trending Market Intelligence /marketintelligence/en/news-insights/trending/nrV6c9eT8nb2EF9bChVVBQ2 content esgSubNav
In This List

NARUC sees in newly reconstituted FERC a fresh opportunity for PURPA reform

S&P Capital IQ Pro | Powered by Expert Insights

Blog

Enterprises are missing out on 24B by not optimizing cloud spending not going multicloud

Blog

Essential Energy Insights - September 2021

Blog

Investment Research Analysts Providing Greater Coverage on Inflation


NARUC sees in newly reconstituted FERC a fresh opportunity for PURPA reform

The arguments raised and recommendations made in a recent letter from the National Association of Regulatory Utility Commissioners asking the Federal Energy Regulatory Commission to reform its policies implementing the Public Utility Regulatory Policies Act of 1978 are far from new.

But the composition of the agency on the receiving end of that request recently underwent a major overhaul, which apparently has given NARUC renewed hope that its pleas will result in quick action to address the law's "arcane, twentieth-century mandates."

The letter, dated Dec. 18 and signed by NARUC President John Betkoski III, said the organization is pleased that Commissioner Neil Chatterjee, while serving temporarily as the agency's chairman, said FERC would be "actively pursuing reform" of PURPA. "As the primary point of responsibility for PURPA's on-the-ground implementation, the states have a strong interest in the reform of PURPA's associated federal administrative regulations and we hope this reform will continue to be a priority under the leadership of Chairman [Kevin] McIntyre."

Along with Chatterjee, at least one other FERC member seems anxious to prioritize that reform. Commissioner Robert Powelson, who, prior to joining FERC, served as NARUC's president, posted a message on Twitter thanking "Team NARUC" for its "thoughtful letter."

"PURPA worked in 1978 during the oil embargo crisis," Powelson's tweet said. "Fast forward to today — the U.S. has gone from energy [scarcity] to real energy independence. That is why PURPA needs to be modernized to protect consumers."

Under PURPA, utilities must purchase excess output from cogeneration facilities and small power plants that run on renewable, biomass, waste or geothermal resources and have maximum capacity of 80 MW. FERC's rules implementing PURPA mandate that utilities buy power from qualifying facilities, or QFs, in their service territories at rates equal to what they would have to pay to buy that same power from other generators or produce it themselves.

Congress in 2005 amended the law so utilities could be exempted from the mandatory purchase obligation if they can show that QFs in their service territories have nondiscriminatory access to wholesale markets. In response, FERC established two rebuttable presumptions: QFs with more than 20 MW of net capacity and located within regions with sophisticated "Day-2" markets have nondiscriminatory access to those markets; and QFs at or below that size threshold do not have nondiscriminatory access to markets, regardless of where they are located.

Utilities generally have opposed PURPA since its inception, but recently their voices have been joined by others, including three Republican members of Congress who argued that the law largely has outlived its original purpose. After FERC scheduled a technical conference to address the issue, three Democratic lawmakers conversely said the original objectives of PURPA remain "as relevant today in some jurisdictions as they were" in 2005 and warned the agency not to narrow the law's scope any further.

More recently, the U.S. House of Representatives in September held a hearing during which electric utilities and renewable energy developers clashed over the need to reform or repeal PURPA.

For its part, NARUC has been vocal about its support for reforming PURPA. The group sent a letter to the Trump administration in January saying the law "needs to be modernized to reflect the nation's 21st century landscape."

But now, with three new Republican's installed at FERC — McIntyre, Chatterjee and Powelson all are members of that party — NARUC has renewed its call for the agency to overhaul its regulations implementing PURPA.

Betkoski said the rules need to be revised so they align with, rather than obstruct, four significant developments that have occurred since the law was enacted: the rise of wholesale power and capacity markets, the prevalence of QF technologies, the open access regulation of the transmission system, and the widespread use of competitive solicitation processes for selecting transmission projects.

NARUC accordingly suggested that FERC move away from using an administratively determined avoided cost and develop a process for basing QFs' compensation on the results of competitive solicitations or market clearing prices. The commission also should consider whether solicitations are "routinely held and genuinely competitive" when determining whether a QF has nondiscriminatory access to markets, NARUC said. Yet another reform proposed by the group would be to lower the 20-MW-or-less rebuttable presumption threshold, setting it at "whatever the minimum capacity requirement is for a resource to participate in" the organized markets.

Finally, NARUC said it supports changes to the one-mile rule, which specifies that generating facilities located one mile or more apart are considered separate facilities for QF eligibility purposes, to address the problem of developers disaggregating larger projects into several smaller ones that individually meet the size criteria for a QF.