On September 19, 2019, FERC granted a petition for declaratory order by the New England Ratepayers Association’s (“New England Ratepayers”), which asked FERC to find that a New Hampshire statute, Senate Bill 365 (“SB 365”), mandating a purchase price for wholesale sales of certain biomass and waste generators in the state, is preempted by the Federal Power Act (“FPA”) and violates section 210 of the Public Utility Regulatory Policies Act of 1978 (“PURPA”).

New Hampshire SB 365, passed in 2018, requires electric distribution companies to make offers to purchase electric energy from eligible biomass and waste facilities within their service territories at a rate based on 80 percent of the retail rate for default energy service. If there is a difference between what the utilities pay such eligible facilities and the market clearing price, the electric distribution companies would be able to recover the difference through a service charge directed at all of retail customers. On November 2, 2018, New England Ratepayers filed their petition at FERC, requesting, among other things, a finding that SB 365 is preempted by the FPA and violates PURPA.

Certain commenters argued that New England Ratepayers’ petition was premature, and asked FERC to refrain from addressing the petition until SB 365 is implemented by utilities and reviewed by the New Hampshire Public Utilities Commission. However, FERC found that the petition was ripe for review, stating that the New Hampshire Public Utilities Commission was abstaining from addressing the issue until FERC issued its order (see March 21, 2019 edition of the WER for additional details on the New Hampshire Public Utilities Commission decision).

With respect to preemption under the FPA, FERC looked to Hughes v. Talen Energy Mktg., 136 S. Ct. 1288 (2016) (“Hughes”), in which the U.S. Supreme Court held that a state program was preempted by the FPA when it “set[] an interstate wholesale rate, contravening the [FPA’s] division of authority.” FERC found that, by requiring utilities to offer to purchase electricity from eligible facilities at a state-established rate, SB 365 similarly set an interstate wholesale rate, and therefore, following the same logic as Hughes, was preempted by the FPA.

FERC noted, however, that there is an exception to its exclusive wholesale rate authority provided for in PURPA, in which states may determine the rate at which electric utilities must purchase the output from Qualifying Facilities (“QFs”) under PURPA’s mandatory purchase obligation. Under California Commission II, 133 FERC ¶ 61,059, FERC found that a state statute would not be preempted by the FPA, PURPA, or FERC’s regulations if the eligible generators from which power was to be purchased were QFs and if the established rate mandated under the statute did not exceed the avoided cost of the purchasing utility. In the case of SB 365, FERC found that the statute failed to meet the second qualification, as it (i) did not establish a rate based on the purchasing utilities’ avoided cost, (ii) was found by the New Hampshire Commission to create a rate that would likely exceed the current avoided cost rate, and (iii) did not contain limitations to ensure that the state-established rate would not exceed the avoided cost rate. For these reasons, FERC found that SB 365 did not qualify under the PURPA exception.

A copy of the order is available here.