Getting Up to Speed: FERC’s Attempt to Update PURPA

On September 19, 2019, in an effort to modernize the Public Utility Regulatory Policies Act of 1978 (PURPA), the Federal Energy Regulatory Commission (FERC) released a Notice of Proposed Rulemaking (NOPR) to address changes made to the renewable energy markets since PURPA’s enactment in 1980. Specifically, the NOPR focuses on updating PURPA to better integrate Qualifying Facilities (QFs) with wholesale energy markets.

QFs are independent, smaller energy generators that primarily produce renewable energy. When PURPA was initially enacted in the 1980s, the United States was facing an energy crisis and PURPA provided a federal process to initiate renewable energy generation by providing benefits to smaller-scaled renewable generators. One of these benefits required utilities in states without wholesale markets to contract with QFs if the generator could produce electricity for less than a utility’s avoided cost of generation. Securing a fixed rate for renewable energy generation created an inviting financial environment for renewable generation development. The recently proposed changes to PURPA jeopardize this financing structure and could, as Commissioner Richard Glick noted in his dissent, “make it more difficult—or in some cases impossible—for QFs to obtain financing.”

The NOPR provides individual states more discretion on how to calculate the avoided cost rate for QFs, but also addresses other small matters that relate to QF governance. The NOPR looks to provide states with more flexibility in how they choose to calculate the energy rates applicable to QFs by allowing the rate to a) vary with the changes in the utility’s avoided cost based on the time the energy is delivered; b) be a fixed energy rate based on projected energy prices of anticipated dates of delivery; c) use a locational marginal price (LMP) in organized markets or pricing based off competitive liquid market hubs or natural gas indices in unorganized markets; or d) set rates based on competitive solicitations. Additionally, the Commission also proposes to expand the so-called “one-mile rule” to allow for facilities located fewer than ten miles apart to be considered a single facility, restrict the applicability of the rebuttable presumption that small-sized QFs do not have access to non-discriminatory markets, require states to establish reasonable criteria to ensure that QFs are commercially viable before its issued a contract, and allow entities to challenge the self-certification or re-self-certification without having to file and pay for a declaratory order.

If implemented, the biggest impacts of the NOPR will likely be felt by QFs in states that operate outside of the established regional transmission organization’s wholesale markets – where QFs rely on the fixed energy price contracts for development. A majority of the NOPR’s content delegates additional price-setting discretions to state regulatory authorities. As states’ renewable energy policies become more mainstream and renewable energy generation projects become more common, states are beginning to garner more and more regulatory and jurisdictional oversight over these resources.

The Commission’s proposed changes to PURPA are still in the early phases of the federal rulemaking process, and the Commission may implement additional edits in response to public comments before it moves to the states for implementation. Developers who are considering QF projects, and owners of QFs operating under the current language of PURPA, should closely monitor this rulemaking through both the federal and state processes so they are fully aware of any changes in the law that affect how their renewable facility receives compensation. The Commission is currently accepting comments on the NOPR until December 3, 2019.