Forty years after enactment: How will PURPA evolve?

Co-Authored By Andrea Sarmentero Garzón, Jennings Strouss

The Public Utility Regulatory Policies Act of 1978 (PURPA) was enacted Nov. 9, 1978, to promote energy conservation (reduce demand) and promote greater use (increase supply) of domestic energy and renewable energy resources in response to the 1973 energy crisis. Much has changed in the last 40 years, including the evolution of organized wholesale electricity markets and policies that promote competition through open access transmission service. Incentives, such as the federal investment and pro­duction tax credits, and mandates, such as renewable portfolio standards, have stimulated development of wind, solar and other renewable resources. This article discusses key issues arising in this new energy landscape and reforms that the U.S. Congress and the Federal Energy Regula­tory Commission are considering in order to bring PURPA current.

PURPA BACKGROUND

PURPA was intended to reduce depen­dence on petroleum fuels and increase electric reliability by forcing utilities to buy energy and capacity from certain qualifying facilities (QFs) at rates equivalent to the utility’s avoided costs (purchase obligation) and to sell supplementary, backup, mainte­nance and interruptible power to these QFs at just and reasonable rates (supply obligation). FERC, the states and the gov­erning bodies of “nonjurisdictional” utili­ties, such as municipalities, each play a role in implementing PURPA. FERC rules determine eligibility for QF status and pro­vide guidance applicable to avoided-cost determinations. State public utility com­missions govern the avoided-cost rates paid by the utilities they regulate and the related terms and conditions of power purchase contracts and interconnection agreements. Governing bodies of nonjurisdictional utilities have responsibilities similar to the state commissions.

Qualifying facilities are divided into two categories: small power production facilities and cogeneration facilities. Small power production facilities include hydro, wind, solar, biomass, waste and geothermal generating facilities that are 80 MW and smaller. All affiliated small power produc­tion facilities at the same site count toward the 80 MW limit. Under FERC’s “one-mile rule,” small power production facilities located more than one mile apart are con­sidered to be located at different sites. A cogeneration facility is a generating facility that produces both electricity and useful thermal energy (such as heat or steam) and meets certain requirements regarding effi­ciency, operations and disposition of the thermal output.

The Energy Policy Act of 2005 amen­ded PURPA to account for the prevalence of organized wholesale power markets in the U.S. These amendments and FERC’s implementing rules provide utilities exem­ptions from PURPA’s mandatory purchase and sale requirements under specified circumstances. Utilities may qualify for the exemption in the event QFs have nondis­criminatory access to organized markets, but FERC’s rules establish a rebuttable presumption that QFs 20 MW and smaller do not have such market access. The rele­vant markets include those operated by the regional transmission organizations (RTO) and independent system operators MISO, PJM, ISO New England, ERCOT, CAISO and SPP. A rebuttable presumption that QFs larger than 20 MW have the requisite market access applies in some cases, and member utilities may seek to be excused from their purchase and supply obligations in all of these markets and potentially elsewhere.

LEGISLATIVE REFORM

Legislative initiatives to reform PURPA were undertaken in the Republi­can-controlled 115th Congress, but they failed to get traction. On April 26, 2018, U.S. Sens. John Barrasso (R-Wyo.) and James Risch (R-Idaho) introduced legisla­tion intended to modernize PURPA. Sen­ate bill S. 2776, the Updating Purchase Obligations to Deploy Affordable Resources to Energy Markets Under PURPA Act (Update PURPA Act), was referred to the Senate Committee on Energy and Natural Resources and stalled there.

The proposed reforms included:

  • requiring FERC to establish minimum reliability standards for QFs;
  • expanding the types of markets under­lying the market access test that may excuse utilities from their purchase and supply obligations;
  • lowering the 20 MW threshold that applies to the rebuttable presumption of market access to 2.5 MW;
  • providing an exemption from the must-purchase obligation if the state regula­tor or nonjurisdictional utility determines that electric energy from the QF is not needed; and
  • making the one-mile rule a rebuttable presumption, such that QF projects farther apart than one mile could be combined for purposes of applying the 80 MW limit if certain specified factors exist.

