On September 19, 2019, FERC proposed substantial revisions to its Public Utility Regulatory Policies Act of 1978 (“PURPA”) regulations. If adopted, the package of reforms proposed in the Notice of Proposed Rulemaking (“NOPR”) would: (1) allow states more flexibility to incorporate competitive forces when setting avoided cost rates for Qualifying Facilities (“QFs”), (2) modify the “one-mile rule,” (3) reduce the size threshold for the rebuttable presumption about QFs’ ability to access markets, (4) provide clarity on establishing a legally enforceable obligation (“LEO”), and (5) establish a simplified process to challenge a project’s QF status. FERC requested comments on a number of proposals, which are due 60 days from publication of the NOPR in the Federal Register.
FERC explained that these revisions were made in light of changes to the industry over the last forty years. The NOPR lists various changes including increased domestic natural gas production, increased renewable development, and decreased technology costs and incorporates the record from FERC’s 2016 PURPA technical conference (see February 16, 2016 edition of the WER) where utility groups argued that it was no longer necessary for energy rates to be fixed in order to obtain financing for independent power producers. As such, FERC explained it was time to rebalance PURPA’s benefits and obligations.
Avoided Cost Rates
In the NOPR, FERC proposes four main revisions with respect to QF rates. First, states could set “as available” avoided cost rates for utilities in regional transmission organization/independent system operator (“RTO/ISO”) markets based on the market’s locational marginal price or by competitive prices determined by liquid market hub prices and/or formula rates based on observed natural gas prices and a specified heat rate. Second, states could set contract and/or LEO avoided cost rates for energy (but not capacity) based on the “as available” rate (i.e., determined at the time of delivery) or projected future rates rather than a rate fixed for the entire contract term. Third, states in an RTO/ISO market could require the fixed energy rate be calculated on an estimate of the value at the time of delivery. Finally, states could require energy and/or capacity rates be determined through a competitive bidding process, like a request for proposals.
FERC also proposes to modify its “one-mile rule” test for determining whether QFs are separate sites with a tiered approach. There is currently an irrebuttable presumption that small power production facilities that are owned by the same person(s) and use the same energy source, but are more than one mile apart, are considered separate facilities. This irrebuttable presumption remains unchanged in the NOPR, but FERC has proposed to add two more presumptions. First, the NOPR proposes a rebuttable presumption that any facilities with the same owner and the same energy source that are more than one and less than ten miles apart are considered separate facilities. Second, the NOPR proposes another irrebuttable presumption that facilities with the same owner and the same energy source that are more than ten miles apart are considered separate facilities. The NOPR also proposes to provide more specificity to how the electrical generating equipment on the facilities are defined and measured.
Access to Markets Rebuttable Presumption
FERC has also proposed changes to the rebuttable presumption that small power production QFs at or below 20 MW lack nondiscriminatory access to markets. PURPA regulations permit an electric utility to file an application with the Commission requesting relief from the requirement to enter into new contracts or obligations to purchase electric energy from a QF if the Commission finds that the QF has nondiscriminatory access to certain markets. Section 292.309(d)(1) of the Commission’s PURPA regulations currently establishes a rebuttable presumption that QFs with a net power production capacity at or below 20 MW lack nondiscriminatory access to such markets. In the NOPR, FERC proposes to revise section 292.309(d)(1) to reduce the size threshold for which the rebuttable presumption applies from 20 to 1 MW for small power production QFs (but not cogeneration facilities).
FERC also proposes to provide additional guidance as to when and how a LEO is established. FERC explained that it established LEOs to prevent utilities from circumventing their obligations under PURPA by simply refusing to enter into a contract with a QF. While FERC has provided some guidance on LEOs, it has declined to develop any specific test and has instead allowed states to determine when a LEO is established. In the NOPR, FERC proposes regulations requiring QFs to demonstrate that their proposed projects are commercially viable and that they have financial commitments to construct their projects pursuant to “objective, reasonable, state-determined criteria” to be eligible for a LEO.
Challenge to QF Status
Finally, FERC proposes to establish a simplified process to challenge a project’s QF status. Currently, QFs file FERC Form 556 to certify or re-certify that they meet the requirements for QF status, and while that filing is reviewed by FERC for completeness, none of the information is verified. In the NOPR, FERC proposes to allow a party to protest a QF’s self-certification without filing a petition for a declaratory order or paying any associated fees. FERC explained that any such protest must also demonstrate that the QF does not meet the requirements for QF status.
Commissioner Glick filed a partial dissent addressing the role Congress should play in revising PURPA, a QF’s ability to obtain financing under the proposed rules, and the effect the rules may have on competition.