UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) ) ) MOTION TO INTERVENE AND PROTEST OF THE EDISON ELECTRIC INSTITUTE

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Hydrodynamics Inc. Montana Marginal Energy Inc. and WINData, LLC ) ) ) Docket No. EL MOTION TO INTERVENE AND PROTEST OF THE EDISON ELECTRIC INSTITUTE Pursuant to Rules 212 and 214 of the Federal Energy Regulatory Commission s ( FERC or Commission ) Rules of Practice and Procedure 1 and the Commission s June 27, 2013 Notice of Extension of Time, the Edison Electric Institute ( EEI ), on behalf of its members, submits this Motion to Intervene and Protest in response to the Hydrodynamics, Inc., ( Hydrodynamics ), Montana Marginal Energy, Inc. ( MME ) and WINData, LLC ( WINData ) (collectively, Petitioners ) petition for enforcement and declaratory order (the Petition ). 2 In the Petition, Hydrodynamics, MME and WINData request that the Commission institute an enforcement action to preempt and enjoin the Montana Public Service Commission s ( MPSC ) rule A.R.M (5) ( MPSC Rule ). In the alternative, Petitioners request that the Commission issue a declaratory order finding the MPSC Rule inconsistent with the Commission s rules pursuant to the Public Utilities Regulatory Policies Act of 1978 ( PURPA ) and therefore preempted by Federal law. See 16 U.S.C. 824a-3(h) (2011). MOTION TO INTERVENE EEI is the association of all the US investor-owned electric companies. Its members provide electricity for 220 million Americans, directly employ 500,000 workers, and operate in 1 18 C.F.R and (2012). 2 See Notice of Petition for Enforcement and Declaratory Order, Docket Nos. EL , et al. (June 18, 2013).

2 all 50 states. It has 70 international electric companies as Affiliate Members, and 250 industry suppliers and related organizations as Associate Members. EEI has provided public policy leadership, strategic business intelligence, and essential conferences and forums since Its members own or operate approximately 70% of the electric industry assets in this country. EEI meets the requirements of 18 C.F.R (b) of the Commission s Rule of Practice and Procedures. As the trade association representing many users, owners and operators of the bulk power system, EEI is an interested party whose members will be directly impacted by the Commission s order, whose members cannot be adequately represented by another party to the proceedings, and whose intervention is in the public interest. Accordingly, EEI respectfully requests that the Commission grant this motion to intervene in the above-captioned proceeding. NOTICES AND COMMUNICATIONS Notices and Communication with respect to this proceeding may be served upon the following individuals: Aryeh B. Fishman Associate General Counsel, Regulatory Legal Affairs Victoria L. Calderón Attorney Edison Electric Institute 701 Pennsylvania Ave., N.W. Washington, D.C afishman@eei.org Edward H. Comer Vice President, General Counsel & Corporate Secretary Edison Electric Institute 701 Pennsylvania Ave., N.W. Washington, D.C (202) ecomer@eei.org BACKGROUND Petitioners are Montana corporations that are owners or developers of various projects which, according to the Petition, are eligible as qualifying facilities ( QF s). On June 14, 2013, the Petitioners filed the underlying Petition for Declaratory Order and Petition for Enforcement 2

3 in this matter. On June 27, 2013, in response to a Request for Extension of Time filed by the MPSC, the Commission entered a Notice of Extension of Time, extending the deadline for filing of responses to July 18, Petitioners argue that the MPSC Rule, and subsequent decisions interpreting the MPSC Rule violate PURPA and the Commission s regulations thereunder. Petition at 1, 3. Specifically, the Petitioners take the position that the MPSC Rule effectively makes it impossible for QFs to create a legally enforceable obligation, and is therefore unfair and discriminatory. 3 Id. Petitioners claim that the MPSC accomplishes this discrimination through a competitive solicitation process that, according to Petitioners, is flawed and biased. Petition at 6. Petitioners also object to the MPSC s decision to stay its final Order 7199d, which eliminated a 50 MW cap on NorthWestern s obligation to acquire new wind generation. 4 Petition at 8. PROTEST EEI submits this Protest out of concern that the Petition invites the Commission to unnecessarily and unreasonably interject itself into a state regulatory agency s implementation of PURPA and appears to take the erroneous position that states may not require competitive solicitations to determine avoided cost consistent with the Commission s regulations and without violating PURPA. EEI submits that the primary responsibility for implementation of PURPA falls to the states, and the Commission should continue its policy of consistently giving the states wide latitude in implementing Section 210 of PURPA. See Cal. Pub. Util. Comm n, 133 FERC 61,059 at P 24 (2012); see also Southern California Edison Co., 70 FERC 61,215 at P 61,675 3 Petitioners concede in a footnote that their objection applies only to those QFs with an installed capacity greater than 10 MW. See Petition at 2., fn.8. 4 The MPSC granted NorthWestern s Motion to Stay, pending judicial review, due to the fact that NorthWestern appealed the Order by filing a Petition for Judicial Review in the First Judicial District Court of Montana. 3

