September 25, 2019

On September 19, 2019, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) that outlines potentially significant changes to FERC’s regulations implementing the Public Utility Regulatory Policy Act (PURPA). The changes would narrow the “must-purchase requirement” of PURPA, making it more difficult for Qualifying Facilities to force utilities to purchase their output.

Background on PURPA

PURPA was enacted in 1978 to promote the development of alternative energy resources in response to the global energy crisis of the 1970s. The central tenet of PURPA is a requirement that each “electric utility” purchase the output of co-generators or qualifying small power production facilities (collectively, Qualifying Facilities or QFs) at the utility’s avoided cost or at a negotiated rate (the “must-purchase requirement”).

PURPA directs state regulatory commissions to implement FERC’s QF rules. To effectuate this, state commissions may implement their own QF regulations, as long as those regulations are consistent with and do not conflict with FERC’s requirements.

Proposed Changes

The changes proposed by the NOPR include: (1) allowing states to eliminate the fixed rate option for QFs, (2) lowering the threshold for the rebuttal presumption that QFs have nondiscriminatory access to markets, and (3) modifying the so-called “one-mile rule” so that generating facilities located more than one mile apart can be deemed a single facility under certain circumstances.

Rates: Currently, FERC requires states to allow QFs to choose between a fixed-rate option and a flexible-rate option based on the market price of energy at the time of delivery. QFs typically take advantage of the fixed-rate option to avoid market volatility and the recent downward trajectory of wholesale energy prices. The NOPR would allow states to eliminate the fixed rate option and require QFs to take payments based on day-ahead or real-time locational marginal prices (LMP) in the relevant wholesale energy market. This change would likely render some QF projects too risky to finance.

Nondiscriminatory access: PURPA regulations currently allow electric utilities to obtain relief from the “must purchase obligation” if FERC finds the QF has nondiscriminatory access to competitive wholesale markets (such as the markets administered by the Midcontinent Independent System Operator and the Southwest Power Pool). The current regulations also establish a rebuttable presumption that QFs under 20 MW lack nondiscriminatory access to competitive wholesale markets. The NOPR proposes to lower the rebuttable presumption from 20 MW to one MW. Accordingly, electric utilities located in competitive markets could exempt themselves from the must-purchase obligation with regard to essentially all QFs above one MW. Under this proposal, QFs over one MW could rebut the presumption of access due to operational characteristics or transmission constraints.

One-mile rule: In order to qualify as a QF, renewable energy generators must meet the definition of “small power production facility” and be under 80 MW. Currently, there is an irrebuttable presumption that generators located over one mile from each other are considered separate facilities for the purpose of calculating the 80 MW limit. This has allowed some facilities (such as wind generators) over 80 MW to qualify as a “small power production facility” by including a one-mile buffer between two parts of the facility. The NOPR proposes to modify the “one-mile rule” so that entities challenging a QF certification may rebut the presumption that facilities located more than one mile apart, but less than 10 miles apart, are separate facilities. There would still be an irrebuttable presumption that generators located more than 10 miles apart are separate facilities.

Interested parties have 60 days from the date the NOPR is published in the Federal Register to file comments. FERC will consider the comments before issuing a Final Rule.