The Federal Energy Regulatory Commission on July 16 approved a final rule revising the Commission’s regulations implementing the Public Utility Regulatory Policies Act of 1978 (PURPA).
The final rule, which was approved at FERC’s monthly opening meeting, largely adopts proposals in a September 2019 FERC Notice of Proposed Rulemaking (NOPR).
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.
When it released the NOPR, FERC said that the proposed changes were 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 proposed to revise the Commission’s regulations implementing sections 201 and 210 of PURPA and incorporated the record of a FERC 2016 technical conference addressing issues involving PURPA’s implementation.
APPA, LPPC supported FERC plans to reform PURPA
In response to the NOPR, the American Public Power Association and the Large Public Power Council in December said that the development of competitive power markets and the dramatic growth of a renewable power sector now largely independent of the boost once provided by PURPA justify significant changes in PURPA regulations.
Details on final rule
With respect to rates, the final rule grants states 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.
The final rule also grants states additional flexibility to allow QFs to retain their rights to fixed energy rates, and to allow such rates to be based on projected energy prices during the term of a QF’s contract.
The final rule also gives states the flexibility to set “as available” QF energy rates for:
- QFs selling to electric utilities located in organized wholesale power markets at the locational marginal price (LMP) in those markets, subject to a rebuttable presumption that the LMP represents the as-available avoided costs of utilities located in those markets; or
- QFs selling to electric utilities outside of the organized wholesale power markets at competitive prices from liquid market hubs or calculated from a formula based on natural gas price indices and heat rates.
States will also be allowed to set energy and capacity rates based on competitive solicitations conducted pursuant to transparent and non-discriminatory procedures consistent with the Commission’s Allegheny standard, described in the final rule.
The final rule also modifies the “one-mile rule” for determining whether generation facilities are considered to be at the same site for purposes of determining whether a facility meets the 80 MW limit on qualifying small power production facilities.
Under the final rule:
- There will continue to be an irrebuttable presumption that facilities one mile apart or less constitute a single facility;
- Parties can show that facilities that are located more than one mile apart, but less than 10 miles apart, constitute a single facility; and
- There will be an irrebuttable presumption that facilities 10 miles apart or more are separate facilities
Obligation to purchase
In the final rule, FERC also revises the regulations that provide for termination of a utility’s obligation to purchase from a QF with nondiscriminatory access to certain markets.
The rebuttable presumption that QFs with a net capacity at or below 20 megawatts do not have nondiscriminatory access to those markets is reduced to 5 MW for small power production facilities, but remains unchanged for cogeneration facilities. This was a change from the NOPR, which had proposed 1 MW as the size at which QFs would be presumed to lack non-discriminatory access to markets.
Under the final rule, entities will be allowed to protest a QF self-certification or self-recertification without having to file, and pay for, a declaratory order.
In addition, protests may be made to new certifications -- both self-certifications and applications for Commission certification -- but to only self-recertifications and applications for Commission recertifications that make substantive changes to the existing certification.
Legally enforceable obligation
States will also be required to establish objective and reasonable criteria to determine a QF’s commercial viability and financial commitment to construction before a QF is entitled to a contract or legally enforceable obligation.
Final rule does not change other elements of existing regulations
The final rule does not change other elements to the Commission’s existing PURPA regulations that encourage QF development, including those requiring electric utilities to provide backup electric energy to QFs on a non-discriminatory basis and at just and reasonable rates; requiring electric utilities to interconnect with QFs; and providing exemptions to QFs from many provisions of the Federal Power Act and state laws governing utility rates and financial organization.
McNamee supports FERC action; Glick offers partial dissent
“With the modernization of these rules, we continue to meet our statutory duty to encourage the development of alternative generation facilities and cogeneration facilities,” said Bernard McNamee, a FERC Commissioner.
“But we will also be ensuring that we meet our other statutory duty, which is to protect customers from paying excessive rates by ensuring that they are not paying more under PURPA contracts than they would have” than if they had obtained the power from their utility or the market, McNamee said.
In contrast, Commissioner Richard Glick offered a partial dissent to the final rule. At the meeting, Glick said that “we’re here today to vote on a final rule that although using gentler language and containing some modest improvement, still aims to achieve what Congress has failed to do – gut the heart of PURPA, with very little reasoned decision making.”
Glick said that “one of PURPA’s key requirements is that utilities can’t treat QFs differently than they treat their own resources, but today’s final rule ignores this. QFs no longer will be guaranteed an option for a fixed-term contract that makes it easier to finance certain projects.”
Glick said that based on his review of the final rule, he thinks it will discourage QF development. “We’ll have to see how that plays out over time,” he said.
At the same time, he said that “there are provisions in the rule that I believe are consistent with our statutory mandate.” The final rule, for example, “makes what I believe is a reasonable change to the one-mile rule to prevent gaming.”
The rule takes effect 120 days after publication in the Federal Register.