FERC proposes to modernize PURPA regulations

The Federal Energy Regulatory Commission in September proposed to modernize its regulations under the Public Utility Regulatory Policies Act of 1978 (PURPA).

Commissioners voted at FERC’s monthly open meeting to issue a Notice of Proposed Rulemaking (NOPR), which FERC noted constitutes the Commission’s first comprehensive review of its PURPA regulations since 1980 (Docket Nos. RM19-15-000, AD16-16-000).

Among other provisions, PURPA requires electric utilities (including public power utilities) to purchase power from certain cogeneration facilities and small power producers that are “qualifying facilities” or “QFs” under the statute.  The rates for these purchases are not supposed to exceed the cost that the utility would have incurred for the power if obtained from another source – what FERC refers to as “avoided cost.”  State commissions generally have authority to determine these avoided costs, although public power utilities and electric cooperatives that do not have state-regulated rates can usually set their own avoided cost rates for QF purchases.

FERC said that the proposed changes are intended to continue encouraging development of QFs while addressing concerns regarding how the current regulations work in today’s competitive wholesale power markets.

The NOPR proposes to revise the Commission’s regulations implementing sections 201 and 210 of PURPA and incorporates the record of a FERC 2016 technical conference addressing issues involving PURPA’s implementation.

A FERC staff member noted that PURPA was enacted as part of a legislative package intended to reduce the country’s dependence on fossil fuels by providing incentives to encourage the development of QFs.

Congress enacted PURPA to address a national energy crisis by encouraging the development of QFs to reduce the country’s demand for traditional fossil fuels, which were considered to be in short supply. FERC first enacted its PURPA regulations in 1980.

What the NOPR proposes

The NOPR includes a number of changes. FERC staff noted the NOPR proposes to:

  • Grant state regulatory authorities the flexibility to require that energy rates (but not capacity rates) in QF power sales contracts and other legally enforceable obligations vary in accordance with changes in the purchasing utility’s avoided costs at the time the energy is delivered;
  • Grant states the flexibility to set “as-available” QF energy rates based on market factors or, at the state’s discretion, to continue setting QF rates under the existing PURPA regulations;
  • Replace the “one-mile rule” currently used for determining whether generation facilities should be considered to be part of a single facility for purposes of applying PURPA’s 80 megawatt limit for small power production QFs. The NOPR proposes a tiered approach under which facilities one mile or less apart would be treated as the same facility, facilities more than one mile but less than 10 miles apart would be presumed to be different facilities, which could be rebutted, and facilities 10 or more miles apart would be treated as separate facilities;
  • Revise the Commission’s regulations implementing PURPA section 210(m) to reduce the rebuttable presumption threshold for small power production facilities (but not cogeneration facilities) from 20 MW to 1 MW.  Section 210(m) was added to PURPA in 2005 and allows electric utilities to be relieved of the obligation to purchase power from QFs if the QFs have nondiscriminatory access to certain types of markets.  FERC currently presumes that QFs smaller than 20 MW do not have sufficient market access to justify waiver of the purchase obligation.  The NOPR’s proposed change recognizes that competitive markets have matured since the Commission first implemented section 210(m) of PURPA and the mechanics of participation in such markets are improved and better understood. For cogeneration facilities, the 20 MW presumption would remain;
  • Clarify that a QF is entitled to a contract or legally enforceable obligation when it is able to demonstrate commercial viability and financial commitment to construct its facility pursuant to objective and reasonable criteria determined by the state; and
  • Allow a party to protest a self-certification or self-recertification of a QF without being required to file a separate petition for declaratory order and to pay the associated filing fee.

Chatterjee says now is the time to take comprehensive look at regulations

“Reforming the Commission’s PURPA regulations has been one of my top priorities since joining the Commission,” FERC Chairman Neil Chatterjee noted.

“It is an understatement to say that the energy landscape in this country has changed drastically since the Commission implemented its PURPA regulations in 1980,” he said.

“PURPA was enacted during a time of energy scarcity, with the goal of preserving what we thought to be dwindling supplies of natural gas and oil by promoting more efficient and alternative energy technologies,” Chatterjee went on to say.

“Today, we have ample supplies of domestic natural gas and the prices of renewable of energy technologies continue to fall,” he said.

Chatterjee said that while the Energy Policy Act of 2005 “made some discrete changes to PURPA, the statute still requires that we update our regulations from time to time and given everything that has changed over the last forty years, I think now is precisely the right time to take a comprehensive look at our regulations, which is what we are doing today.”

