ruling, FERC have decided against enforcement in this matter to allow for a comparable amicable resolution.

So there’s my quick run down of the recent quad of QF actions and initiatives by FERC. If you have any questions, you can put them in the Q (queue, get it?) by dropping me an email at carolyn@carolynelefant.com.

FERC’s long awaited resolution of the sixty-something pending rehearing requests is scheduled for the Commission Agenda for its upcoming May 19, 2012 meeting. I’m not predicting any significant changes from the original order — at this point, implementation is already underway — though FERC may clarify some minor points that some parties (or their attorneys) will proclaim as a major victory.

Assuming that there aren’t any major changes between the initial order and the rehearing request, the sixty-day clock starts ticking for seeking judicial review. As a consummate organizer and appellate lawyer, I’ve already indexed and bundled the parties’ comments and rehearing requests into a fully searchable Adobe Portfolio file which you can download right here at no charge. And watch for my analysis of Order No. 1000 and predictions which I hope to post in the next few days.

Carolyn Elefant

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I am so excited to announce that I have been recognized as a Washington D.C. 2012 Superlawyer for Energy and Natural Resources. In particular, I am humbled to be included as the sole small law firm on a list of mega-firms and energy super stars whom I’ve long admired.

Still, I am troubled that I am the only small firm lawyer on this list. With so many “next generation” players entering our industry – from green start-ups to smart-grid and demand response aggregators and storage companies and large retailers – it is critical to have access to conflict-free, quality representation in the complex and fast-changing energy regulatory arena. Without the wide availability of a range of legal options – from mega-firms to boutique, 21st Century practices like mine or those of my outstanding colleagues in the Energy Lawyers Network, our industry will lose out on important innovation. It is my hope that next year’s list will include my talented solo and small firm energy colleagues who can stand dance on equal footing with our large scale colleagues, only backwards and wearing high heels.

Turns out the “just and reasonable” standard isn’t just for utility rates and contracts anymore, but for dealings with consumers.

In a recent Order directing PG&E to show cause why it should not be subject to penalties for its former director’s underhanded infiltration of an anti-smart grid online forum, the California Commission gave new meaning to the phrase “just and reasonable,” holding that:

Public utilities have a duty to provide just and reasonable service which includes the duty to provide complete and truthful information to their customers. By lying to and infiltrating anti-smart meter consumer groups, Mr. Devereaux, acting on behalf of PG&E, violated PG&E’s obligation to provide just and reasonable service to its customers.

Moving forward, the California Commission will hold a proceeding to determine whether PG&E management was aware of Devereaux’s activities and whether fines or other remedial actions should be imposed on PG&E.

Lots of commentators will hold up the California Commission’s decision as proof of the need for robust social media policies but to me, that’s an overly simplistic analysis. The real problem for companies is not simply having a social media policy, but ensuring that company executives abide it. Moreover, action by a higher-up like Devereaux is more likely to be viewed as reflective of official company policy than an isolated incident by a low-ranking peon, thus triggering utility liability for fines and sanctions.

The California Commission’s decision has two lessons for utilities. First, as utilities transition into smart grid and social media, there are still opportunities for mishaps. The California Commission’s decision may be the first of its kind to potentially hold a utility accountable for employee misuse of social media but it won’t be the last.

Second – and as I noted at the outset, energy regulatory nerds like me are accustomed to use of the phrase “just and reasonable” in the context of rates and charges and possibly conduct like antitrust or discriminatory practices. The California Commission broadens the scope, expanding a utility’s obligation to act justly and reasonably to its conduct on social media and dealings with customers. That’s a big step but in my view, a necessary one to guard against mischief and realize the enormous promise that social media has to offer the utility industry.

Turns out, the Missouri Public Service Commission – and perhaps other state commissions – may have been wrong about their ability to intervene as a matter of right in Federal Energy Regulatory Commission (FERC) proceedings. In State of Missouri Ex Rel. MoGas Pipeline v. Missouri PSC (April 17, 2012), a blockbuster opinion with far-reaching implications, the Missouri Supreme Court, sitting en banc, ruled that Missouri PSC does not have authority under Missouri law to intervene in FERC proceedings. That’s an enormous blow to Missouri ratepayers given the increasing federalization of energy regulatory policy and the substantial impact of FERC rulings on state regulation.