4 ( SoCal Edison ). EEI further believes that Petitioners erroneously understate the importance of the avoided cost ceiling which serves to protect electricity consumers by obtaining lowest cost power while achieving the other goals of PURPA when they complain that competitive bidding improperly deprives them of the ability to obtain a long term agreement. The Commission has long been a strong advocate of competitive processes to determine avoided costs, Regulations Governing Bidding Programs, FERC Stats. & Regs. 32,455 (1988) (Bidding NOPR); SoCal Edison at P 61,666) and to establish just and reasonable rates for electric power in wholesale markets. See Montana Consumer Council v. FERC, 659 F.3d 910 (2011) citing to California ex. rel. Lockyer v. FERC, 383 F.3d 1006 (2004). Moreover, Congress confirmed the value of competitive processes in the Energy Policy Act of 2005 ( EPAct2005 ) when it terminated the mandatory purchase requirement for certain QF that have non-dicriminatory transmission access to competitive wholesale markets. EEI urges FERC to deny Petitioners request for a Declaratory Order and to use this opportunity to reaffirm the value of competititve processes to determine avoided costs under PURPA. I. The States Have the Primary Responsibility for Determining that PURPA Rates do not Exceed Avoided Costs. Despite acknowledging PURPA s mandate to the states to craft implementation plans, Petitioners have brought their complaints to the Commission, rather than state court, on their belief that the Commission is more likely to determine that the rule crafted by the MPSC is not what Congress intended when adopting PURPA. Petition at 20. However, pursuant to PURPA, the task of implementing the Commission s cogeneration and small power production rules falls squarely on the states. See 16 U.S.C. 824-a-3(g) (1988). 4

5 The Commission has consistently found that states are allowed a wide degree of latitude in establishing an implementation plan for section 210 of PURPA, as long as such plans are consistent with our regulations. American REF-FUEL Company of Hempstead, 47 FERC 61,161 at P 61,533 (1989) ( REF-FUEL ). Similarly, the Supreme Court and the Commission have stated that state regulatory authorities are afforded latitude in determining the manner in which the regulations are to be implemented. Southern California Edison Co. 70 FERC 61,215 at P 61,675 order on reconsideration 71 FERC 61,269; F.E.R.C. v. Mississippi, 456 U.S. 742, 751 (1982). Little restriction is placed on the states authority other than the instruction to stay within the bounds of the federal statute. States may achieve compliance by issuing regulations, by resolving disputes on a case-by-case basis, or by taking any other action reasonably designed to give effect to FERC s rules. 456 U.S. at 751. The Commission s role is limited to ensuring that the process used to calculate the per unit charge (i.e., implementation) accords with the statute and our regulations. SoCal Edison at P 61,677. The Commission s decision in SoCal Edison emphasized one of the primary tenets of PURPA, explicitly provided in Section 210(b), that no Commission rule on QF rates shall provide for a rate which exceeds the incremental cost to the electric utility of alternative energy. Id. Thus, in SoCal Edison, the Commission determined that the utility parties were not obligated to enter into contracts with certain QFs because the process implemented by the state commission did not allow the proper avoided costs to be calculated. Id. Even when application of the state s implementation is called into question, the Commission has stated that challenges to a state s plan are better dealt with in state forums rather than the Commission, where the state courts can ensure that QFs and electric utilities are dealing in good faith and in a way consistent with locally established regulation. REF-FUEL at 5

