Last week, FERC issued Order No. 872-A, its “further guidance order” on the PURPA Reform Final Rule. Appeals of Order No. 872 are pending at the Ninth Circuit, with the first appeal being held in abeyance until no later than early January 2021. Given the relatively few changes to the Final Rule, this order may close the relevant docket at FERC, for now. Whether some portions of the Final Rule will be remanded or even vacated is difficult to predict at this early stage, and may well depend on the judicial panel. Of the clarifications issued, only one was particularly significant – the affirmation of CARE v. CPUC on tiered avoided cost rates. Both that clarification and the few other changes and clarifications indicate that the degree to which the Final Rule will alter the PURPA landscape is largely dependent on state and FERC implementation of the new policies and regulations adopted. The clarifications/modifications adopted by FERC are discussed below.
Continue Reading FERC’s PURPA Reform Rule: Order No. 872-A’s Few Clarifications and Modifications Continue to Indicate that FERC and the States Will Have Significant Discretion in Implementing PURPA

Order No. 872 spends an inordinate number of pages discussing the wholly optional use by a state of Locational Marginal Prices (LMPs) for those QFs selling only as available energy in an RTO market. 18 C.F.R. § 292.304(b)(6). The reason this fuss is somewhat surprising is that most QFs (excluding net metered QFs) enter into

One very significant set of cases seems to have been overturned in Order No. 872, although more clarity could have been provided and a regulation is needed to make any reversal binding on the courts.

In 2010, in CPUC, FERC reversed 15 years of precedent and found that an avoided cost rate could be based on a subset of resources, as opposed to all resources. FERC, speaking permissively, said that a state with a renewable portfolio standard (RPS) may set an avoided cost rate foe renewables if the utility had not yet met the mandate. In short, the concept the tiered avoided costs was born. Several years later, the Ninth Circuit interpreted this permissive wording as mandatory, holding that if an RPS existed and a QF could meet that need, the avoided cost rate has to be based on only renewables.
Continue Reading PURPA Final Rule Post III – Were the Ninth Circuit’s CARE v. CPUC and FERC’s CPUC Decisions Overturned?

Because LSEs must still offer fixed capacity prices under Order No. 872, and given the trend in decreasing prices for renewables, the Final Rule’s impacts on LEO formation may actual be fairly significant, particularly in states viewed as hostile to QFs. In the Final Rule, FERC adopted a “minimum standard” for LEOs, amending its regulations to provide that: “A qualifying facility must demonstrate commercial viability and financial commitment to construct its facility pursuant to criteria determined by the state regulatory authority or nonregulated electric utility as a prerequisite to a qualifying facility obtaining a legally enforceable obligation. Such criteria must be objective and reasonable.” 18 C.F.R. § 292.304(d)(3).

FERC provided examples of factors a state could reasonably require a QF to demonstrate: (1) taking meaningful steps to obtain site control adequate to commence construction of the project at the proposed location and (2) filing an interconnection application with the appropriate entity. A state could also require that the QF show that it has submitted all applications, including filing fees, to obtain all necessary local permitting and zoning approvals. FERC also ruled that obtaining a PPA or financing cannot be required. Also not permitted are requirements that: a utility execute an interconnection agreement (or likely any agreement at all); a QF file a formal complaint with the state commission; the QF being capable of supplying firm power; and, the QF being able to deliver power in 90 days.
Continue Reading PURPA Final Rule Post II – LEOs, the Texas Lion Has Been Tamed and Other Impacts

In Post I, we explore the three “big” issues that the Final Rule highlights at Paragraphs 13-20 – the (potential) reduction of the 20 MW cap to a 5 MW cap for renewables as to the must-purchase obligation on utilities in organized markets; changes to the one-mile rule; and, the holding that for QFs selecting that a price be fixed at the time of its legally enforceable obligation (LEO), the energy price need no longer be fixed over the contract term. As discussed below, the impact of cap reduction to 5 MW may turn heavily on future case law, and may not prove highly significant if FERC finds specific barriers to participation. LSEs are going to need to carefully make their cases for a cap reduction in responding to protests, particularly if a change in Administration occurs before their new petitions are filed. As to the one-mile rule, this change may prove more significant due to the frequency with which the same FERC test is used for other purposes. Finally, the “new” rule on states being permitted to adopt non-fixed energy prices in otherwise fixed-rate contracts is not particularly new at all.
Continue Reading PURPA Final Rule Post I – Which of FERC’s Resolutions of the “Big Three Issues” Is Most Significant?

