FERC issues order to revamp PURPA

Photo by Chelsea on Unsplash

The Federal Energy Regulatory Commission (FERC) this week proposed to modernize its regulations governing small power producers and cogenerators under the Public Utility Regulatory Policies Act of 1978 (PURPA) to better address consumer concerns and market changes in the energy landscape in recent decades.

Congress enacted PURPA to address the national energy crisis by encouraging the development of small power producers and cogenerators, called qualifying facilities (QFs), to reduce the country’s demand for traditional fossil fuels, which were considered to be in short supply. FERC first enacted its rules in 1980. With scattered changes over the ensuing 39 years, they remain in effect today.

Today’s Notice of Proposed Rulemaking (NOPR) constitutes the Commission’s first comprehensive review of its PURPA regulations. The proposed changes are intended to continue encouraging development of QFs while addressing concerns regarding how the current regulations work in today’s competitive wholesale power markets.

“PURPA laid the foundation for the Commission’s open access transmission policies and the competitive wholesale power markets that we have today,” FERC Chairman Neil Chatterjee said. “But a lot has changed since 1980. 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.”

The NOPR focuses on providing flexibility to state regulatory authorities so they can accommodate recent wholesale power market developments and streamlines the Commission’s policies and practices. Specifically, the proposal allows states to incorporate market pricing into avoided cost energy rates in various ways, allows states to require energy rates (but not capacity rates) to vary during the life of QF contracts, modifies the “one-mile rule,” and lowers the threshold presumption for nondiscriminatory access to power markets from 20 megawatts to 1 megawatt for small power production, but not cogeneration, facilities.

It also requires states to establish objective and reasonable standards for QFs to obtain legally enforceable obligations for the purchase of their power. Finally, the proposal permits protests of a QF’s self-certification or self-recertification without the need to file and pay for a separate petition for declaratory order.

Related: Putting PURPA Under a Microscope

“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.”

Industry reacts

The Solar Energy Industries Association (SEIA)’s vice president of regulatory affairs, Katherine Gensler said the proposal “would have the effect of dampening competition and allowing utilities to strengthen their monopoly status, to the detriment of customers. We were encouraged that SEIA’s proposal gained recognition for the balance it offered. However, the proposed rule is a move away from competition and we hope FERC rethinks the most harmful portions of this proposal. We will continue to push for PURPA reforms that increase competition, transparency, and enforcement.”

EEI president Tom Kuhn was delighted with the proposal. “We applaud FERC Chairman Chatterjee for his leadership and for prioritizing PURPA reform,” he said, adding that “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.”

American Public Power Association (APPA) President and CEO Sue Kelly also applauded FERC for the NOPR.  “The energy industry has undergone significant changes since PURPA was enacted,” she said. “There has been a meaningful evolution in the electricity generation resource mix, including significant growth in renewable resources and the use of new and improved technologies.”

National Rural Electric Cooperative Association (NRECA) CEO Jim Matheson went even further saying that PURPA today “forces electric companies to buy power they often don’t need at above-market prices” and that it raises electricity prices for consumers. He said the NOPR is a step in the right direction.

“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.”

Related: Can the US government stop utilities from attempting to kill solar in Montana?

Not surprising

Joe Hall, Partner in Eversheds Sutherland’s Energy & Infrastructure Practice Group said he thinks that the legislative reform of PURPA “looks increasingly less likely as we near the 2020 election cycle, and it is nearly impossible to predict what happens on the Hill beyond November 2020.”

He added that “FERC is acutely aware of the historic tensions resulting from the ‘cooperative federalism’ model used to implement PURPA and has, generally, taken a ‘hands off’ approach to state programs…so it isn’t surprising FERC seems to be leaning towards granting state commissions greater discretion. The proposed revision of the minimum size threshold for the application of rebuttable presumption for mandatory purchase obligation in competitive markets isn’t surprising. FERC seems increasingly comfortable with the ability of renewables to sell product in competitive markets.”

Comments are due 60 days after publication in the Federal Register.

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