PURPA Reform

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In a recent article, the well-respected Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School Environmental and Energy Law Program, was quoted as saying that FERC does not have the authority to rewrite the goal of encouraging the development of qualifying facilities (QFs) because “[t]hat goal is embedded in the law.” PURPA Section 210(a) requires FERC to set rules “as it determines necessary” to encourage QFs. In other words, FERC, led by Chairman Kevin McIntyre, has significant discretion to determine what rules are necessary to encourage QFs beyond the basic purchase/sale obligation, as modified by the Energy Policy Act of 2005. QFs may be sufficiently encouraged by policies such as state renewable portfolio standards, state greenhouse gas reduction targets, net energy metering programs, community solar, and the like, such that FERC could find certain existing regulations and policies are no longer necessary or that new policies and regulations are merited.

A comparison of whether FERC could adopt all of the reforms that Senators Barrasso and Risch are proposing in their UPDATE PURPA Act (S. 2776) demonstrates the breadth of the power of FERC’s authority. Of course, changes to FERC PURPA regulations and policies can readily be “undone” by a new Commission, but legislative reform also can be reversed by a new Congress, and may be harder to achieve in the first place. …
Continue Reading The UPDATE PURPA Act: What Could Kevin (McIntyre) Do?

In our series of posts on the need for PURPA reform targeted at the Allco decision, we identified Congress as one avenue of reform. Although the Congressional path to success may be arduous, the journey has begun. On May 3, 2018, Senators John Barrasso (R-WY) and James Risch (R-ID) introduced the “Updating Purchase Obligations to Deploy Affordable Resources to Energy Markets Under PURPA Act” (“UPDATE PURPA Act”). Although the UPDATE PURPA Act is quite broad in scope and will undoubtedly prove controversial, unlike Rep. Walberg’s (R-MI) PURPA Modernization Act of 2017, the new bill directly addresses 18 C.F.R. Section 292.304(d)(2)(ii) (as to renewable (small power production) qualifying facilities (QFs)) by requiring that Section 292.304(d)(2) be amended to provide that “a legally enforceable obligation for the delivery of electric energy or capacity from a qualifying small power production facility shall not require any electric utility to purchase energy or capacity from a qualifying small power production facility at a rate that exceeds the incremental cost of the electric utility of alternative electric energy or capacity, as calculated at the time of delivery.” In short, the bill effectively eliminates the requirement for a utility to pay for energy and capacity at a price other than the price at the time of delivery, eliminating the price risk for both buyers and sellers alike inherent in long-term contracts.

Given that the more modest reforms of the PURPA Modernization Act of 2017 have not been enacted (well over a year after introduction), FERC could speed the journey to “fix” Allco, by introducing a rulemaking that clarifies that rates set at the time of a legally-enforceable obligation can be formula rates. Even if such relief is later superseded by more comprehensive PURPA reform, this reform should be adopted sooner rather than later to stem litigation. Certainly, broader reform by FERC would be welcome by the utility industry, but reform of 18 C.F.R. Section 292.304(d)(2)(ii) is a priority reform.…
Continue Reading Some in Congress Are Ready to Address Allco – Are the FERC Commissioners Willing to Join Them?

The finding in the Allco decision – that 18 C.F.R. Section 292.304(d)(2)(ii) does not permit a utility to impose a formula rate on a QF (see Part I) – should and can readily be eliminated, even if the decision has had only a limited impact to date, as discussed in Part II of this series.

The strongest fix would come from Congress, but whether or not Congress takes action, FERC is free to re-write its regulations to specifically state that a formula rate does meet the requirement. Indeed, FERC is free to eliminate the regulation altogether, as the regulation (in its current form) is not mandated by Congress’ PURPA legislation. All PURPA requires is that the rate for purchases be at avoided cost. A rulemaking on this subject is certainly a possible course of action, whether initiated by state commissions, utilities, or FERC itself. Calls for reform already have been submitted to FERC, and there is little reason for FERC to ignore such calls.

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Continue Reading PURPA Rates Set at Time of Obligation Part III: Who Will Heed Calls for Reform?

The Allco court’s prohibition on the use of formula rates to satisfy 18 C.F.R. § 292.304(d)(2)(ii), discussed in Part 1 of this series, has not yet had a widespread impact. As long as a state commission permits the utilities that it regulates to negotiate fixed-price (non-formulaic) contracts, the Allco decision should not have a meaningful impact, absent a utility absolutely refusing to entertain any non-formula rate. Only where a state policy, rule, or regulation prohibits a non-formula rate (or a utility refuses to negotiate a fixed rate), is litigation at FERC and the courts likely to ensue. Our expectation is that some additional litigation, attacking the use of formula rates in QF contracts, will continue to occur absent a change in the FERC regulation.

In response to the Massachusetts District Court finding that its PURPA rules were unlawful in the Allco case, the Massachusetts Department of Public Utilities (DPU) opened a new rulemaking docket in March 2017 (DPU 17-54). The DPU solicited comments on proposals for complying with the court’s order in Allco. Comments were received, but no action has yet been taken by the DPU in the docket. Thus, even in Massachusetts, the ultimate impact of Allco is uncertain.

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Continue Reading PURPA Rates Set at Time of Obligation Part II: Allco’s Impact Has Remained Somewhat Limited

FERC’s PURPA regulations contain a rather serious anachronism. In this three-part series, we identify the problem, as reflected in a federal district court decision (Part I); discuss its impacts to date, which have remained relatively minimal (Part II); and explore whether FERC-led PURPA reform is coming and/or what states can do without federal help (Part III).

FERC’s PURPA regulations state that a qualifying facility (QF) is entitled to a contract (i.e., a legally enforceable obligation) that provides it the option of selling energy or capacity at a rate based on a purchasing utility’s avoided cost calculated at the time of delivery, or the avoided cost calculated at the time the obligation is incurred. The meaning of the latter subsection – “avoided costs calculated at the time the obligation is incurred” – was addressed by a Massachusetts federal district court in 2016 (affirmed by the First Circuit in 2017). The court indicated that a formula rate did not constitute an avoided cost calculated at the time the obligation is incurred as required by the regulation. Such ruling means that QFs (at least in the First Circuit) are entitled to an absolutely fixed price per MWh for their energy. In an era of markets, competition, FERC’s own preference for formula rates, and reduced fuel price fluctuation risk, this view is anachronistic.

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Continue Reading PURPA Rates Set at Time of Obligation and the Need for Reform Part I: The Allco Decision on Formula Rates