40 Years in the Making: FERC takes action to update PURPA

Published on September 19, 2019 by Kim Riley


Warning: Undefined variable $post_id in /var/www/dailyenergyinsider.com/wp-content/themes/dei/single.php on line 31

Warning: Undefined variable $post_id in /var/www/dailyenergyinsider.com/wp-content/themes/dei/single.php on line 36
© Shutterstock

The Federal Energy Regulatory Commission (FERC) on Thursday voted to issue a notice of proposed rulemaking that would update its rules and regulations for implementing the Public Utility Regulatory Policies Act (PURPA) of 1978 to better protect electricity customers, the power industry and investments in renewable energy.

PURPA originally 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 qualifying facilities (QFs), which are either small power production facilities — typically renewable generation resources that largely don’t rely on fossil fuels — or cogeneration facilities that make more efficient use of fossil fuels.

A large swath of the industry and the majority of FERC members agree that the energy landscape has changed considerably since the commission first implemented PURPA in 1980.

“PURPA laid the foundation for the commission’s open access transmission policies and the competitive wholesale power markets that we have today, but a lot has changed since 1980,” FERC Chairman Neil Chatterjee said in opening remarks during the commission’s meeting. “We have seen tremendous technological advancements in renewables, increasing sophistication in competitive electric power markets, and abundant supplies of domestic natural gas. It’s time to modernize the commission’s implementation of PURPA to reflect those significant developments.”

Given such changes, the draft notice of proposed rulemaking (NOPR) would revise FERC’s PURPA regulations to permit states more flexibility to rely on competitive prices in setting QF rates, while also proposing other reforms to address implementation issues.

“I’ve been clear that I want to reform our regulations in a way that not only meets our statutory obligations to encourage QF development,” Chatterjee said, “but that also protects consumers and protects competition.”
The “suite of reforms” laid out in the NOPR, he added, accomplishes that goal.

The Edison Electric Institute (EEI), which represents all U.S. investor-owned electric companies, said it was supportive of the draft NOPR.

“We applaud FERC Chairman Chatterjee for his leadership and for prioritizing PURPA reform,” said EEI President Tom Kuhn. “By initiating this important NOPR, Chairman Chatterjee has reaffirmed that there are concrete steps FERC can take to better protect electricity customers from unnecessary energy costs and drive additional investments in renewable energy, all while meeting the commission’s responsibilities under the act.”

Under PURPA, investor-owned electric companies, public power utilities, and electric cooperatives are required to purchase energy from QFs at prices that often exceed the market, according to Kuhn, who said EEI has long made holistic PURPA reform a top public policy priority because the outdated statute has led to billions of dollars in additional consumer costs.

“The bottom line is that non-competitively priced PURPA projects continue to be built today, forcing electric companies to buy power they often don’t need at above-market prices and raising electricity prices for customers,” Kuhn said. “As the rulemaking process proceeds, we will remain engaged with FERC to achieve meaningful and timely PURPA reform for all customers.”

Chatterjee and FERC Commissioner Bernard McNamee voted for the draft NOPR, while Commissioner Richard Glick dissented.

Generally, the NOPR aims to provide flexibility to state regulatory authorities so they can accommodate recent wholesale power market developments and streamline FERC’s policies and practices.

FERC tweeted this afternoon: “#Renewable technologies can now stand on their own. In 1995, all wind & solar were PURPA QFs. Today: that number is 10-20%. @FERC should continue to encourage QFs, but it’s time to revisit what we do to encourage renewables & how we protect consumers.”

For rates specifically, the draft 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, said Joshua Kirstein, attorney and public utilities adviser in FERC’s Office of the General Counsel, who presented the NOPR during the commission’s meeting.
Also regarding rates, the NOPR proposes to grant states additional flexibility to allow QFs to retain their rights to fixed energy rates, but to base them on projections of what energy prices will be at the time of delivery during the term of a QF’s contract.

And states would be permitted 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 in those markets, or to 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, according to FERC staff.

“Currently, PURPA requires our customers to purchase energy at a premium from third parties that is not needed, resulting in unnecessarily higher bills,” said Phil Sgro, spokesman for Duke Energy. “Accordingly, PURPA’s modernization is long overdue, and Duke Energy applauds the commission for addressing this issue.”

Sgro added that Duke Energy plans to at least double its renewables portfolio by 2025, while simultaneously meeting its obligation to provide affordable and reliable energy for its customers.

Another proposal in the draft NOPR would modify the “one-mile rule” for determining whether affiliated QFs should be considered part of a single facility for purposes of determining whether it is a qualifying small power production facility, said Kirstein.

According to the staff’s draft NOPR summary, there would continue to be an “irrebuttable presumption” that facilities located one mile apart or less constitute a single facility; that facilities located more than one mile apart, but less than 10 miles apart, constitute a single facility; and that facilities 10 miles apart or more are separate facilities.

Regarding the Obligation to Purchase item, the draft NOPR proposes to revise 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 (MW) do not have nondiscriminatory access to those markets would be reduced to 1 MW for small power production facilities,” according to FERC staff.

While the 20 MW presumption would remain for cogeneration facilities, FERC staff noted that the revision does recognize 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.

Regarding Legally Enforceable Obligation rules, the draft NOPR proposes to require states 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.

Finally, regarding Self-Certification, the draft NOPR proposes to 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.

“It’s clearly time for FERC to revisit its PURPA policies,” Chatterjee said. “Congress told us to review our policies from time to time to ensure that our regulations continue both to protect consumers and to encourage the development of QFs. That is precisely what we are doing here.”

National Rural Electric Cooperative Association (NRECA) CEO Jim Matheson said the vote was a much-needed first step toward modernizing PURPA. “FERC’s rules implementing PURPA today promote the uneven, unplanned, and uneconomic development of facilities and provide subsidies that promote these facilities at the expense of our members, system reliability and other more affordable resources,” Matheson said.

The American Public Power Association (APPA) agreed. “We applaud FERC for recognizing the need to ensure that PURPA’s implementation is aligned with today’s energy landscape,” said APPA President and CEO Sue Kelly.
Some members of the solar industry, however, took issue with the draft NOPR.

“Rather than focusing on PURPA’s goal of ensuring competition, this proposal would have the effect of dampening competition and allowing utilities to strengthen their monopoly status, to the detriment of customers,” said Katherine Gensler, vice president of regulatory affairs for the Solar Energy Industries Association (SEIA).

Gensler said the proposed rule “is a move away from competition and we hope FERC rethinks the most harmful portions of this proposal.”

Issuance of the NOPR opens a public comment window that ends 60 days after the notice is published in the Federal Register.