In a case that limits states' toolbox for promoting renewable energy development, the Federal Energy Regulatory Commission held that state feed-in tariffs could run afoul of FERC's exclusive jurisdiction over wholesale electricity sales. Feed-in tariffs typically support renewable energy development by requiring utilities to purchase the output of renewable resources under long-term agreements and at a premium price. Assembly Bill 1613, California's "Waste Heat and Carbon Emissions Reduction Act," established a feed-in tariff for the electric output of combined heat and power generating facilities of 20 megawatts or less that met certain efficiency and emissions standards. The California Public Utilities Commission issued an order implementing AB 1613 and adopting a price formula that investor-owned utilities in California would be required to offer such facilities for their electricity.

Following motions for a declaratory order by both the California PUC and the investor-owned utilities subject to the feed-in tariff rules, FERC confirmed that it has exclusive jurisdiction to regulate the rates, terms, and conditions of wholesale electricity sales. In particular, FERC held that California's role in setting wholesale rates was limited to determining "avoided cost" rates for qualifying facilities under the Public Utility Regulatory Policies Act of 1978, known as "PURPA."

FERC rejected the argument that distribution-level feed-in tariffs would not implicate FERC's jurisdiction. Instead, the price set by the California PUC could apply only to those combined heat and power generating facilities that would be deemed "qualifying facilities" under PURPA, and such price could not exceed the avoided cost of the purchasing utility. The California PUC has since issued an amended scoping memo and ruling in light of FERC's decision.