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FERC finds Mont. qualifying facility rules unlawful, opens door for court action

FERC on Dec. 15 determined that the Montana Public Service Commission and Northwestern Corp. failed to implement the Public Utility Regulatory Policies Act in a manner consistent with that statute and the agency's regulations.

However, the agency refused to initiate an enforcement action, which means the party that asked FERC to look into the matter, solar developer FLS Energy Inc, can take the dispute to the appropriate federal district court. And if it does, it can also take the clarifications FERC offered in the decision with it as ammunition.

FLS Energy had complained to FERC that the PSC violated PURPA when it determined that after June 16, solar qualifying facilities over 100 kW that failed to meet certain standards would not be eligible for the standard avoided cost rate the PSC established for qualifying facilities. In particular, the commission said a qualifying facility must have a completed facilities study or an executed interconnection agreement before a utility can be required to buy power from that facility pursuant to PURPA. FLS and its supporters claimed that the state requirements are illegal and undermine PURPA's mandate of encouraging small power production.

But the PSC, NorthWestern and the Montana Consumer Counsel separately shot back that the requirements are less onerous than the standards in other states and needed to protect Montana ratepayers from excessive costs.

The commission's Dec. 15 order found that the PSC's requirements of a facilities study or an interconnection agreement as a predicate for a legally enforceable obligation is inconsistent with PURPA and with the federal agency's regulations because the utility could act, or fail to act, in a way that prevents those milestones from being reached.

Such requirements allow the utility "to control whether and when a legally enforceable obligation exists — e.g., by delaying the facilities study or by delaying the tendering by the utility to the QF of an executable interconnection agreement. Thus, the Montana commission's legally enforceable obligation standard is inconsistent with PURPA and our regulations," FERC said.

FERC further explained that an electric utility must buy power from a qualifying facility when the facility makes a commitment to sell its power to that utility. A fully executed contract cannot be a condition to the creation of that legally enforceable obligation. Here, the requirement of an executed interconnection agreement "is no different than requiring a utility-signed contract before the QF can establish a legally enforceable obligation," the order said.

Bottom line, FERC said, is that when a state "limits the methods through which a legally enforceable obligation may be created to only a fully executed contract, the state's limitation is inconsistent with PURPA, and our regulations implementing PURPA."

FERC nevertheless can choose to exercise its enforcement authority, and declined to do so here. But the order said the agency wanted to clarify its position on the issues raised, which "can provide assistance to a court on the commission's thinking in the event that the petitioners decide to bring enforcement cases." (FERC docket EL17-5, et al.)