Order No. 872 probably deviated more in favor of QFs, from the highly controversial NOPR that spawned it, than some expected. Nonetheless, it still will trigger a deluge of rehearing requests largely from environmental, public policy, and QF interests. The degree to which load serving entities (LSEs) and some states, including Texas in particular, push

Admittedly, it is odd for a PURPA blog to take a month to publish on the PURPA NOPR. But, it took some thought to determine what the NOPR really means to the industry. (The author’s 10-day October vacation had nothing to do with the delay.) In any case, this blog is not for the purpose of summarizing the NOPR; plenty of summaries abound across the internet. The purpose of this posting is to consider what will be the impact of the Final Rule, assuming that it changes very little from the NOPR. Despite the two primary reactions – extensive hand-wringing and substantial glee – the impacts likely will not be very profound, nor does the NOPR diverge from any Congressional mandate reflected in PURPA.

Prior to discussing the potential impacts of PURPA reform, we briefly examine the legality of FERC’s actions. We must start with the premise that Congress did not enact PURPA to encourage QFs. That oft-repeated mantra is false. Congress enacted PURPA to encourage those QFs that could sell power while being paid an avoided cost rate. And, we also must remember that in 2005, Congress indicated QFs with access to certain markets no longer needed to be supported by the PURPA purchase mandate. Congress did not say anything about 20 MW QFs, 1 MW QFs, or any other size QFs. Congress never said a thing in PURPA about avoided cost rates being fixed, formulaic, market-based, or taking any other particular form. Finally, PURPA is silent on legally enforceable obligations (LEOs) establishing a date for fixing the avoided costs rate, for the simple reason PURPA never required a fixed rate to begin with. In short, the NOPR does not appear to violate Congress’ intent; rather, it changes FERC’s implementation of PURPA, which of course could be changed back by a future Commission.

With that background, the discussion below explains why some of the key NOPR proposals are not all that impactful. Some proposals simply address court precedent with which FERC disagrees. Other changes, if adopted, may have little impact, as states adopt programs that effectively undo the changes proposed.
Continue Reading PURPA NOPR: Why All the Fuss?

In 2017, a California federal district held in Winding Creek v. CPUC that the California Public Utilities Commission (CPUC) had two PURPA problems: 1) its capped PURPA program entitled “Re-MAT” did not adopt an avoided-cost price because of its adjustment mechanism scheme; and 2) the CPUC’s standard PURPA contract (Standard Contract) failed to properly implement PURPA because the contract had only one, not two, pricing options. As a result, the court found that the cap on the Re-MAT program was improper. The district court found that the Standard Contract would need to provide a fixed price at the time of contracting and at delivery to satisfy FERC’s PURPA regulations. The district court also held that it was not its job to fix the Re-MAT pricing problem by setting an avoided cost price or requiring the purchasing utility to provide a contract at the “unadjusted” price demanded by the QF. Both sides appealed.

Yesterday, the Ninth Circuit ruled that the district court was correct as to all its findings. Perhaps of most importance, the Ninth Circuit concluded that a formula rate could not satisfy the requirement of 18 C.F.R. § 292.304(d)(2)(ii) of a price set at the time of contracting (i.e., when a legally enforceable obligation (LEO) is formed). It stated, that the “Standard Contract provides only one formula for calculating avoided cost, and that formula relies on variables that are unknown at the time of contracting.” Indeed, it found this “infirmity is plain from the face of the regulations, so we do not defer to FERC’s unreasoned conclusion to the contrary.”
Continue Reading Ninth Circuit Affirms Winding Creek: Formula Rates Do Not Satisfy Price Set at Time of LEO