Overview
A PURPA complaint before the Michigan PSC, accessible through the article Michigan Utility Under Fire For Alleged PURPA Violations, teaches a good lesson about words. The QF complainant (Greenwood Solar) stated that a utility (DTE): 1) has an obligation to buy capacity even if unneeded; and 2) needs to obtain a waiver from FERC in order to be absolved of the requirement to buy capacity. Indeed, in a fairly recent case cited by Greenwood Solar, FERC reiterated its regulation that specifically requires that a utility purchase any energy and capacity made available by a QF. PURPA regulations state that energy and capacity purchases are mandatory, but for the exemption for purchases from over 20 MW QFs that most utilities in organized markets have obtained. The complaint alleges that respondent DTE insisted that it had no obligation to purchase unneeded capacity from a QF. A close reading of FERC’s exact words on the topic supports Greenwood Solar’s contention that an obligation to purchase capacity exists, despite any need. Although this policy appears counterintuitive, the policy is logical when coupled with other words issued by FERC – that a utility that lacks a need for capacity may lawfully fulfill its purchase obligation by offering a QF a price for capacity of $0.00/MW.
In issuing Order No. 69 in 1980, FERC explained that “[a] qualifying facility may seek to have a utility purchase more energy or capacity than the utility requires to meet its total system load. In such a case, while the utility is legally obligated to purchase any energy or capacity provided by a qualifying facility, the purchase rate should only include payment for energy or capacity which the utility can use to meet its total system load.” Emphasis added. About two decades later, in Ketchikan, FERC elaborated that “there is no obligation under PURPA for a utility to pay for capacity that would displace its existing capacity arrangements.” It further explained that “an avoided cost rate need not include capacity unless the QF purchase will permit the purchasing utility to avoid building or buying future capacity. Thus, while utilities may have an obligation under PURPA to purchase from a QF, that obligation does not require a utility to pay for capacity that it does not need.” Emphasis added. More recently (2014), FERC stated of Ketchikan that there it had explained that avoided cost rates need not include the cost for capacity in the event that the utility’s demand for capacity is zero. “That is, when the demand for capacity is zero, the cost for capacity may also be zero.” Emphasis added.
Thus, the lesson about words: Given the specificity with which FERC has used its words, an obligation to purchase QF capacity and an obligation to pay a QF for the same capacity are two different obligations. When combined, FERC’s words constitute a sound policy.
