FERC Modernizes PURPA Rules

Overview

On July 16, 2020, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 872 revising its regulations governing qualifying small power producers and cogenerators (“qualifying facilities” or “QFs”) under the Public Utility Regulatory Policies Act of 1978 (“PURPA”).  Congress enacted PURPA to reduce the country’s dependence on traditional fossil fuels by encouraging development of small power production and cogeneration facilities.  In the years since PURPA’s enactment, there have been minimal changes to the PURPA framework, and the modifications set forth the final rule are intended to address the dramatic shifts that have taken place in the nation’s energy landscape.

The final rule maintains longstanding provisions designed to encourage QF development, including those requiring utilities to provide backup electric energy on a non-discriminatory basis and to interconnect with QFs.  However, the changes are significant and will have major implications for behind the meter generation resources, QFs, investors and utilities. The reforms adopted by FERC generally track the array of improvements that have been sought by the utility industry and have been opposed by the renewable development sector.  

Significant Changes

Among the notable changes to PURPA are the following: 

1. Rates: The final rule empowers states by granting additional flexibility to set avoided cost rates for sales by QFs to local utilities and grants states the ability to design the rates for energy (rather than for generating capacity) to change throughout the life of a QF contract based on changing needs and power system conditions.
2. One-Mile Rule:  FERC has also modified “one-mile rule” to add (a) a rebuttable presumption that affiliate facilities more than one mile apart but less than 10 miles apart are separate facilities; and (b) an irrefutable presumption that facilities located 10 miles or more apart are separate facilities.  This issue has become important given the broad areas covered by wind and solar generation facilities and relates to the maximum size specifications for a facility to be designated a QF.
3. Self-Certification: FERC revised its procedures regarding how utilities that may be required to enter purchase contracts for QF output can challenge the certification of a new or modified QF, eliminating the need to file a petition for declaratory order and the associated $30,000 filing fee.
4. Obligation to Purchase: The final rule revises the base threshold for termination of a local utility’s obligation to purchase from a QF due to the QF having nondiscriminatory access to organized regional power markets.  The old approach was that QFs less than 20 MWs were presumed to lack such access.  The new size for this presumption is 5 MW for small power production facilities (but not cogeneration facilities).
5. Legally Enforceable Obligations:  The final rule directs states to develop “objective and reasonable” criteria to determine whether a QF is entitled to a contract or legally enforceable obligation (“LEO”) (i.e., has a right to “put” output on the local utility or cause the local utility to interconnect and deliver power elsewhere).   

Impact on Existing Contracts and Obligations

The changes in the final rule are effective prospectively for new contracts or LEOs and for new facility certifications and recertifications filed on or after the effective date of the final rule (120 days following its publication in the Federal Register).  FERC specifically noted that the final rule does not permit disturbance of existing contracts. 

Responding to a specific inquiry regarding supply contracts with a QF between 5 MW and 20 MW in organized markets, the Commission stated that, with regard to any such contracts, the final rule “preserves the rights or remedies of any party under existing contracts or obligations, in effect or pending approval before the appropriate state regulatory authority or non-regulated electric utility” on or before 120 days after its publication in the Federal Register. The Commission clarified that the term “obligations” was used broadly to encompass any existing legally enforceable obligation that was held before the rule, notwithstanding the absence of a contract.