The Senate bill expanded on the issues addressed in H.R. 4476, which Rep. Tim Walberg (R-Mich.) had introduced in the House Nov. 29, 2017, and has indi­cated that he may reintroduce this year. Bipartisan collaboration has been observed recently within the Senate Committee on Energy and Natural Resources, but it remains to be seen whether progress on PURPA reform will be made in the divided 116th Congress.

MOMENTUM TOWARD REFORM AT FERC

FERC held a technical conference June 29, 2016, to address two issues: (1) the mandatory purchase obligation under PURPA and (2) the determination of avoided costs for those purchases. Discussion of the mandatory purchase obligation addressed application of the one-mile rule, the rebuttable presump­tion that QFs 20 MW and smaller do not have nondiscriminatory access to com­petitive organized markets, curtailment of QFs, interconnections and contracting practices. Topics related to establishing the avoided-cost rate included the strengths and weaknesses of the various methodologies used to estimate avoided costs, potential improvements in pricing methodologies, and the role of wholesale market revenues in developing avoided-cost rates.

No deadline applies to any FERC action that may follow from the technical conference. In its May 17, 2018, open meeting, however, the commission an­nounced that it would review its PURPA implementation rules. FERC has not pub­licly taken any significant action since then. Chairman Neil Chatterjee explained in October 2018 that the process is still in its early stages and that FERC staff is develop­ing a memorandum outlining options for the commission’s consideration.

The National Association of Regulatory Utility Commissioners (NARUC) issued a paper Oct. 11, 2018, asking FERC to reform its PURPA regulations to allow competitive mechanisms to replace administrative price forecasts, whether within RTOs or in other markets. Imple­mentation of PURPA by the states has been inconsistent, and both environmen­talists and developers have complained to FERC about restrictive state practices. On Feb. 4, 2019, Edison Electric Institute (EEI) filed a motion to lodge in the commis-sion’s PURPA reform docket its comments from various pending QF cases. EEI seeks a comprehensive review of FERC’s PURPA regulations as an alternative to the com-mission’s practice of making wide-reach­ing policy decisions serially through indi­vidual cases. The American Public Power Association and the National Rural Electric Cooperative Association filed comments in support of EEI’s request.

KEY PURPA ISSUES

The NARUC paper argues that PURPA has worked against competitive outcomes in certain cases. NARUC describes circum­stances where states required utilities to use competitive acquisition processes to meet renewable resource targets, and the losing parties nevertheless sought to impose a purchase obligation under PURPA. Further, NARUC observed, devel­opers may attempt to sell energy under PURPA even when customer load growth is modest, flat or declining. These circum­stances underpin NARUC’s request that FERC allow utilities – particularly those in areas outside of RTOs – to obtain an exemption from the must-purchase requirement by conducting competitive solicitations for QF output in processes regulated by the state commissions and consistent with energy and capacity needs identified in the utility’s integrated resource plan.

The comments that EEI submitted identify a number of specific concerns. EEI has described PURPA as a “cooperative federalism statute” and argued that, therefore, FERC should respect certain PURPA implementation decisions made by state utility commissions, including a determination by the Idaho commission that a battery storage project powered by solar energy was in fact a solar QF. In another proceeding, EEI suggested that 40 MW of battery storage added to an 80 MW wind facility should be treated as exceeding the 80 MW small power pro­duction facility limit. In a case where a solar developer sought exemption from QF certification requirements for aggregations of small solar systems, EEI urged the commission to defer action until the underlying issues could be addressed in a broader proceed­ing. Similarly, EEI encouraged the commis­sion to address in a broader proceeding an electric utility’s request for a determination that states have authority to set avoided-cost rates at zero if the electric utility does not need capacity or energy from the QF. EEI took the same position on the appropri­ate forum for addressing a state commission’s authority to define the circumstances in which a legally enforceable obligation to purchase from the QF is created.

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