In fact, it was the transition from state to federal jurisdiction that gave rise to the MoGas Pipeline ruling. In 2008, two state jurisdictional pipelines combined to form the MoGas Pipeline, and in doing so, emerged as an interstate company subject to FERC’s exclusive jurisdiction. As a result, much of the regulatory action concerning MoGas’ activities moved to FERC, with MoGas making various regulatory filings to upgrade its system and modify gas tariffs at FERC and the Missouri PSC dutifully intervening as a matter of right under Rule 214 and occasionally protesting MoGas’ filings. In other words, nothing more than business as usual in the energy regulatory industry.

That is, until someone at MoGas came up with the bright idea of challenging the Missouri Commission’s authority to intervene in the FERC proceeding. In 2008, MoGas filed a petition at the PSC arguing that Missouri law did not authorize the Missouri Commission to intervene at FERC. Not surprisingly, the Missouri Commission denied the petition but MoGas didn’t drop the matter. The challenge to the Missouri Commission’s authority wended its way through the courts, eventually landing before an en banc panel at the Missouri Supreme Court.

Although the court’s decision barring the Missouri Commission from intervening is unprecedented, the court’s reasoning itself is quite straightforward and fairly standard black letter regulatory law. The Missouri Court began with the oft-cited premise (indeed, I have cited it myself!) that the Missouri Commission “is a creature of statute,” its powers are limited to those conferred by statute, and if a power is not granted by statute, then the Commission does not have that power. Nothing new here.

Next, the court went on to review the Missouri Commission’s enabling legislation – and found that the statute did not empower the Missouri Commission to intervene. One statutory provision, Section 386.210.1, provides that the Missouri Commission may “confer” in other proceedings – but the court ruled that conferring means to contribute or hold a conversation and therefore, is not the same as intervening, a legal term of art that confers party status. The court also found that the Missouri Commission’s ability to hold “joint hearings” did not authorize intervention either. Finally, while the court acknowledged that FERC’s Rule 214 permits state commissions to intervene, it held that “federal permission to intervene is not equivalent to authority to intervene” which may only be granted by the Missouri legislature.

The MoGas decision isn’t likely to have far reaching consequences since the statutory deficiencies are easily corrected by the state legislature, which has a strong interest in ensuring that ratepayers are represented at FERC. In fact, the Missouri decision notes that PSC indicated to the court that it is “in the course of seeking such express authority.”

Even so, the MoGas decision shouldn’t be taken lightly but rather, should sound the alarm bells at other commissions to revisit their enabling legislation to determine that it adequately authorizes them to intervene at FERC. Even though a state commission’s authority may never have been challenged before, as the Missouri Supreme Court reminds us, “the unchallenged conduct of other state regulatory agencies provides no authority for the PSC to act beyond its statutory powers.”

Slowly but surely, social media continues to make an appearance in state commission decisions. Since I issued my first summary of social media sitings back in January 2012, a few others have emerged. Here’s a quick update.

Company found jurisdictional through Facebook Many times companies, either by ignorance or design, fail to obtain necessary authorization from a state commission to lawfully engage in business. Though once difficult to track these unlicensed companies, that task may now be easier with social media platforms like Facebook. In a recent Colorado PUC Decision (2012 Colo. PUC LEXIS 220), a party bus company that provides transportation to concerts was was required to pay a fine for unlawfully providing transportation as a motor carrier without Commission authority. Evidence of the bus company’s intent to hold itself out as a public carrier included its Facebook page, where it advertised its services.

Education on Dynamic Pricing
Use of social media to educate customers about utility smart grid or green energy programs is pretty much de rigger. In a January 2012 decision, the Delaware Commission acknowledged the role that social media plays along with other more conventional means of disseminating information. From the order, here’s a description of Delmarva’s program to raise awareness of, and gain buy-in for, dynamic pricing:

Delmarva will expand its education efforts in 2013 to all residential customers, using direct communications, mass and social media, service agencies, special interest groups, faith-based organizations and non-English speaking advocacy groups for face-to-face outreach; Delmarva believes this will enable it to more effectively educate customers belonging to distinct marketing segments such as low income, seniors, and ethnic groups. Ex. 5 at 2-3, 5. In 2014, when Delmarva will move all SOS customers to dynamic pricing, it expects its education methods primarily to include direct mail, direct customer contact and social media.