The FERC Chairman noted that he has been clear that he wants to reform FERC’s regulations “in a way that not only meets our statutory obligations to encourage QF development, but also protects consumers and preserves competition.” The suite of reforms detailed by FERC staff at the open meeting “accomplishes that goal,” Chatterjee said.

He also noted that the process of reviewing FERC’s PURPA regulations was one that was set in motion under former FERC Chairman Kevin McIntyre, who passed away in early 2019. “When I took over as Chairman, I vowed to continue pushing forward on the initiatives that Kevin had started and the issuance of today’s NOPR is an important part of fulfilling that commitment,” Chatterjee said.

At a later point, Chatterjee noted that the National Association of Regulatory Utility Commissioners previously proposed that FERC clarify how a state could conduct a competitive solicitation to satisfy PURPA Section 210(m)(1)(C) standard for termination of a utility’s obligation to purchase from a QF.  The NARUC paper argued that FERC should expand its interpretation regarding the kinds of markets that would justify relief from PURPA’s must-purchase obligation.

“There may indeed be some merit to the NARUC proposal,” said Larry Greenfield with FERC’s Office of the General Counsel. “In fact, the NOPR states that a properly structured proposal along the lines proposed by NARUC potentially could satisfy the statutory requirements under PURPA Section 210(m)(1)(C) and that the Commission would consider such proposals on a case-by-case basis.”

Glick dissents in part

Commissioner Richard Glick dissented in part from the NOPR. “I’m partially dissenting in large part because I think a significant number of proposals in the NOPR are not necessarily permitted under the statute. I think they really represent an attempt to administratively gut the statute,” Glick said at the opening meeting.

While acknowledging that there have been a number of changes in terms of the energy industry since PURPA was enacted, Glick at the same time said “that doesn’t give us an excuse for standing in the place of Congress in terms of making a judgement about this particular statute.”

McNamee says proposed rules will offer state regulators more flexibility

“Today the Commission has taken an important step towards updating the PURPA regulations for the benefit of the American consumer,” said FERC Commissioner Bernard McNamee. “Congress enacted PURPA in 1978 to promote electric competition, conserve natural gas, encourage the use of renewable resources, and provide opportunities for cogeneration facilities.”

McNamee said that the changes the Commission is proposing through the NOPR “are designed to protect consumers while also encouraging the development of alternative generation and cogeneration facilities.”

To achieve these ends, the proposed rules will provide state utility regulators more flexibility to rely on market pricing when determining the rates utilities pay to QFs under PURPA, “provide more transparency to interested stakeholders, and extend the benefits of competition to a greater number of consumers,” the Commissioner went on to say.

American Public Power Association applauds FERC action

“The energy industry has undergone significant changes since PURPA was enacted,” said American Public Power Association President and CEO Sue Kelly.

“There has been a meaningful evolution in the electricity generation resource mix, including significant growth in renewable resources and the use of new and improved technologies,” she said. “We applaud FERC for recognizing the need to ensure that PURPA’s implementation is aligned with today’s energy landscape.”

Earlier this year, the American Public Power Association and the National Rural Electric Cooperative Association expressed support for a motion filed by the Edison Electric Institute that asked FERC to revisit its rules and regulations implementing PURPA.

“The energy industry has undergone significant changes since PURPA was enacted in 1978, driven in no small part by the Commission’s implementation of policies to promote open access transmission, and the development of organized wholesale electricity markets,” the Association and NRECA said in their February answer to EEI’s filing.

Comments on the NOPR will be due 60 days after the NOPR’s publication in the Federal Register.

PURPA legislation

In June, legislation was introduced in the U.S. Senate that would modernize PURPA.

The bill was introduced by U.S. Senator John Barrasso, R-Wyoming, who was joined by Sens. James Risch, R-Idaho, Kevin Cramer, R-N.D. and Steve Daines, R-Mont., in introducing the legislation.

The “Updating Purchase Obligations to Deploy Affordable Resources to Energy Markets Under PURPA Act” would reform PURPA in the following ways:

  • Protect electricity customers from having to pay for unnecessary PURPA costs;
  • Empower state public utility commissions and nonregulated utilities to waive PURPA’s mandatory purchase obligation if additional power is not required to meet customers’ electricity needs;
  • Ensure a level playing field for energy resources by requiring more PURPA resources to participate in energy markets; and
  • Prevent abuse of the Federal Energy Regulatory Commission's “one-mile” rule.

U.S. Rep. Tim Walberg, R-Mich., introduced similar legislation, H.R.1502, the “PURPA Modernization Act of 2019,” on March 5. The American Public Power Association supports this bill.