Electricity Markets

APPA, Others Ask Court To Deny Petitions Challenging FERC PURPA-Related Orders

The American Public Power Association joined other power industry groups in filing a joint brief in the United States Court of Appeals for the Ninth Circuit, asking the court to deny petitions challenging Federal Energy Regulatory Commission (FERC) orders that revised FERC’s regulations implementing the Public Utility Regulatory Policies Act of 1978 (PURPA).

The petitions, filed by the Solar Energy Industries Association (SEIA) and a coalition of renewable energy and environmental groups, seek to vacate FERC orders 872 and 872-A.

The groups joining APPA in the Nov. 22 filing are the Edison Electric Institute, the National Rural Electric Cooperative Association, and the Large Public Power Council. APPA and the other trade groups are intervenors in the appeal in support of FERC, which filed a brief defending its orders in October 2021.

Under PURPA, electric utilities are required to purchase power produced by certain qualifying facilities (QFs) defined in the statute. The rates for these purchases are not to exceed the cost that a utility would have otherwise paid to generate or purchase the power – what FERC calls “avoided cost.” Avoided cost rates are generally set by state or local utility regulators.

Issued in July 2020, FERC’s Order No. 872, among other things, granted greater flexibility to state regulatory authorities in establishing avoided cost rates for QF purchases, both inside and outside of the organized electric markets, providing relief to utilities that have argued for years that some state-set avoided costs had become higher than the wholesale electric costs available to them. The rule also gave states the ability to require that energy rates, but not capacity rates, vary during the term of a QF contract.

Order 872 also modified the “one-mile rule” that FERC had long applied in determining whether a generating resource satisfies the 80 megawatt (MW) limit for one category of qualifying facilities – small power production QFs. The 80 MW limit encompasses all facilities located at the same site, and FERC’s one-mile rule provided that facilities located more than a mile apart were deemed to be located at separate sites. Some utilities had alleged that developers of renewable energy projects used the rule to avoid size limitations on QF projects by disaggregating large projects into smaller components and spacing the components to take advantage of the bright line one-mile rule.

Order 872 also reduced the size threshold that FERC applies in assessing whether a QF has nondiscriminatory access to organized power markets. Under amendments added to PURPA in 2005, utilities can ask to be relieved of the obligation to purchase power from QFs that have nondiscriminatory access to certain power markets. Prior to Order No. 872, FERC presumed that QFs smaller than20 megawatts (MW) lacked nondiscriminatory access to power markets, but FERC’s revised rules lowered the threshold to 5 MW for small power production QFs,, but not cogeneration, facilities.

FERC affirmed Order No. 872 in November 2020 in Order No. 872-A.

In their recent brief to the court, APPA and its joint intervenors argued that FERC’s orders “were designed to continue encouraging certain power production addressed in PURPA, while ensuring that customers realize the benefits of the recent growth in renewable generation in the United States without paying above-market rates for that privilege.”

The petitioners “nonetheless cry foul, insisting that the Commission’s Orders will harm the environment and the renewables industry,” the intervenors wrote. “But in truth, their primary concern is preserving an obsolete regulatory framework that has morphed into an arrangement that consistently awards ‘qualifying facilities’ (‘QFs’) with above-market rates for the energy they produce, to the ultimate detriment of energy consumers,” they said.

The petitioners “paper over the fact that the practical effect of adopting their theories would be to extend them a further (decades-long) subsidy financed on the backs of utility customers, including those in rural areas and many who can scarcely afford that burden.”

In support of their position on FERC’s revisions to its avoided costs rate rules, the intervenors argued that FERC did not violate PURPA’s command to “encourage” QFs because the law does not call for the encouragement of QF development without constraint. Rather, the intervenors said, the “statute reflects a balancing of interests, including certain limits on the degree of such encouragement, such as the command that QF prices not exceed a utility’s avoided costs.”

“Petitioners wrongly read PURPA’s ‘encouragement’ clause as a one-way ratchet under which every aspect of every Commission action, taken in isolation, must prefer QF developers over other interests,” the intervenors wrote.

With respect to the “one-mile rule,” the intervenors argued that FERC “reasonably reformed” the rule “to curtail attempts by developers of oversized projects to garner unwarranted QF certification at the expense of consumers.” And in arguing that FERC’s reforms were not supported by the record, the “Petitioners ignore numerous examples of abuse provided by commenters and credited by the Commission,” the intervenors said.

The intervenors also supported FERC’s adjustment of the threshold for presumed nondiscriminatory access to wholesale electric markets from 20 MW to 5 MW, saying the agency’s decision was reasonable.

“Petitioners’ scattershot complaints about FERC’s rationale evince a misunderstanding of what the agency actually said and did,” the intervenors wrote. “In any event, QF developers who are unsatisfied with the revised rule are free to present evidence to overcome the 5 MW presumption.”

The intervenors also dismiss the petitioners’ challenge to FERC’s order as a violation of the National Environmental Policy Act (NEPA). APPA and the other intervenors disputed the petitioners’ standing to raise the NEPA claims, while also contending that the challengers’ NEPA arguments failed on the merits.

The intervenors argued that the petitioners’ claims are “meritless” and the court should not grant the requested relief. But if the court does find fault with FERC’s orders, it should not vacate the orders altogether. Rather, the intervenors argued, the court should “remand without vacatur because any such errors can be corrected on remand and because the disruptive consequences of vacatur would be severe.”

The intervenors also argued that the challenged provisions of Order 872 are “sufficiently separable that vacatur should be determined separately for each.” The court “should not invalidate important parts of the rule that no party challenged,” the intervenors wrote.