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Energy Policy Act of 2005 Amendments to Section 210
of PURPA
By Daniel M. Adamson and James B. Vasile
[August 2005]
Section 210 of the Public Utilities Regulatory Polices Act (PURPA) requires electric utilities to purchase power from certain qualifying cogeneration and “small power production facilities” (“QFs”) at the utility’s “avoided cost.” Enacted in 1978 as part of President Carter’s response to the Arab oil embargo, a key purpose of PURPA was to encourage the development of cogeneration and renewable energy facilities.
In the mid to late 1990s many electricity policy makers believed that Section 210 was becoming outmoded due to the onset of open access transmission and wholesale competition emerging after passage of the Energy Policy Act of 1992. In response, a number of bills were introduced in Congress to repeal Section 210 of PURPA. However, over time it became apparent that the road to a vigorous competitive electricity market was more bumpy than expected. In light of this, Congress adopted compromise amendments to Section 210 as part of the Energy Policy Act of 2005 (EPA 2005). These amendments provide for a gradual phasing out of Section 210 to the extent the Federal Energy Regulatory Commission (FERC) determines that QFs have access to a competitive wholesale electricity market (Section 1253).
Section 210 phase-out
EPA 2005 has no affect on PURPA must-buy contracts in place or pending approval on the date of enactment. It does, however, authorize FERC to relieve an electric utility of the mandatory purchase requirement of PURPA on a prospective basis in instances which the QFs have nondiscriminatory access to:
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independently-administered, auction-based day-ahead and real-time wholesale markets and to wholesale markets for long-term sales of capacity and electric energy, or |
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nondiscriminatory transmission and interconnection services provided by a FERC-approved RTO or ISO and competitive wholesale markets that provide a meaningful opportunity to sell capacity and electric energy to buyers other than the utility to which the QF is interconnected. |
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(3) |
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Alternatively, the mandatory purchase obligation may be eliminated where a QF has nondiscriminatory access to wholesale markets comparable to the markets described above. |
In addition an electric utility would be relieved of its existing Section 210 obligation to sell power to a QF if the Commission finds that there are competing retail suppliers that are able to do so and the electric utility is not required by law to sell electric energy in its service territory.
FERC determines if must buy obligation is relieved or reinstated
- A utility must apply to the FERC for relief from the PURPA must-buy obligation. FERC must make a final determination within 90-days, with notice and comment.
- FERC may reinstate the PURPA must-buy obligation in response to a request from a QF, state or any other affected person, if FERC finds that relief is no longer justified.
Cost recovery rule
- A federal right for utilities to recover PURPA Section 210 costs is created.
- FERC rulemaking shall be initiated to assure recovery of “all prudently incurred costs associated with the purchase.”
FERC rule revising criteria for new qualifying cogeneration facilities
- QF requirements for new cogeneration facilities to be made more stringent.
- Within 180 days of enactment FERC to issue new rule to ensure:
- thermal energy output of a new cogen QF is “used in a productive and beneficial manner”;
- output of new cogen facility is “used fundamentally for industrial, commercial or institutional purposes and is not intended fundamentally for sale to an electric utility”; and
- “continuing progress in the development of efficient electric energy generating technology.”
- New rule only applies to must purchase obligation, not other rights under PURPA, such as interconnection.
- Notwithstanding the new QF rule, Commission’s prior QF criteria apply to any “existing” cogeneration facility that was a QF on date of enactment or files for certification prior to the date of issuance of final rule.
Ownership limitations repealed
- Requirement that facilities not be owned by a person primarily engaged in the generation or sale of power is eliminated. In other words, electric utilities can own QFs.
Conclusion
For now, PURPA Section 210 lives and could potentially be a significant factor in the regulatory battles regarding utility power supplies in some areas of the country. The key variable for the future is the nature of FERC’s implementation of the revisions to Section 210. In regions of the country served by independently-administered, auction-based day ahead and real-time markets and Regional Transmission Organizations, there is a relatively high likelihood that FERC will relieve most electric utilities of their must-buy obligation. However, in other regions where no “FERC-organized” wholesale electricity market exists, it is more difficult to gauge how FERC will respond to requests for relief from the must-buy obligation.
Please direct questions about this DWT Energy Advisory
to:
This Advisory is a publication
of the Energy Department of Davis Wright Tremaine LLP. Our purpose
in publishing this Advisory is to inform our clients and friends
of recent developments in energy law. It is not intended, nor
should it be used, as a substitute for specific legal advice
as legal counsel may only be given in response to inquiries
regarding particular situations.
Copyright © 2005, Davis Wright
Tremaine LLP.
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