Panelists at an Energy Bar Association meeting on Oct. 29 outlined a number of reasons why the Public Utility Regulatory Policies Act of 1978 (PURPA) is ripe for reform, including exorbitant costs being placed on utility customers and what they called “gaming” by certain parties related to the way that the Federal Energy Regulatory Commission determines how it defines what a single QF is.
Panelists that discussed PURPA revisions at the EBA’s mid-year energy forum in Washington, D.C., were Adam Benshoff, Executive Director, Regulatory Affairs, Edison Electric Institute; John Hughes, President & CEO, Electricity Consumers Resource Council (ELCON); and Kristine Raper, Commissioner, Idaho Public Utilities Commission.
In his remarks, Benshoff highlighted the ways in which the power industry has changed since 1978.
Among other things, he noted that “we had a power system that was pretty closed. We didn’t have the competitive markets that we have today. We didn’t have the RTOs and the ISOs. We didn’t have really robust bilateral markets that we see today, even in areas outside of those.”
Through PURPA, Congress aimed to “open up competition a little bit,” as well as stimulate renewable energy resources, he said.
“Fast forward to today. We’ve got all those things,” the EEI official said, citing the expansion of renewables in the overall U.S. generation portfolio, competitive markets and bilateral markets where projects are being bid out and secured “and really coming online in a clip that we haven’t seen in history.”
He said that these are projects that would otherwise be considered qualifying facilities (QFs) under PURPA. PURPA required electric utilities to purchase power produced by QFs that used renewable energy and cogeneration technologies, a requirement referred to as the mandatory purchase obligation.
In 2005, Congress amended PURPA through the Energy Policy Act of 2005 to account for the development of wholesale electricity markets. Congress added Section 210(m) to PURPA, which allowed FERC to terminate the must purchase obligation if the Commission determined that a QF has nondiscriminatory access to one of three types of markets.
Need to discuss “meaningful reform”
Benshoff said it was important to keep in mind that the 2005 changes to PURPA are now thirteen years old, and he highlighted industry changes since PURPA was last amended. “I think what we’ve seen in the past 10 years really drives us to where we are today and the need to be talking about it again and talking about really meaningful reform again,” he said.
“We’ve got cost curves for all of those resources dropping precipitously,” as well as open access “in a way that we have never seen before in this industry.”
The EEI official said that “from the industry’s perspective, we’re getting a little concerned about PURPA,” which is primarily related to the impact that it is having on customers.
He noted that some of EEI’s members have crunched the numbers in terms of PURPA’s impact on customers. PacifiCorp has pegged those costs at $1.2 billion over 10 years, while Duke Energy has tallied PURPA costs at over $1 billion over 10 years.
These are costs above what the market otherwise would have paid for those same resources, the EEI official noted.
Benshoff noted that with respect to possible PURPA reform, some elements can only be altered by Congress.
“There are things that we can’t change at FERC, things that Congress is going to have to change. The 80-megawatt threshold to be a QF – that’s in the statute. The must purchase obligation – that’s in the statute. These are things that can’t be touched.”
But Benshoff highlighted five areas of PURPA reform that EEI believes FERC could address without any statutory changes.
One area is the avoided cost calculation, which is the way that a QF price is set. “Right now, the way it’s done is through forecasted administrative proceedings” where it is up to state commissions to go through oftentimes protracted regulatory proceedings “to administratively set what they think the avoided cost should be.”
But in 2018, there are competitive markets, he said. “We have competitive bilateral markets and we have an opportunity to utilize those processes,” such as a competitive solicitation, to set that price.
“We’re really looking for the Commission to closely review the structure and the parameters that they put around the states and make sure some sort of competitive process” can be used by state commissions “when looking at this issue.”
A second area is the “one mile” rule, which is the way that FERC determines how it defines what a single QF is and therefore whether or not the 80-MW small power production facility size limit is met. FERC also applies the one-mile rule to determine what constitutes a single QF for purposes of applying its presumption that QFs larger than 20-MW have non-discriminatory access to organized markets under PURPA section 210(m)..
“FERC drew a very bright line,” he said. “If your facility was within one square mile you were a single entity. That seemed pretty easy for the calculation of either the 80-megawatt threshold or the 20 megawatts within the organized markets,” the EEI official said.
“What we’ve seen, however, is – I’ll use the word gaming,” he said. “We see folks that are” possibly not participating within “the spirit of that regulation,” Benshoff said.
“They’re breaking projects into, say, 10, three-megawatt facilities and siting those just over a mile mark to make sure that they can take advantage of that QF rate,” he said. “We’ve got folks who are disaggregating even larger projects. So instead of one, 200-megawatt solar farm or wind farm, it’s four or five different projects that are sited just outside of those bounds.”
Elcon’s Hughes and the Idaho PUC’s Raper also brought up the issue of gaming and the one-mile rule.
Hughes said that small power producers are “clearly gaming the system, particularly with the one-mile rule. We have formally endorsed a bill in Congress by Representative [Tim] Walberg in Michigan,” which addresses various PURPA-related issues. Walberg, a Republican, in late 2017 introduced legislation aimed at reforming PURPA and, specifically, to prevent abuse of the one-mile rule to ensure that two or more facilities located more than one mile apart are independent.
The Idaho commissioner said that an example of gaming involves a QF creating various LLCs and self-certifying as separate QFs “and they can put their wind mills and their solar panels up wherever they want to do that,” thereby sidestepping the one-mile rule.
“That’s a problem, right? That’s gaming. That’s disaggregation. That is not the intention of the act,” she said.
Legally enforceable obligation
A third way for FERC to act on PURPA reform relates to what is known as the legally enforceable obligation, EEI’s Benshoff said. “When that applies has become an issue within the states,” he noted. “The way that the legally enforceable obligation is calculated,” when it takes effect, “when folks within that queue are able to claim it, is a real issue around the country.”
In addition, there is a question as to whether the 20-MW threshold under which FERC presumes competitive market access continues to make sense or whether it should be looked at. “It’s probably time to take a look at that as well,” Benshoff said.
The fifth area involves QF certification process. He said that the QF self-certification process “is probably unlike almost any other. The burden to prove that you qualify would be on the complainant, not on the QF.” Benshoff said that FERC should take the opportunity to “just relook at that and make sure we’ve got that balance right at this time.”
NARUC calls for reforms to expand PURPA exemptions
The National Association of Regulatory Utility Commissioners recently issued a report proposing that FERC reform its implementation of PURPA.
FERC should identity competitive practices in non-regional transmission organization areas, which states and utilities may voluntarily meet in order to obtain an exemption from PURPA’s mandatory purchase obligation, the white paper argues.
The report, "Aligning PURPA with the Modern Energy Landscape—A Proposal to FERC," was written by Montana Commissioner Travis Kavulla and Jennifer Murphy, senior counsel and director of energy policy at NARUC.
Meanwhile, earlier this year FERC Chairman Kevin McIntyre directed Commission staff to “reenergize” FERC’s PURPA review initiative (President Donald Trump on Oct. 24 announced the designation of Commissioner Neil Chatterjee as the chairman of the Federal Energy Regulatory Commission, taking over from Kevin McIntyre, who will remain a FERC Commissioner).
“The reinvigorated review will take a look at the issues involved in PURPA so that the Commission may determine what, if anything, we need to do to improve and update our PURPA policies,” McIntyre said earlier this year.