NorthWestern Corp. has asked the Federal Energy Regulatory Commission to confirm that the Public Utility Regulatory Policies Act of 1978 does not require utilities to pay for power they cannot use.

Specifically, NorthWestern sought clarification that the avoided-cost rate it should have to pay Public Utility Regulatory Policies Act, or PURPA, qualifying facilities, or QFs, whenever it has excess generation that cannot be backed down should be zero and that "nothing in PURPA ... permits the establishment of a rate in excess of the utility's avoided cost."

According to the petition, a recent decision by Montana state regulators that NorthWestern must pay for QF-generated power it cannot use at an avoided cost rate set at the forecast market price for energy is based on a misinterpretation of FERC's PURPA regulations.

Under those regulations, utilities are required to buy power from QFs — renewable generators with capacity of 80 MW or less and cogeneration facilities of any size — in their service territories at rates reflecting what they would have to pay to buy that same power from other generators or produce it themselves.

While FERC is charged with implementing PURPA in general, the task of calculating avoided cost rates largely falls on state regulators. In this case, according to the filing, the Montana Public Service Commission determined that allowing NorthWestern to pay QFs in its service territory nothing for the power they produce, even if the utility cannot use that power, would be unduly discriminatory.

NorthWestern had proposed to pay QFs an avoided cost rate of zero whenever it has more energy than it needs but is unable to back down assets in its portfolio "due to provisions in partner contracts or reliability requirements that make the resources 'must-run.'" In such situations, the filing explained, NorthWestern must sell any excess energy into the market to ensure that its portfolio remains balanced with load, thereby incurring transaction costs, or risk being assessed penalties for violating certain reliability standards.

The Montana PSC, however, said FERC's Order 69 — the 1980 final rule that established the federal agency's regulations implementing PURPA — does not support NorthWestern's position that a utility's avoided cost is zero under such circumstances, the utility explained. That conclusion was based on the state regulators' erroneous interpretation of language in Order 69 stating that "at any given time, an economically dispatched utility can avoid operating its highest-cost units as a result of making a purchase from a qualifying facility," according to NorthWestern.

But the Montana PSC's interpretation, which essentially would mean that the QF must receive an avoided cost payment above zero as long as the utility is incurring some variable cost for energy, "is directly contrary to PURPA and Order 69, which require a utility to make payments to a QF when that QF allows the utility to 'avoid' costs," NorthWestern said. Moreover, FERC in Order 69 made clear that "a utility did not need to purchase energy from a QF that the utility cannot use to meet its total load," the filing added.

NorthWestern accordingly asked FERC to issue the requested declaratory order, noting that the Montana PSC indicated it could "change its mind" if the federal regulator clarifies the matter. (FERC docket EL19-3)