In its PURPA Reform Final Rule (Order No. 872), FERC mentioned the fact that the Idaho PUC had reduced the term of PURPA PPAs to two years (albeit there would be a perpetual new contractual obligation to purchase every two years). The Idaho PUC did so “based on its concern about fixed QF rates, and that the ability to require variable energy rates could lead to longer contract terms.” In fact, FERC mentioned this fact several times in Order No. 872, seemingly hoping that the PURPA reforms adopted would convince the Idaho PUC to permit longer terms for PURPA PPAs. FERC, however, never commenced an enforcement action against the Idaho PUC or opined in dicta that its two-year PPA term maximum was illegal. These facts render the recent dicta adopted in Magnolia Solar, LLC v. South Carolina Public Service Authority largely inscrutable.

There, Magnolia filed a petition for enforcement against Santee Cooper claiming that Santee Cooper was violating FERC’s PURPA regulations regarding a QF’s ability to form a legally enforceable obligation (LEO). Although FERC declined to initiate an enforcement action, FERC found that a LEO had been formed based on the facts: (1) Magnolia informed Santee Cooper that it was ready to “initiate next steps … for offtake/power sales” and Santee Cooper responded with a shell PPA; (2) the parties had discussions on numerous contractual terms and Magnolia moved forward on many critical steps for the project (i.e., lease agreements, zoning, required reports and studies, interconnection request, Form No. 556, obtaining financing); and (3) Santee Cooper provided a five-year avoided cost rate in a draft PPA and then Magnolia revised the draft for a 20-year avoided cost rate and submitted it to Santee Cooper.

The record was clear, however, that Santee Cooper would not negotiate PPA with a term of any greater length than five years. It had argued that there was no LEO because Magnolia refused to commit to any PPA with a term of only five years. Certainly, if the Idaho PUC can limit a PURPA PPA term to two years and face no FERC action in federal court, Santee Cooper, in its regulatory role, also should be allowed to limit PURPA PPAs to five years without any concern FERC would bring an enforcement action. Otherwise, FERC arguably would be acting discriminatorily. Thus, the import of the dicta in Magnolia Solar regarding the LEO seems somewhat meaningless.

Given FERC’s refusal to bring enforcement actions against state commissions or other “local” regulators based on maximum PURPA PPA term lengths, it is unclear why FERC decided to issue any dicta in this case, as it is obvious the parties are rather far apart as to their contract negotiations. Santee Cooper can readily avoid future civil litigation arising from the petition in this case, by agreeing to the LEO date. But, then Magnolia still has no ability to compel a PPA of a greater length than five years. And, if Magnolia went back to FERC claiming Santee Cooper’s PURPA implementation was illegal because the longest PPA it would offer is five years, it would effectively be raising an issue decided in Order No. 872, when FERC declined “to specify a minimum required contract length given that it is up to states to decide appropriate contract lengths in a way that accurately calculates avoided costs so as to meet all statutory requirements.” If FERC is unwilling to set a minimum PURPA PPA duration, Magnolia may face an uphill battle to convince a court to do so, whether in state court or through another enforcement petition, that likely would be denied in light of Order No. 872. Magnolia’s best hope may rest on an appellate order with regard to Order No. 872.