Overview
In a recent article, the well-respected Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School Environmental and Energy Law Program, was quoted as saying that FERC does not have the authority to rewrite the goal of encouraging the development of qualifying facilities (QFs) because “[t]hat goal is embedded in the law.” PURPA Section 210(a) requires FERC to set rules “as it determines necessary” to encourage QFs. In other words, FERC, led by Chairman Kevin McIntyre, has significant discretion to determine what rules are necessary to encourage QFs beyond the basic purchase/sale obligation, as modified by the Energy Policy Act of 2005. QFs may be sufficiently encouraged by policies such as state renewable portfolio standards, state greenhouse gas reduction targets, net energy metering programs, community solar, and the like, such that FERC could find certain existing regulations and policies are no longer necessary or that new policies and regulations are merited.
A comparison of whether FERC could adopt all of the reforms that Senators Barrasso and Risch are proposing in their UPDATE PURPA Act (S. 2776) demonstrates the breadth of the power of FERC’s authority. Of course, changes to FERC PURPA regulations and policies can readily be “undone” by a new Commission, but legislative reform also can be reversed by a new Congress, and may be harder to achieve in the first place.
| S. 2776’s Substantive Reforms | Could FERC Adopt Such Reforms? |
| Amend PURPA § 210(a) by adding subsection (2)(C)(ii). Clarifies that QFs are responsible for any costs needed to hold utility customers financially indifferent, including the costs of facilities and network upgrades associated with QF interconnection and transmission services. | Yes. FERC can amend 18 CFR §§ 292.101(b)(7) and .306 to better ensure all interconnection- and transmission-related costs are assigned to the QF or accounted for in the avoided cost rate. Although 18 CFR § 292.101(b)(7) and FERC case law already support this result, given state authority over some QF interconnections, the policy could be clarified further through a rulemaking. |
| Amend PURPA § 210(a) by adding subsection (2)(C)(iii). Allows curtailment of QFs to ensure resource adequacy. | Yes. 18 CFR §§ 292.307(b) and .304(f), which limit QF curtailments to very specific circumstances, could be amended, as necessary, to provide for an additional ground for curtailment. PURPA does not prohibit FERC from adopting regulations on QF curtailments. |
| Amend PURPA § 210(m)(1)(C) and add subsection 210(m)(1)(D). Allows for termination of purchase obligation for participants in an independent energy imbalance market (EIM) even if not an ISO/RTO member. Also eliminates from current Section 210(m)(C) the specific requirement of capacity markets that are comparable. Largely, the bill allows for termination of the purchase obligation where there are no organized capacity markets, as long as there is an EIM. | Yes. In Order No. 688 and precedent, FERC made it almost impossible to meet PURPA § 210(m)(1)(B) and (C), absent meeting PURPA § 201(m)(1)(A). FERC could reinterpret its own regulations through precedent (or issue a rulemaking) to achieve the same results as the bill. FERC would need to find that capacity and energy sales opportunities are available to QFs outside organized markets in order to alter its policy. |
| Add PURPA § 210(m)(8). Adds presumption that 2.5 MW QF has non-discriminatory market access. | Yes. The current rebuttable presumption that 20 MW or smaller QFs lack market access was a product of the Order No. 688 rulemaking. FERC regulations could be amended to implement a lower MW threshold or take similar actions such as lowering the threshold for QFs based on their affiliations (e.g., affiliated with other market participants, affiliated with companies of a certain market capitalization, etc.). A DER Aggregation Final Rule could provide additional support for such actions. |
| Add PURPA § 210(m)(9). Adds state-determined PURPA opt-out where the utility has no need to purchase from QFs, as determined by integrated resource planning (IRP) and/or IRP coupled with competitive procurement processes. | Yes. FERC already has a state opt-out provision in 18 CFR § 292.402. A rulemaking, policy statement, or even a case-specific order could be issued that achieves the same policy result as the bill by adopting a new standard for the existing state opt-out rule that mirrors the bill. |
| Require Amendment to FERC Rules Relating to the One-Mile Rule. The bill would require FERC to add significant detail to how it would determine if QFs were truly separate entities even if located more than one mile apart. | Yes. FERC could use a rulemaking (amending 18 CFR § 292.204) or issue a policy statement reflecting all of the suggested wording in the bill in order to avoid gaming the existing one-mile regulation. |
| Prohibit Minimum Contact Terms. The bill prohibits FERC from issuing rules, guidance, or orders that would require a minimum PURPA contract term. | Yes. FERC has confirmed that it has no stated policy on the mandatory length of PURPA contract terms, at least for under-100 kW standard contracts. However, in other cases, FERC has mentioned that contracts need to be of a length that permits financing. PURPA does not prohibit FERC from adopting regulations formalizing a policy that it will leave contract term lengths to the states. |
| Require Amendments Relating to Measurement of Incremental (Avoided) Cost. The bill requires FERC to amend 18 CFR § 292.304(d)(2) to require that the establishment of a legally-enforceable obligation (LEO) shall not in turn require a utility to pay a rate that exceeds incremental (avoided) cost, as calculated at time of delivery. | Yes. The concept of a LEO, and any requirement for fixed-cost rates being established at a time of the LEO, were all a product of a FERC rulemaking, not PURPA itself. PURPA does not prohibit FERC from changing 18 CFR § 292.304(d)(2). Grounds could include downward trends in electricity prices and new market structures. |
