Edison Electric Institute supports FERC’s proposed updates to PURPA
The Edison Electric Institute (EEI) last week came out in support of a federal notice of proposed rulemaking (NOPR) that would update existing law to improve how qualifying facilities (QFs) are integrated with wholesale energy markets.
“The NOPR provides both clarifying guidance and additional tools to the states to address … issues and it appropriately implements the requirements of the statute,” said EEI, which represents all of America’s investor-owned utilities, in comments filed in the Federal Energy Regulatory Commission’s (FERC’s) NOPR on Qualifying Facilities Rates and Requirements under the Public Utility Regulatory Policies Act (PURPA) of 1978.
FERC set a Dec. 3 deadline to file comments on its NOPR, in which the commission revisits its rules and regulations for implementing PURPA, the federal law that aimed to promote energy conservation while also advancing the use of domestic energy and an increased supply of renewable energy.
Initially, PURPA 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 producers or cogeneration facilities that make more efficient use of fossil fuels.
QFs were created by Congress as “a class of third-party generators that were not subject to the same requirements, regulations and oversight as electric utilities,” EEI says in its comments. “Congress also required electric utilities to purchase electricity from these generators at just and reasonable rates that left customers indifferent to the source of the energy.”
Now, 40 years later, EEI says that PURPA-spurred market changes demand that the law be modernized.
“The nation’s energy landscape today is far different than it was in 1980 when the commission enacted those regulations,” according to EEI’s comments. “Open access to transmission, greater competition among generators in organized and bilateral wholesale markets, improvements in technology, lower costs of technology, and implementation of state and federal policies have all helped drive changes in the fuel mix so that generation from co-generation and renewable energy resources, such as wind and solar, has increased substantially.”
And due to such changes, FERC’s rules regarding PURPA “are no longer just and reasonable and do not reflect today’s energy markets,” EEI said.
EEI points out that the core of PURPA is the requirement in Section 210 that all electric utilities purchase electricity at the “incremental cost of alternative electric energy” from QFs, defined by FERC as the electric utility’s avoided costs, which are “the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.”
Avoided cost is what it would have cost a utility to generate or contract for the energy and capacity in the absence of a QF — or put another way, PURPA permits QFs to interconnect with a utility-controlled grid and requires utilities to purchase the QF’s energy and capacity at avoided cost.
However, QFs currently have avoided cost rates that generally exceed the rates that are realized in competitive markets for solar and wind energy, according to EEI’s comments filed in response to the NOPR, a determination also bolstered by an EEI-commissioned report released Nov. 14 by Concentric Energy Advisors Inc. analyzing avoided cost rates for solar and wind QFs under PURPA.
“The administratively determined avoided cost rates that QFs receive under PURPA are dislocated from market and cost trends,” report coauthor Emma Nicholson, senior project manager at Concentric Energy Advisors, recently told Daily Energy Insider. “We found that QFs are paid more for wind and solar energy than non-QF renewable developers.”
Nicholson and coauthor Michael Kagan, senior vice president at Concentric, also concluded in their report, An empirical analysis of avoided cost rates for solar and wind QFs under PURPA, that trends in solar QF contracts did not reflect underlying cost trends because solar installation costs declined “far faster” than the administratively determined QF rates.
“We estimate that utilities and, in the end, customers overpaid in the approximate range of $150.7 million and $216.2 million per year under the QF solar and wind contracts,” according to the Concentric Energy report. “Accounting for the full term of the solar and wind QF contracts raises the total overpayment estimate to between $2.7 billion and $3.9 billion, respectively.”
EEI included Concentric Energy report findings in its filed comments with FERC last week and noted that “the proposals in the NOPR are consistent with the requirements of PURPA and provide certainty and opportunities to QFs, while at the same time better ensuring that states have the flexibility to meet PURPA’s consumer protection mandates.”
Generally, the NOPR would provide flexibility to state regulatory authorities so they can accommodate recent wholesale power market developments and to streamline FERC’s policies and practices.
Specifically, the NOPR would 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.
“The proposals in the NOPR provide clarity to the states by including guidance on the tools available to establish avoided cost rates as well as update regulations that were created by the Commission in originally implementing the statute, such as the one-mile rule, 20 MW threshold, and self-certification rules, which are not required by PURPA,” EEI said in its comments.
The NOPR also “appropriately recognizes” the massive transformation that’s taken place in the energy markets since FERC enacted the majority of its PURPA regulations in 1980, EEI added.
For instance, independent power producers, including QFs, today provide the majority of renewable energy capacity in the United States, EEI said, noting that between Jan. 1, 2010 and Oct. 1, 2019, independent power producers, including smaller resources, provided 89 percent of the U.S. solar and wind capacity.
“Wholesale markets have grown and matured… electric utilities are no longer the only producers of energy,” according to EEI’s comments. “Independent power producers, large and small, increasingly generate and supply renewable energy.”
Additionally, as state and federal policies increasingly require the use of renewable energy and technology costs decline, EEI said that the move toward the increased use of these resources will continue to grow.
“The proposals in the NOPR appropriately recognize these changes and fulfill the congressional mandate for the Commission to update its regulations implementing PURPA,” wrote the association.
And the additional clarity provided for in the NOPR “can be of benefit to QFs and customers,” EEI added.
