Overview
In our series of posts on the need for PURPA reform targeted at the Allco decision, we identified Congress as one avenue of reform. Although the Congressional path to success may be arduous, the journey has begun. On May 3, 2018, Senators John Barrasso (R-WY) and James Risch (R-ID) introduced the “Updating Purchase Obligations to Deploy Affordable Resources to Energy Markets Under PURPA Act” (“UPDATE PURPA Act”). Although the UPDATE PURPA Act is quite broad in scope and will undoubtedly prove controversial, unlike Rep. Walberg’s (R-MI) PURPA Modernization Act of 2017, the new bill directly addresses 18 C.F.R. Section 292.304(d)(2)(ii) (as to renewable (small power production) qualifying facilities (QFs)) by requiring that Section 292.304(d)(2) be amended to provide that “a legally enforceable obligation for the delivery of electric energy or capacity from a qualifying small power production facility shall not require any electric utility to purchase energy or capacity from a qualifying small power production facility at a rate that exceeds the incremental cost of the electric utility of alternative electric energy or capacity, as calculated at the time of delivery.” In short, the bill effectively eliminates the requirement for a utility to pay for energy and capacity at a price other than the price at the time of delivery, eliminating the price risk for both buyers and sellers alike inherent in long-term contracts.
Given that the more modest reforms of the PURPA Modernization Act of 2017 have not been enacted (well over a year after introduction), FERC could speed the journey to “fix” Allco, by introducing a rulemaking that clarifies that rates set at the time of a legally-enforceable obligation can be formula rates. Even if such relief is later superseded by more comprehensive PURPA reform, this reform should be adopted sooner rather than later to stem litigation. Certainly, broader reform by FERC would be welcome by the utility industry, but reform of 18 C.F.R. Section 292.304(d)(2)(ii) is a priority reform.
The $64,000 question is whether FERC will be emboldened to act by the introduction of this legislation. When the FERC commissioners testified (see discussion at 2:45) on April 17, 2018 before the energy subcommittee of the U.S. House of Representatives’ Committee on Energy and Commerce, the Commissioners recognized their ability to act, but appeared to vary in their appetite for broad reform absent Congressional action. That said, the current Commissioners seemed more receptive to broad PURPA reform than their predecessors. After seemingly being open to PURPA reform, in September 2016, FERC disappointed many utilities by issuing a highly-limited request for comments that indicated a major overhaul of PURPA was not being considered at such time. (Comments were requested by FERC only on QF spacing (the one-mile rule) and minimum standards for QFs eligible for standard contracts.)
