FERC Proposes Modernizing PURPA Regulations; Chairman Outlines Other Priorities

Modernization of regulations implementing the Public Utility Regulatory Policies Act of 1978 (PURPA) has long been a high priority for FERC Chairman Neil Chatterjee. Chairman Chatterjee discussed this and other priority issues before the FERC during a recent interview with a reporter from E & E News.

With its August recess now behind it, the Federal Energy Regulatory Commission (FERC) adopted a Notice of Proposed Rulemaking (NOPR) on September 19, 2019 in an effort to update its PURPA regulations. Although the NOPR itself was not immediately available, the FERC issued a fact sheet and related materials which outline the proposal.

Proposed Changes to PURPA Regulations

PURPA requires electric utilities to purchase the electrical output of generating facilities, known as Qualifying Facilities (QF), at rates established by state regulators, based on the avoided cost to the utility of purchasing electricity from an alternative source. The current effective rules for implementation of PURPA were adopted by the FERC in 1980.

Since that time, there have been substantial changes in the electric utility industry, and as such, Chairman Chatterjee has expressed a desire “to better align PURPA with realities of the 21st century energy market.” The reforms proposed by the FERC in the NOPR are intended to do so by addressing major concerns over the way in which PURPA is being implemented.

The proposed reforms include the following:

Rates

Utilities purchasing electricity from Qualifying Facilities were expected to be indifferent to whether they purchased electricity from QFs or from some other source. However, as a result of declining electricity prices, rates for electricity supplied by QFs that were reasonable when originally established have turned out to be higher than rates the utility would have paid to purchase electricity from alternative sources at the time of delivery.

The proposed regulations are designed to address this concern by granting states flexibility to:

• Approve energy rates (but not capacity rates), varying in accordance with the purchasing utility’s avoided costs at the time the energy is delivered;
• Establish energy rates that are fixed for the term of a power purchase agreement based on projections of energy prices at the time of delivery during the term of the contract; and
• Set “as available” energy rates for QFs located in organized wholesale power markets or that otherwise have the ability to participate in liquid wholesale electricity markets.

One-Mile Rule

One of the criteria for determining whether a generating facility may be a QF is the size of the generator. Currently, affiliated generating facilities within one mile of each other are considered to be part of the same entity.

Many utilities have complained that some QF’s have “gamed” the system by building affiliated generation facilities that are only slightly more than one mile apart. Under the proposed rules:

• (A) Affiliated generating facilities within one mile of each other would be treated as a single generator for the purpose of determining its size;
• (B) Affiliated generating facilities that are from one to ten miles apart would be presumed to be separate generators, but that presumption could be rebutted; and
• (C) Generating facilities that are 10 or more miles apart would be treated as separate generators.

Obligation of Utilities to Purchase QF Output

Currently, utilities located in competitive organized markets may be relieved by the FERC from obligation to purchase the output of QF’s whose capacity is greater than 20 MW. Under the proposed rules, the rebuttable presumption that QFs with capacity at or below 20 MW do not have non-discriminatory access to competitive wholesale electricity markets would be reduced to 1 MW for small power production facilities (but not for cogeneration facilities).

Legally Enforceable Obligation

A utility would not be required to enter into a contract to purchase the electricity output of a QF until the QF demonstrated, pursuant to objective and reasonable criteria adopted by the state, that it was commercially viable and had a financial commitment to construct the facility.

Self-Certification

Currently, QFs may demonstrate that they meet the criteria to be a QF by self-certification. The proposed rules would permit other entities to challenge such self-certifications.

Commissioner Glick Dissented

FERC Commissioner Richard Glick issued a dissent in which he objected to what he believed to be the FERC’s usurpation of Congressional authority to modify PURPA. He also expressed his opposition to proposed changes to the rules for establishing avoided-cost rates and to reduction of the threshold for presuming that a QF has non-discriminatory access to a competitive wholesale electricity market from 20 MW to 1 MW. Commissioner Glick is concerned that these changes would make it difficult for some proposed QFs to obtain necessary financing.

Chairman Chatterjee’s Other Priorities

The proposed regulations adopted by the FERC on September 19 presumably will help achieve Chairman Chatterjee’s goal of updating the PURPA regulations. Other priority issues that he discussed during his recent interview include:

• Getting the requisite energy infrastructure in place to maintain the reliability of the electric grid;
• Maintaining cyber security to protect against disruptions to the reliability of the electric grid;
• Reviewing the natural gas pipeline approval process, with due concern for accommodating concerns that are being raised by landowners; and
• Reviewing rates of return on equity and rate incentives for transmission owners, with a goal of employing the best incentives to encourage investment in transmission facilities.

Chairman Chatterjee also expressed concern over conflicts between state energy policies and operation of competitive wholesale electricity markets. He explained that while he respects the ability of states to make decisions about their own energy future, he believes some states are taking actions that have a distortive impact on wholesale electricity markets in other states. In his view, this conflict is a difficult issue that the FERC needs to address.

As the FERC moves toward resolving these and other complex issues on its agenda, it will do so without benefit of the experience and wisdom of Commissioner Cheryl LaFleur, who retired from the FERC at the end of August. Although there are currently two vacancies on the FERC (one to be filled by a Republican and one to be filled by a Democrat), Chairman Chatterjee expressed confidence that the FERC will be able to continue to review and resolve energy issues and infrastructure projects that come before it in an apolitical manner.