America’s power industry touts FERC’s final PURPA ruling
America’s power providers commended action on Thursday by the Federal Energy Regulatory Commission (FERC) to update rules and regulations implementing the Public Utility Regulatory Policies Act of 1978 (PURPA), an outdated federal law enacted to promote competition for electric generation and encourage renewable resources.
“For years, electricity customers have been paying billions of dollars in excess energy costs as a result of PURPA provisions enacted in the 1970s that allowed well-financed big developers to lock in guaranteed long-term, inflexible contracts at the expense of other more-competitive and cost-efficient renewable energy projects,” said Tom Kuhn, president of the Edison Electric Institute (EEI), which represents the nation’s investor-owned electric companies.
“By updating these rules,” Kuhn said, “FERC has helped to ensure that renewable energy can continue to grow without forcing electricity customers to pay a premium to the developers that learned how to game the system.”
FERC Chairman Neil Chatterjee said the new final rule includes a wide-ranging and comprehensive set of reforms to update PURPA regulations. “This final rule is a major achievement for this commission, and reflects a huge undertaking by our excellent team of PURPA experts,” said Chatterjee in his opening remarks during the audio-only, virtual open public meeting.
Prior to the commissioners’ 3-1 vote, a FERC staffer provided them with an overview of the draft final rule to revise FERC regulations implementing sections 201 and 210 of PURPA, a law enacted four decades ago as part of a package intended to reduce the nation’s dependence on conventional fossil fuels and to generate electricity by encouraging development of alternative generation by qualifying facilities (QFs).
But while PURPA provided that encouragement, it also imposed limits, the staffer said, pointing to the mandatory purchase rates for QF output, which cannot exceed purchasing utility avoided cost even if the QF cost might be higher.
The final rule implements changes that continue to encourage development of QFs, but also ensures that the commission’s PURPA regulations are consistent with the law, while also granting states some regulatory authority and non-regulatory flexibility to require energy rates but not capacity rates, said the staffer.
For instance, the final rule grants states flexibility to allow QFs to have a fixed energy rate and provide such state-authorized fixed energy rates to be based on projected energy prices during the term of a QF’s contract based on anticipated dates of delivery.
PURPA had required investor-owned electric companies, public power utilities and electric cooperatives to purchase energy from QFs at prices that often exceeded the market.
“The energy industry landscape looks quite different now than when PURPA was first enacted,” said Joy Ditto, president and chief executive officer at the American Public Power Association, which represents not-for-profit, community-owned utilities that power 2,000 towns and cities nationwide.
“We’ve seen fundamental changes to how electricity is generated — especially pertaining to the growth of renewable resources and the emergence of new technologies,” Ditto said. “And we’ve also seen greater reliance — especially for public power utilities — on competitive wholesale markets. FERC appropriately recognizes the need to modernize PURPA to reflect these changes.”
Jim Matheson, CEO at the National Rural Electric Cooperative Association, which represents the nation’s more than 900 private, not-for-profit, consumer-owned electric cooperatives serving 42 million people in 48 states, called FERC’s decision a pivotal step toward enabling electric cooperatives to continue developing renewable resources as they focus on their consumer-members instead of an outdated policy.
“I applaud FERC for taking this action which rightfully prioritizes innovation, affordability and reliability,” Matheson said. “The commission has struck the right balance between supporting alternative energy development and acknowledging the importance of flexible implementation by state and local regulatory authorities.”
Additionally, the final rule also establishes a rebuttable presumption that LNP represents purchasing utility avoided cost.
With respect to QF selling to electric utilities, located outside of the organized electric markets, the final rule provides states the option to set as available energy avoided cost rates, either at competitive market prices from liquid market hubs or calculated from a formula based on natural gas price indices and heat rates provided the states determine such prices represent avoided cost, according to the staffer’s overview.
The final rule makes clear that the states have flexibility to choose to adopt one or more of those options: LNP, liquid market hubs, specified heat rates, or to continue setting QF rates under the standards long established in the commission regulations implementing PURPA, the FERC staffer said.
Among other changes, the final rule also modifies FERC’s one-mile rule for determining whether affiliated small power production facilities are considered to be at the same site for purposes of determining whether a small power production facility meets the statutory 80-megawatt limit. Under the final rule, a facility one mile or less from an affiliated small power production QF would be at the same site as an affiliate, while more than 10 miles would be deemed to be at a separate site from its affiliate.
Chatterjee, aiming to proactively clear up any discrepancies, posed several questions about the PURPA final rule. “First, I know some commenters claimed that the [notice of proposed rulemaking] was an attempt by the commission to repeal or eliminate critical protections granted by PURPA. Does this final rule do those things?” the chairman asked the FERC staffer.
“No, Mr. Chairman. This final rule does not seek to repeal or eliminate any aspect of PURPA, which is a federal law that only Congress can modify,” he answered. “Congress has required that the commission from time to time revise regulations implementing PURPA and that is what this final rule does.”
Chatterjee then asked if the revised PURPA regulations still encourage small power production and co-generation as required under the law, to which the staffer also answered yes, saying that the revised regulations give states more flexibility to staff avoided cost rates accurately by using market-based pricing, such as LNP pricing hubs.
“We expect this will continue to provide encouragement for the development of small power producers and co-generation as required by PURPA while also respecting the PURPA requirements that such rates not exceed the purchasing utilities avoided cost,” the staffer explained, adding that such pricing mechanisms are likely to be more transparent, efficient and less labor-intensive than existing administrative determinations of avoided cost rates for the same resources spent by all sides in the process.
“Both utilities and their customers and QFs are likely to receive more bang for the buck,” he said, adding that the regulations continue to require utilities to provide backup service, interconnection and relief from federal regulations under the Federal Power Act, encouraging development of QFs.
Chatterjee’s final question regarded how the changes in the final rule would impact states’ implementation of PURPA.
The staffer said the changes will provide states with added flexibility to implement PURPA in a manner best suited to each state. For example, the final rule now provides flexibility for states to use variable energy rates as a component of avoided cost, but does not require that they do so.
The commission also delineates a process whereby states may meet PURPA obligations, via competitive solicitation, but again they are not required to do so. “A goal of the commission in this final rule is to promote state flexibility. and staff believes that in the same spirit of the original rulemaking implementing PURPA this rule does just that.”
“Reforming PURPA was long overdue and had bipartisan support,” EEI’s Kuhn said. “The old regulations were disincentivizing the deployment of cost-effective renewables, and FERC now has given states the tools they need to ensure that customers are benefitting from the dramatic decline in costs for solar and wind energy.”
Not everyone was happy with FERC’s changes to PURPA.
Tom Rutigliano, an advocate in the Sustainable FERC Project, which is housed at the Natural Resources Defense Council (NRDC), said the PURPA changes threaten to undercut small wind, solar and other clean energy sources, and could lead to more pollution by propping up fossil fuel power plants.
“This order runs counter to the purpose of the law. Instead of promoting small, clean generation, FERC is undercutting the ability of solar and wind power to get a fair chance to compete,” Rutigliano said. “Homeowners putting solar panels on their roof, farmers leasing their land to wind turbines, and industrial facilities with efficient on-site power all lose under FERC’s rule today.”
Among other things, he said the rules FERC adopted today make it easier for utilities to refuse to buy power from renewable generators, lower the price clean-energy sources get paid, and remove the guarantee that small clean power plants can connect to the power grid.
