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US states need guidance for feed-in tariffs

Feed-in tariffs (FiTs) in the United States are difficult to implement and the Federal regulator should clarify the rules, according to the National Renewable Energy Laboratory (NREL).

Feed-in tariffs are widely used in Europe but face regulatory constraints in the USA, explains Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints & Possible Solutions.

The report says states can offer feed-in tariffs but the rules must comply with Federal laws that were written in 1935, and recommends that the a rule-making proceeding should be undertaken by the Federal Energy Regulatory Commission (FERC).

Feed-in tariffs provide standard arrangements which specify prices, terms and conditions, and this standardisation “simplifies the purchase process, provides revenue certainty to generators, and reduces the cost of financing generating projects,” it explains.

States are told that state-level feed-in tariffs are preempted by Federal law which govern the wholesale sale of electricity, notably the Public Utility Regulatory Policies Act (PURPA) of 1978 or the Federal Power Act (FPA) of 1935. Each statute limits the discretion of state-level tariff designers.

“Not surprisingly, statutes enacted in 1935 and 1978 do not apply neatly to market situations and FIT policy proposals in 2010,” the report explains.

It describes several ways for states to create incentives for renewable energy, including the option to pay based on cost of generation in keeping with federal limits, but then adding incentives on top of that cost through subsidies, Renewable Energy Credits, or state tax credits.

State utility commissions and the National Association of Regulatory Utility Commissioners (NARUC), asked the National Renewable Energy Laboratory to explore how states can lawfully implement feed-in tariffs.

This report “seeks to reduce the legal uncertainties for states contemplating FITs by explaining the constraints imposed by federal statutes” and describes the “federal constraints, identifies certain transaction categories that are free of those constraints, and offers ways for state and federal policymakers to interpret or modify existing law to remove or reduce these constraints.”

“States that rely on PURPA have a clear, non-preempted path for implementing feed-in tariff policies,” it continues. “States that rely on state law (and are subject to FPA) require FERC clarification of certain precedents before a clear, non-preempted path for FIT policies is available.”

A change in FERC precedent could clarify that state-law utility obligations to purchase renewable energy from entities below 20 MW capacity, are not subject to the PURPA avoided cost cap or subject to FPA filing requirements. “If changed, this clarification would allow state-law FIT programmes similar to those found in Europe: states could mandate utilities to purchase renewable energy at payments higher than utility avoided cost from entities with QF status (<20 MW) without additional steps or actions.”

“Without a change in existing FERC precedents, the only options that exist are to apply to FERC for (1) contract-by-contract approval that the rate reflects prudent costs and a reasonable rate of return (i.e. cost-based rates), or (2) blanket advance approval for sellers that lack or mitigate market power (i.e. market-based rates),” it concludes.

“Because of the multiple legal uncertainties discussed in this report, participants in this policymaking area should consider discussing with FERC informal steps leading to a rule-making proceeding.”

Congress always has the authority to revise federal law, it adds. “While the language in the House-passed American Clean Energy & Security Act of 2009 leaves several key points unclear, Congress could choose to revisit the language and clarify the unclear points described in this report.”

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