Social Media is an alternative for alternative vehicles
In this recent Indiana decision, the Commission approved a utility’s plan to use social media to assist customers in making informed choices about alternative fuel vehicles. What’s a little different, however, is that the utility plans to use social media not just to promote its program, but to monitor its effectiveness and gather stakeholder feedback.

After much fanfare, the collaborative social media energy-sharing app between Opower, NRDC and various utilities has launched, both in US markets as well as across the pond. While I wholeheartedly support customer access to information, I’ve got mixed feelings about about publicly sharing and comparing data on home energy use.  For starters, home energy use shows only part of one’s energy footprint. Worse, focusing only on home energy use will inevitably portray parents with unconventional work schedules as energy hogs.

I’ll use my own situation to demonstrate.  Up until a few years ago while my daughters were still young, I operated my law firm on a part-time basis, working from home at odd hours.  Typically, I’d rise at 6 am to squeeze in two hours of work before the first feeding or breakfast.  After that, I’d either put them down for a nap (as infants), or when they were older, I’d take them to pre-school for the morning.  Then, I’d race home (perhaps handle some errands in between) to work like crazy until noon after which I’d do pick up and maybe a park visit or outing.  But even when my daughters started elementary school, we generally  returned to the house by three. We’d remain home til dinner, and after bedtime, I’d resume work from about 9 until one or two in the morning.  So all this time, throughout the day, we ran the lights, the electricity (for computer) and heat or air-conditioning, consuming far more than my colleagues who left the house at 7 am, dropped the kids at day care and didn’t return home until 7 in the evening.

Of course, some families have a nanny stay in the home, but it always seemed to me that most of the families using nannies encouraged them to spend time at other activities or play dates – so they spent more time out of the house. Plus, with a full day at the office, these parents weren’t burning the midnight oil (or electricity as was the case) as I was.

Yet my consumption habits at home don’t tell the whole story – at least I hope not.  Despite being home most of the day and too sleep deprived and busy to care about whether lights were turned off or windows shut, I’m still certain that I used less energy in other parts of my life than my neighbors.  My family has always purchased small, gas-efficient cars and we also live in close proximity to the stores and activities that I’d frequent with my daughters – so sometimes I’d walk or bike to destinations instead of driving.  And of course, with less time at the office, and with my girls spending just a few mornings at pre-school, our home energy use was offset partly by the energy that we didn’t use at work or childcare facilities.

Leaving aside environmental effects, a full-time workers’ real energy savings may also be illusory. While my family spent more money on electricity during my full-time home-based schedule, we also actually saved money on gas and commuting costs and dry-cleaning and purchased lunches that those working in offices full-time incur.  In short, while we spent more on energy, we saved in other aspects of our lives which would have also taken additional energy as well.

As companies become more flexible about telecommuting, I wonder whether Opower’s service goes against the grain. Might workers be deterred from taking advantage of telecommuting after taking into account the extra money that it will cost them to work from home? Of course, information on energy use was always relatively accessible (compare your bill from the week away on vacation to other times of the year), but somehow (and indeed, this is the point of sharing energy data), the cost differential seems more compelling when a stay-home parent spending $200/month on energy use compares that to her full-time employed neighbor’s bill of the half the cost.

Despite my griping, I still firmly believe that knowledge is power and that customers have the right to do what they want with consumption on energy use — even if it makes me look bad.  Saving money on energy is an important goal, of course, but some things in life, like the ability to spend unlimited time with my daughters without giving up my career matter more.

The question of whether utilities may demand that employees and job applicants turn over their social media passwords has been definitively answered, at least in Maryland. Thanks to the efforts of the ACLU, Facebook and my esteemed colleague and respected social media attorney, Bradley Shear, the Maryland legislature passed a law prohibiting employers from requiring employees or applicants to disclose user names or passwords to personal Internet sites as a condition of employment.

