Retail rates, distributed generation, and the Energy Policy Act of 2005: did you meet your first deadline?

• Author: Morrison, Jay

On August 8, 2005, the President signed the Energy Policy Act of 2005 (EPAct'05). Within its 1,725 pages, the statute includes a provision requiring State regulators (for the utilities whose rates they regulate) and larger nonregulated electric utilities to hold public proceedings to consider whether to adopt five new Federal standards. These standards include net metering, fuel efficiency, fuel diversity, time-sensitive retail rates and smart metering, and distributed generation (DG) interconnection procedures and policies. The first deadline for action was August 8, 2006.

These new EPAct'05 provisions are significant for all cooperatives. Those cooperatives subject to State regulation are faced with potentially costly or burdensome new State mandates. Those larger nonregulated cooperatives that are directly subject to the law must meet its procedural requirements. All cooperatives, regardless of size or regulatory status, must address the consumer and political expectations created by the new law.

The actual language of EPAct'05 provides that all utilities:

* "shall make available ... net metering service to any electric consumer that the electric utility serves;"

* "shall develop a plan to minimize dependence on one fuel source;"

* "shall develop and implement a 10-year plan to increase the efficiency of its fossil fuel generation;"

* "shall offer ... a time-based rate schedule" and "shall provide each customer requesting a time-based rate with a time-based meter;" and,

* "shall make available, upon request, interconnection service to any electric consumer that the electric utility serves."

Unfortunately, this language has created a lot of misunderstanding in the industry. Even though the new Federal standards are written in "mandatory" or "shall" language, States and cooperatives are not required to implement them. EPAct'05 does not directly require cooperatives to offer net metering, etc. In this context, "shall" does not mean "shall:" it means "shall consider."

EPAct'05 amends Title I of the Public Utility Regulatory Policies Act (PURPA) to add the five new standards to a list of standards Congress adopted in 1978 and 1992. PURPA, itself, then requires State regulatory authorities (such as Public Utility Commissions or Public Service Commissions) and larger nonregulated electric utilities (including many cooperatives) only to determine for themselves whether the standards in that list should be adopted.

PURPA requires State regulatory authorities (for the utilities whose rates they regulate) and covered nonregulated electric utilities to follow specific procedures to consider the Federal standards that are outlined in the law. They must also make specific statutory determinations with respect to the Federal standards. (More on the procedures below.) If, after conducting the necessary process, a State regulatory authority (for the utilities whose rates it regulates) or a nonregulated electric cooperative determines that it is not appropriate under PURPA or State law to implement the new Federal standard, it can choose not to. That decision ultimately is subject to challenge in State court.

EPAct'05 is also confusing in that the standards look like they apply to all utilities. But, in fact, when you go back to review PURPA itself, not all utilities are covered. Only those utilities with retail sales greater than 500 million kWh two years before the relevant calendar year must consider the standards. This is extremely confusing, but is clarified below in the discussion on deadlines. For the moment, there are approximately 190 "covered" distribution cooperatives.

Statutory Procedures

The basic requirement of PURPA is that State regulatory authorities and covered nonregulated electric...