6 State courts are better equipped to deal with the unique circumstances which exist for individual states and utilities. Despite a recent wave of new filings asking the Commission to reject various elements of state PURPA implementation practices, there is simply no reason for FERC to deviate from its past policy of giving states wide latitude and deference in PURPA implementation. II. The Commission Should Continue to Support the Use of Competitive Bidding as an Appropriate and Reasonable Mechanism to Determine Avoided Costs. The Petitioners argue that the MPSC s use of competitive bidding in its implementation plan presents such a substantial impediment to a QF with an installed capacity of 10 MW or more, that it renders the entire rule, as applied by the MPSC, unfair and discriminatory. Petition at 35. They appear to believe that PURPA provides QFs a guaranteed market to see both energy and capacity without regard to the avoided cost price constraint. Here again, EEI urges the Commission to reassert that avoided cost is an inviolable constraint under PURPA, intended to protect consumers of electricity, and that competitive bidding is a valuable method of determining avoided costs for QFs. When Congress enacted PURPA in 1978, there was very little non-utility generation and no real experience with competitive wholesale markets. Many states determined avoided costs in an administrative manner and many estimated costs far greater than those actually incurred. As the market has evolved, however, the circumstances have changed. Thus, in SoCal Edison, the Commission found that In contrast to 1978, non-traditional producers, including QFs, now provide well in excess of half of all new generating resources, and the Commission has determined that there is no longer any dominancy in the provision of new generating capacity. SoCal Edison at P 61,675, citing to Kansas City Power & Light Co., 67 FERC 61,183 (1994). 6

7 As experience administering PURPA evolved, the desire to ensure that QF rates do not exceed avoided cost became particularly critical. This is because QF rates that exceed avoided cost will, by definition, harm electric customers. Although Congress conferred QFs with certain benefits pursuant to PURPA, it did not intend for QFs to have any rate benefit above market level. See SoCal Edison. The Commission has stated that it is inconsistent with our obligation under PURPA to ensure just and reasonable rates, and our goals to encourage development of competitive bulk power markets, to permit the use of PURPA to create contracts that do not reflect market conditions for new bulk power supplies. SoCal Edison at P 61,676. Accordingly, FERC permits the use of competitive resource solicitations to determine a utility s avoided costs. Id. at P 61,677 ( regardless of whether the State regulatory authority determines avoided costs administratively, through competitive solicitation (bidding), or some combination thereof, it must in its process reflect prices from all sources able to sell to the utility whose avoided costs is being determined ). In fact, the Commission was a leader in proposing to adopt rules for bidding procedures that would more accurately establish utilities avoided costs. See Bidding NOPR, at 32,024 (1988) ( Bidding NOPR ). In this rulemaking, the Commission stated that it believes that bidding has the potential for eliminating the seemingly endless debates over what alternative sources of supply are truly avoided by the purchasing utility. Id. at 32,025. Moreover, the Commission explained that avoided cost could be derived simply and directly from the prices offered by competing suppliers in the bidding process. Id. The Commission also viewed bidding as providing a systematic mechanism for identifying potential suppliers, and increased the chances that the purchasing utility s capacity needs will be supplied from the more efficient source. Id. In examining the legality of bidding under PURPA, the Commission stated that 7

8 bidding would further the purposes of PURPA by affording utilities and state commissions an alternative approach by which to determine utilities full avoided cost. 5 The Commission also understood that although it is possible that a bidding mechanism, by accurately defining a utility s incremental cost, will lower the price below administratively determined approximation of full avoided cost, with the result of reducing the amount of cogeneration and small power production that might otherwise be forthcoming, that does not mean that such a bidding mechanism is inconsistent with PURPA. Id. Although one of the primary purposes of PURPA is to encourage cogeneration and renewable energy technologies, it did not intend for utility customers to subsidize such power producers. Hence, the rate for utility purchases of QF power is subject to an inviolable ceiling of the purchasing utility s incremental cost. The Commission has stated that utility customers were to be indifferent to the source of power, and to the extent State commissions set avoided cost rates above a utility s actual avoid costs of alternate energy, this would constitute an indirect, unintended and legally impermissible subsidy from electric customers to QFs. Southern California Edison v. Cal. Pub. Util. Com n, 101 Cal.App.4th 384, 398 (2002) citing to 18 C.F.R (d). Thus, by prioritizing purchases from QFs, bidding promotes equitable rates for consumers and efficient use of electric resources and facilities. As early as 1988 the Commission acknowledged that many states use some sort of bidding procedures to establish avoided cost. SoCal Edison at P 61,678; see also Administrative Determination of Full Avoided Costs, Sales of Power to Qualifying Facilities and 5 See Bidding NOPR at P 32,026-32,027 ( Bidding would thereby heed Congressional intent that the just and reasonable standard for rates a utility purchases from QFs, within the meaning of section 210(b) of PURPA, be interpreted in a manner which looks to protecting the interests of the electric consumer in receiving electricity at equitable rates ). 8

