The Federal Energy Regulatory Commission (FERC) issued a sweeping Notice of Proposed Rulemaking (NOPR) proposing to dramatically reform its regulations that implement the Public Utility Regulatory Policies Act of 1978 (PURPA).  PURPA is the federal statute that created Qualifying Facilities (QFs) to promote greater use of domestic and renewable energy. FERC stated that the PURPA NOPR is needed to address changes in the electric industry since the passage of PURPA in 1978, such as abundant and inexpensive natural gas supplies, robust wholesale electric markets, significant amounts of independently-owned generation resources (including renewable resources), and open access transmission. The PURPA NOPR is in part based on the stated premise that “the majority of renewable resources in operation today do not rely on PURPA.”

FERC issued the NOPR at the first meeting following the departure of Commissioner Cheryl La Fleur.  With only three Commissioners remaining on the Commission, the NOPR was issued with a two-to-one vote. Commissioner Richard Glick, the only remaining Democrat on the Commission, issued a sharp dissent to the NOPR, stating that the proposed rule would “effectively gut” PURPA and undermine FERC’s responsibilities under the Act. He further stated that he believes that “the goals of PURPA – including the need to expand competition and reduce our reliance on fossil fuels – remain as relevant now as ever.”

At a high-level, the PURPA NOPR proposes to expand the authority of states over QF rates, further relieve the mandatory purchase obligation for electric utilities, expand the geographic area of the “one-mile rule” to up to ten miles, make legally enforceable obligations more difficult to obtain, and make self-certifications and self-re-certifications easier to challenge.

As to QF rates, it proposes to give states the authority:

• To eliminate the right of QFs to elect a fixed energy rate (but not capacity rate) for the term of a power sales contract, and to require variable QF rates based on the time energy is delivered;
• To allow QFs to have a fixed energy rate based on projected energy prices during the term of a QF’s contract based on the anticipated dates of delivery; and
• To set “as-available” QF energy rates for certain QFs, and to set energy and capacity rates pursuant to a competitive solicitation process.

As to the mandatory purchase obligation, it proposes that:

• An electric utility’s purchase obligation may be reduced to the extent that the electric utility’s supply obligation is reduced by a state retail choice program; and
• The rebuttable presumption that QFs with a net capacity of 20 MW or less do not have nondiscriminatory access to certain markets is reduced to 1 MW. This would apply to small power production facilities but not to cogeneration facilities.

With respect to the “one-mile rule,” the NOPR proposes to expand from one mile to up to ten miles the geographic area used to determine whether multiple generating facilities should be considered part of a single facility under various circumstances. In addition, before a QF is entitled to a PURPA contract or a legally enforceable obligation, a QF must demonstrate “commercial viability” and “financial commitment to construct.” Finally, the NOPR would allow a challenging party to protest QF certifications without being required to file and pay the costly fee for a petition for declaratory order (currently $28,990).

If adopted as a final rule, the biggest impacts will be felt in the elimination of the fixed-price contract option and the reduction in the 20 MW rebuttable presumption to 1 MW.

Currently, a QF has two options for determining an avoided cost rate for its output. A QF can sell energy on an “as-available” basis and receive an avoided cost rate calculated at the time of delivery. Alternatively, a QF can enter into a fixed term contract at an avoided cost rate calculated at the time the QF establishes a legally enforceable obligation or at the time of delivery.  In many cases, the fixed-term contract option is essential for a project to secure financing.

FERC initially created the 20 MW rebuttable presumption to acknowledge that QFs smaller than 20 MW may face more challenges than larger QFs in accessing competitive wholesale markets. Thus, for QFs below 20 MW, the utility seeking to terminate its mandatory purchase obligation had to overcome the presumption that the QF had insufficient access to the market. With the NOPR’s proposal to reduce the 20 MW threshold to 1 MW, most utilities will be relieved of most of the mandatory purchase obligation and it will be up to the small generator to overcome the presumption of access.

Interested parties can file comments on the PURPA NOPR through FERC’s eLibrary in Docket Nos. RM19-15 and AD16-16. Comments are due 60 days after publication of the PURPA NOPR in the Federal Register.