On July 15, 2010 FERC issued a decision that reaffirms two of its past decisions and clarifies that states may not set wholesale electricity prices except pursuant to the Public Utility Regulatory Policies Act (PURPA).
In the decision, FERC reaffirms the vitality of two decisions it issued in the 1990s that held that state authorities could not set rates for wholesale power except in compliance with PURPA. In other words, states cannot set wholesale power prices that exceed utility avoided cost. States may only set prices at a level that does not exceed a utility’s avoided cost and may only mandate that utilities purchase at such a price if sellers are qualifying facilities (QFs). If states wish to provide compensation at a level that exceeds avoided cost, they must do so by providing a payment for RECs.
Importantly, FERC did not accept an argument that was advanced by many parties that there is a difference between states establishing a must “offer” price as opposed to a must “buy” price. That was a very tough argument to advance, but in many ways it represented perhaps the only viable argument to support state authority to set a wholesale price. FERC did not accept this argument.
What this means is that, at this time, states (with the exception of Alaska, Hawaii and Texas which are not under FERC’s wholesale pricing jurisdiction) do not have authority to establish feed-in tariff rates that exceed avoided cost unless they use REC pricing as the method of payment for the above avoided cost portion of a payment.
Source: Kevin T. Fox, Keyes and Fox Distributed Generation Law