9 Interconnection Facilities, 84 FERC 61,265 (1998)( well over half the states now use competitive bidding to one degree or another in setting avoided cost rates ). Moreover, the Commission observed that substantial experience has been gained by state commissions, electric utilities, and QFs themselves regarding competitive bidding Id. at P 62,301. The successful use of competitive processes to determine avoided costs under PURPA established the intellectual and legal grounds by which the Commission moved from traditional cost-based rate regulation to the acceptance of market-based pricing in competitive markets with full transmission access and market rules approved by the Commission. See Montana Consumer Council v. F.E.R.C., 659 F.3d 910 (2011) citing to California ex. rel. Lockyer v. F.E.R.C., 383 F.3d 1006 (2004). EEI is very concerned that a ruling in this proceeding which calls into question the use of competitive solicitations could have broad impacts that will undermine a substantial number of States that have made competitive processes a cornerstone of their avoided cost determinations. The power supply industry has become much more competitive since the enactment of PURPA. Moreover, the QF industry has matured sufficiently that QFs can and should compete on the merits with other supply options. The market and State regulators can aptly recognize and integrate the value of QF power supply options in an all-source determination process. While bidding is not the only way for States to comply with PURPA, it is certainly reasonable and appropriate. III. Congress has endorsed competitive mechanisms when it terminated PURPA s Mandatory Obligation to Purchase Power from Certain QFs 9

10 In the EPAct2005 Congress responded to complaints about unnecessary burdens of PURPAby amending PURPA to terminate its mandatory purchase and sale requirements for certain QFs. The EPAct2005 established a new PURPA section 210(m), 16 U.S.C. 824a-3(m), that granted FERC the authority to terminate the mandatory purchase requirement if it determined that a QF over 20 MW had non-discriminatory access to competitive wholesale electricity markets, including: Independently administered, auction based day ahead and real time wholesale markets for electric energy and wholesale markets for long term sales of capacity and electric energy; or Transmission and interconnection services that are provided by a FERC approved regional transmission entity pursuant to an open access transmission tariff that affords nondiscriminatory treatment to all customers, and competitive wholesale markets that provide a meaningful opportunity to sell capacity and energy on a short term and long term basis; or Wholesale markets for the sale of capacity and electric energy that are at a minimum of comparable competitive quality as those described above. It seems apparent that Congress viewed non-discriminatory transmission acess and competitive bidding as a reasonable mechanism to address the concerns that PURPA was originally intended to remedy byproviding a meaningful opportunity for a QF to sell its capacity and energy to a buyer other than the utility to which the QF is interconnected and to sell its power at a competitive, market price. Furthermore, in 2006, to implement the new PURPA section 210(m), FERC found that the six existing RTOs/ISOs and ERCOT provide the necessary access to competitive wholesale energy markets described in PURPA section 210(m). New PURPA Section 210(m) Regulations Applicable to Small Power Production and Cogeneration Facilities, 10

11 Order No. 688, FERC Stats. & Regs. 31,233 (2006).] Congress did not expect, and FERC did not have to find, that any of these QFs were guaranteed a buyer for their capacity or energy. Rather Congress and FERC simply assured that QFs have a fair opportunity to market these products in competitive markets. Therefore, EEI urges FERC to reaffirm its commitment to competitive processes as a reasonable and appropriate way to implement PURPA. CONCLUSION WHEREFORE, the foregoing reasons, the Edison Electric Institute respectfully requests that the Commission deny the petition for enforcement and issue a declaratory order that confirms that it is within the broad discretion given to state commission to use competitive processes to implement PURPA. Dated: July 19, 2013 Respectfully submitted, /s/ Edward H. Comer Edward H. Comer Vice President, General Counsel & Corporate Secretary Edison Electric Institute 701 Pennsylvania Avenue, NW Washington, DC (202) Aryeh B. Fishman Associate General Counsel, Regulatory Legal Affairs afishman@eei.org Victoria L. Calderón Attorney Edison Electric Institute 701 Pennsylvania Ave., NW Washington, DC

12 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Washington, DC this 19 th day of July, Respectfully Submitted, /s/christina Morris Christina Morris Paralegal, Legal Assistant and Project Coordinator Edison Electric Institute 701 Pennsylvania Avenue, NW Washington, DC (202)