The Legally Enforceable Obligation (LEO) concept is a construct of FERC that is used in one of FERC’s avoided cost pricing regulations, i.e., 18 CFR § 292.304(d)(2)(ii). The date a LEO is formed is the date a QF is entitled to have its avoided cost rate determined, if it so elects. Through the decades, state utility commissions have adopted a quite broad array of standards for when a QF has established a LEO with a purchasing electric utility. In providing non-binding guidance on the topic, FERC has had relatively little to say about the LEO standard other than that the purchasing utility cannot control LEO formation by its own action or inaction, such as a refusal to sign a contract. For example, FERC has opined that the LEO standard cannot depend on the willingness of the purchasing utility executing a contract with the QF, whether it be a power purchase agreement. In 2016, FERC expanded on that view, opining that a state may not require that a purchasing utility sign an interconnection agreement before a LEO is formed. In 2018, several states examined their LEO standards.
Early in the year, the Vermont Public Utility Commission upheld its rule that a LEO cannot be formed until regulatory approval of a proposed power purchase agreement by the Vermont PUC.
As a result of various legal actions, the Colorado Public Service Commission eventually changed its regulations to ensure that a QF could obtain a LEO without winning a competitive solicitation.
In a case before the Minnesota Public Utilities Commission, the state commission looked for a QF to have made a “substantial commitment” and found that one had been made (and a LEO formed) when a QF: (1) had paid for the Facility Study, which established how interconnection could be achieved, (2) had executed a Land Lease and Wind Easement, (3) had obtained necessary approvals from government entities, (4) had wind study results, (5) had reserved equipment, and (6) had filed the Complaint with the Commission. Continue Reading The Formation of Legally Enforceable Obligations: The Year in Review (2018)