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?
Without having seen the new PURPA NOPR, two reforms discussed at the September 19 Open Meeting appear to be the most significant. First, is the ability of states to permit a floating (i.e., formula) energy rates in contracts, such as tying the energy price to market rates. If adopted, this change would reverse the various…
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
Over the last several weeks, a variety of entities have filed Petitions for Declaratory Order (PDO) or Enforcement Petitions relating to PURPA that may prove interesting to watch.
Sunrun asked FERC to make an exception for the need to self-certify (through Form 556) QFs under common ownership that total in aggregate more than 1 MW of capacity if all the QFs are located with one mile of one another, but only if such aggregation includes only QFs that are under 20 kW residential solar systems where the customer has a purchase option. (Sunrun often leases solar systems with an option to buy, thus its desire to avoid the complexities of trying to determine when the 1 MW minimum for self-certification is met.) This PDO may prove less controversial than some of the others recently filed.
Redlake Falls challenged a Minnesota PUC decision regarding what a utility’s avoided cost was at the time the legally-enforceable obligation (LEO) was formed, in a dispute that involves which rate proposed by various entities best represents avoided cost at the time the LEO was established. This is not the type of PURPA Enforcement case that FERC is likely to bring an enforcement action itself, but a request was made for a PDO, so some non-binding guidance may be issued.
The two-decade battle between the Swecker family and Midland Power Cooperative and its supplier (Central Iowa Power Cooperative) continues unabated. This case cannot been deemed controversial, as the very same PURPA arguments have now been made and rejected repeatedly by any number of venues. The most interesting issue to watch in the latest proceeding is whether Midland will finally obtain a suspension of the Sweckers’ rights to bring enforcement actions against Midland and CIPCO that raise the same avoided cost rate scheme.
Finally, in perhaps the most interesting case of the lot, NorthWestern petitioned FERC for a declaratory order determining that:
- in periods when a utility has excess generation and cannot back down its generation, the avoided cost paid by the utility for energy to QFs should be zero; and
- nothing in PURPA, including the rule against “non-discrimination” in pricing of avoided cost, permits setting a QF purchase rate above the utility’s avoided cost.
Supplemental Comments in Docket No. AD 16-16
In testimony before the Senate Energy and Natural Resources subcommittee as well as other venues, FERC Chairman McIntyre has made clear his desire to update PURPA, which has led to several entities submitting supplemental comments to FERC in Docket No. AD16-16. Supplemental comments have been filed by ELCON, et al., North American BioFuels LLC (BioFuels), EEI, and NARUC. Largely, these comments reiterate prior positions taken by these parties. EEI and NARUC continue to be focused on, among other issues, several areas of reform that would accrue to the benefit of utility purchasers (and presumably their ratepayers) such as competitively-determined avoided cost, the one-mile rule and other economy-of-scale issues, lowering the MW threshold for eliminating the must-purchase obligation. ELCON reinforced its position on standard contracts, FERC’s inappropriate focus on QF size, and the need for more public documentation on avoided cost.
Although the focus of these trade associations on a limited number of big picture issues is understandable, the reality is that FERC’s PURPA regulations could use an even more comprehensive overhaul. For example, a good start would be for the Commission’s PURPA regulations to assume that open access exists, to reconcile (or reconsider) the Commission’s “better than firm” transmission policy for QFs with the reality of the terms of open access tariffs, and to codify the FP&L policy on interconnection jurisdiction. If fast action is desired, two separate rulemakings could be opened: 1) a narrow rulemaking to deal with more pressing issues; and 2) a rulemaking that is broader in scope and focuses on eliminating the vestiges of the 1970s vintage FERC PURPA regulations and case precedent set in the 1980s.
In contrast to the trade associations discussed above, BioFuels, is seeking to solve a particular problem that arose when FERC issued Order No. 671 and Order No. 732 which together require QFs over 1 MW to file self-certifications through Form 556. In its most recent set of supplemental comments, BioFuels is asking FERC to: 1) provide an amnesty period for QF-eligible entities that do not have a Form 556 on file in order to allow them to get into compliance; 2) require that a purchasing utility has received a Form 556 or the equivalent before a power purchase agreement (PPA) becomes effective or a purchase is initiated; 3) require that a purchasing utility not purchase energy from a QF without having received Form 556 or the equivalent; 4) place an obligation on the purchasing utility to provide FERC a copy of any PPA with a QF (whether or not the PPA is entered into pursuant to PURPA) and documentation that the purchase is from a QF; 5) impose possible penalties (albeit under 15 U.S.C. § 797, rather than the Federal Power Act) on purchasing utilities for violation of this last regulations; and/or 6) simplify Form 556 by creating a small power production-specific form.…
Continue Reading PURPA – Update on Docket No. AD16-16 and Other FERC PURPA Developments