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FERC moves to ease PURPA power purchase mandate

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FERC moves to ease PURPA power purchase mandate

A draft proposed rule the Federal Energy Regulatory Commission voted to approve Sept. 19 would sharply ease requirements for U.S. electric utilities to buy power from small renewable and cogeneration power plants.

The notice of proposed rulemaking follows years of consideration by FERC members on whether and how to update the Public Utility Regulatory Policies Act, or PURPA, given the increase in larger new wind and solar facilities in the past decade and the expansion of wholesale power markets since the law's development in 1978.

"A lot has changed since 1980," FERC Chairman Neil Chatterjee said. "We have seen tremendous technological advancements in renewables, increasing sophistication in competitive electric power markets, and abundant supplies of domestic natural gas. It's time to modernize the commission's implementation of PURPA to reflect those significant developments."

But the currently three-member commission was split on some aspects of the proposal. FERC's lone Democratic member, Richard Glick, dissented in part, saying significant portions of the proposal are "an attempt to administratively gut the statute." He also noted that the U.S. Congress recently considered, but ultimately did not pass, proposals aimed at easing PURPA's requirements.

"We're not allowed to stand in the way or get in the way of Congress' thinking on this just because industry hasn't had a good experience with the statute in certain states or because certain members of Congress are frustrated they haven't been able to achieve it legislatively," Glick said at the agency's Sept. 19 open monthly meeting. "That's not our system of government."

After Congress passed PURPA in 1978, FERC formed implementation rules requiring U.S. utilities to buy power from small renewable energy facilities of 80 MW or less or cogeneration facilities of any size. Rates for electricity from PURPA qualifying plants, or QFs, were to be set at the level of the utilities' avoided costs — what they would pay to buy the power from other sources or generate it themselves. And states were given the authority to come up with their own avoided cost calculation methodologies.

In response to the Energy Policy Act of 2005, FERC updated its PURPA rules. It established a rebuttable presumption that QFs larger than 20 MW in regions with auction-based, day-ahead and real‑time markets have nondiscriminatory access to those markets and, therefore, no longer need the protection of PURPA's mandatory purchase requirement. QFs with a net capacity of 20 MW or less were not considered to have nondiscriminatory access, meaning utilities must still buy power from those facilities.

Congress passed PURPA in response to oil supply shortages in the 1970s to boost reliance on domestic and alternative energy sources. But several utilities now argue that larger wind and solar facilities can be developed more economically than QFs and that PURPA forces them to buy unneeded power at above-market rates.

Some companies have also accused PURPA plant developers of abusing FERC's one-mile rule, which stipulates that plants located more than 1 mile apart are separate facilities for determining QF status even if they are under common ownership and use the same energy source. Critics of the rule say it allows an independent generator to disaggregate a large project that exceeds the 80-MW size limit for a renewable QF into several smaller ones that individually meet the size criteria.

Proposed updates

According to a staff presentation of the proposal during FERC's Sept. 19 monthly open meeting and a related fact sheet, FERC wants to make substantial changes to its PURPA rules. For instance, the existing rebuttable presumption that renewable power generators with a capacity of 20 MW or less lack nondiscriminatory access to wholesale markets would be sharply lowered to apply only to facilities with 1 MW or less. The 20-MW presumption for cogeneration facilities would remain unchanged, however.

FERC is also seeking to significantly alter its one-mile rule. The proposal would maintain an irrebuttable presumption that facilities located 1 mile or less apart are a single facility for determining QF status. But parties could show that affiliated plants located more than 1 mile apart but less than 10 miles from one another constitute a single facility. An irrebuttable presumption would presume that plants 10 miles or more apart are separate facilities.

The draft proposal would allow states to require energy rates (but not capacity rates) for QF contracts to vary based on a purchasing utility's avoided costs at the time the energy is delivered. States could maintain QFs' rights to fixed energy rates but base them on projected energy prices at the time of delivery.

In addition, states could set "as available" QF rates for facilities that sell power to utilities in organized wholesale markets at the locational marginal price in those areas. The shorter-term "as available" agreements could also apply to QFs selling power to utilities outside wholesale markets at "competitive prices from liquid market hubs" or at rates based on natural gas price indexes and heat rates, according to the fact sheet.

Furthermore, states could base energy and capacity rates for QFs on competitive solicitations, including requests for proposal, that are "conducted in a transparent and non-discriminatory manner," the fact sheet said.

Commissioners' comments

Republican FERC Commissioner Bernard McNamee said the proposal would protect consumers while continuing to encourage the development of alternative energy and cogeneration facilities. "The proposed rules will provide state utility regulators more flexibility to rely on market pricing when determining the rates utilities pay to qualifying facilities under PURPA, provide more transparency to interested stakeholders, and extend the benefits of competition to a greater number of consumers," McNamee said.

But in a vigorous partial dissent, Glick said PURPA's goals to expand competition in U.S. power markets and reduce reliance on fossil fuels "remain as relevant now as ever," and that the commission "has failed so far to show that certain aspects of its proposal satisfy our basic responsibilities under the law."

Glick was concerned with the proposal's call to allow utilities to eliminate fixed-price contract options for QFs, saying the change would "make it more difficult — or in some cases impossible — for QFs to obtain financing." He also questioned using locational marginal pricing or rates at liquid market hubs to measure avoided costs, saying that many regions of the country — particularly parts of the country with vertically integrated utilities — have not established competitive markets and do not provide nondiscriminatory access to such markets for independent generators.

Furthermore, the proposal "contains precious little justification" for lowering the 20-MW rebuttable presumption of nondiscriminatory access, Glick said. "It seems a stretch to suggest that a 1 MW resource can generally access and compete in markets as sophisticated and complex as, for example, PJM Interconnection, on a similar footing as the resources in the portfolio of a large vertically integrated utility or merchant power generator," he argued.

Glick supported some parts of the proposal, including the revisions to the one-mile rule. He also backed a proposed requirement for QFs to demonstrate commercial viability before securing a legally enforceable obligation with the purchasing utility and the proposal's call to allow stakeholders to protest self-certification of QFs without having to file and pay for a declaratory order, if they believe a resource does not qualify as a PURPA facility.

FERC will take comments on the proposal for 60 days after its publication in the Federal Register.

Power groups cheer, solar industry jeers

The proposal was applauded by power industry groups including the Edison Electric Institute, American Public Power Association and National Rural Electric Cooperative Association. "The bottom line is that non-competitively priced PURPA projects continue to be built today, forcing electric companies to buy power they often don't need at above-market prices and raising electricity prices for customers," EEI President Tom Kuhn said.

Duke Energy Corp., which leads U.S. generators in the amount of PURPA power it has under contract, also welcomed the development. "PURPA requires our customers to purchase energy at a premium from third parties that is not needed, resulting in unnecessarily higher bills," the company said in an emailed statement. "Accordingly, PURPA's modernization is long overdue, and Duke Energy applauds the commission for addressing this issue."

But the Solar Energy Industries Association was unhappy with FERC's move, with a roughly a third of U.S. solar photovoltaic capacity installations between 2008 and 2017 coming from PURPA QFs. "This proposed rule will have the effect of dampening competition and allowing utilities to strengthen their monopoly status," SEIA's vice president of regulatory affairs, Katherine Gensler, said. "The proposed rule is a move away from competition and we hope FERC rethinks the most harmful portions of this proposal." (FERC docket RM19-15)