As Shear explains, the legislation not only protects employees’ privacy rights, but it also spares companies of the obligation to affirmatively monitor and act on information gleaned from employees’ personal profiles.

In addition, the legislation aligns with the terms of service of social media sites like Facebook and others. Most of these sites prohibit users from sharing their passwords with other parties – and thus, a company demand for a password would force users to violate their contractual obligation to social media services. This in turn could even jeopardize utilities’ use of social media sites which presumably can ban a user that forces other users to violate terms of service. Which is yet another reason not to demand employees’ social media passwords, even if there isn’t yet a law prohibiting the practice.

Even though I’m a lawyer and you expect from this blog the latest, greatest legal analysis on next generation energy issues, I’m also a bonafide social media aficionado spending my time in search of the latest, greatest tools that I can use to educate and serve my clients. These days, my current fancy is Pinterest, a social curation site that functions as an online online file box and a bulletin board for storing and displaying treasures discovered round the web. I’ve used Pinterest to create a board depicting infographics related to green energy issues.

Is there a way for utilities to use Pinterest as part of their social media campaigns? There are benefits to doing so. Pinterest is popular with women who make the majority of the household purchase decisions . And Pinterest reportedly drives more traffic to websites than Twitter.

A quick search of Pinterest didn’t immediately turn up any utility accounts (if I’m wrong, let me know) – but I did come across this article about another public service provider, the Kansas City Police, currently using Pinterest. And no, they’re not posting mugshots, but rather, photos that personalize what the police department does,from officers helping out in the community to women police officers to the history of the department. I can envision many similar uses for utilities as well.

By the way, utilities should not be deterred by some of the legal issues surrounding Pinterest, significantly, the possibility of copyright violations for posting protected materials without consent. For starters, most utilities will likely post photos or materials that they have created or already own, so the copyright issues are not relevant. But even for companies that, like me, choose to link to photos elsewhere, the fair use defense applies. First, Pinterest is a transformative use of photos gathered from various sources on the web. Curated at Pinterest, a user’s handpicked photos become part of a unique collection that reflects the user’s tastes and is an entirely different animal from the original context in which the photo was displayed. Transformative use is one factor of fair use. Second, Pinterest has been shown to increase traffic to the underlying site and boost sales. The fact that a copyright holder isn’t harmed by postings on Pinterest also militates against a finding of infringement.

Of course, fair use is a defense so it won’t keep a Pinterest user from being sued. Still, the potential success of the fair use defense is likely to deter a copyright holder from suing, particularly if the holder has profited from Pinterest-driven traffic. But again, if a utility would rather avoid the hassle of sorting out fair use issue, it can simply limit its use of Pinterest to pinning photos that it already owns.

With that in mind, why not take a stab at Pinterest? You just might discover that pinning can help in winning over customers.

As a small firm lawyer practicing in the energy industry, a field typically dominated by big companies and big law firms, I’ve always been somewhat of a rarity. But perhaps, not any more. According to Corporate Counsel, lawyers are leaving big firms in droves to join smaller firms or try a hand at starting their own, as I did 18 years ago.

Initially, the large firm exodus was a departure to the 2008 financial meltdown, causing law firms to shed associates, counsel and even partners. But now, as the article reports:

Small firms are flourishing because clients’ demands have evolved over the years. Rather than relying on one firm and paying for a package of legal needs, clients are turning to different firms, and in some cases to legal support businesses, for different tasks.

Because of the trend of unbundling, large corporate law departments are no longer bound to use a one-stop shopping firm for all their needs, but can choose attorneys from a variety of specialized firms, which offer lower rates and higher quality representation. Technology is another enabler, particularly in complex areas like commercial litigation or the energy industry, where attorneys need to manage large volumes of data and engage in complex research. Today, I can avail myself of off-the-shelf tools that give me ten times the capability that I had when I opened my firm back in 1993, at a fraction of the cost.

Still, it seems as if the energy industry is slowest of most industries to adapt to hiring solo and small firm lawyers. Perhaps it’s because of the complexity of the work or companies’ lack of sensitivity to price because many costs are passed directly through to ratepayers. So tell me, readers, what do you think? Do solo and small law firms have a place in the energy industry and is their role valued, or are they underutilized?