The Federal Energy Regulatory Commission (FERC) finalized a long-awaited rule revising regulations that govern qualifying small power producers and cogenerators under the Public Utility Regulatory Policies Act of 1978 (PURPA). While FERC said the rule was necessary to respond to significant market changes, the action drew mixed reactions from industry.
FERC’s final rule issued on July 17 is the first major change to regulations it issued in 1980 under the pivotal law, which most experts agree has spurred the growth of smaller generators and played a major role in reshaping power sector business models.
While Congress enacted PURPA to reduce U.S. dependence on oil and natural gas, and encourage the development of alternative generation, including cogeneration and small-scale renewable generation, FERC has long-discussed updating its regulations under PURPA because it says the energy industry has since undergone many significant changes.
“It’s been my view from the start that FERC should modernize our regulations in ways that not only meet our statutory obligations, but also protect consumers and preserve competition,” said FERC Chairman Neil Chatterjee. “Today’s rule accomplishes those goals. We will continue to encourage QF [Qualifying Facility] development while addressing concerns about how PURPA works in today’s electric markets.”
A Rule for Modern Markets
The action on Thursday comes nearly four years after the federal regulatory body took its first steps toward reforming PURPA regulations in 2016, holding a technical conference in Docket No. AD16-16-000 to address PURPA implementation issues. The final rule, which will take effect within 120 days, largely adopts measures proposed last September.
Among its key revisions are that it grants additional flexibility to state regulatory authorities in establishing avoided cost rates for QF sales inside and outside of the organized electric markets. The final rule also grants states the ability to require energy rates (but not capacity rates) to vary during the life of a QF contract.
FERC also modified the “one-mile rule” and reduced the rebuttable presumption for “nondiscriminatory access” to power markets—from 20 MW to 5 MW—for small power production but not cogeneration facilities. Finally, in order for a QF to establish a legally enforceable obligation, the final rule requires that the QFs must demonstrate commercial viability and financial commitment to build under objective and reasonable state-determined criteria.
As FERC noted in a statement on Thursday, the final rule does not change other elements of the Commission’s existing PURPA regulations that encourage QF development. These include regulations “requiring electric utilities to provide backup electric energy to QFs on a non-discriminatory basis and at just and reasonable rates; requiring electric utilities to interconnect with QFs; and providing exemptions to QFs from many provisions of the Federal Power Act and state laws governing utility rates and financial organization.”
FERC on Thursday also published a fact sheet summarizing key aspects of the revised regulations.
EEI, APPA, NRECA Applaud Final Rule
The final rule prompted several immediate reactions from industry.
The Edison Electric Institute (EEI), the American Public Power Association (APPA), and the National Rural Electric Cooperative Association (NRECA)—trade groups that represent, respectively, all U.S. investor-owned electric companies, public power entities, and consumer-owned electric cooperatives—issued a joint statement lauding the rule. The 1978 law, the groups noted, requires investor-owned electric companies, public power utilities, and electric cooperatives to purchase energy from QFs at prices that often exceed the market. Reforming the law was “long overdue and had bipartisan support.”
EEI President Tom Kuhn said that PURPA provisions had cost customers “billions of dollars in excess energy costs” because they “allowed well-financed big developers to lock in guaranteed long-term, inflexible contracts at the expense of other more-competitive and cost-efficient renewable energy projects.” The updated rules will help “ensure that renewable energy can continue to grow without forcing electricity customers to pay a premium to the developers that learned how to game the system,” he said.
NRECA CEO Jim Matheson said the action will enable electric cooperatives “to continue developing renewable resources with a focus on their consumer-members instead of an outdated policy.” He added: “I applaud FERC for taking this action which rightfully prioritizes innovation, affordability, and reliability. The Commission has struck the right balance between supporting alternative energy development and acknowledging the importance of flexible implementation by state and local regulatory authorities.”
APPA President and CEO Joy Ditto noted the energy industry landscape had changed dramatically since 1980. “We’ve seen fundamental changes to how electricity is generated—especially pertaining to the growth of renewable resources and the emergence of new technologies. And we’ve also seen greater reliance—especially for public power utilities—on competitive wholesale markets. FERC appropriately recognizes the need to modernize PURPA to reflect these changes.”
Mixed Reactions from Solar, Environmental Groups
Some renewables and environmental groups weren’t entirely happy with the action, however. Katherine Gensler, vice president of regulatory affairs for the Solar Energy Industries Association (SEIA) said: “While we are glad to see FERC include elements of SEIA’s proposals, the overall rule changes approved today will undermine the stated intention of the PURPA statute and stifle competition, allowing utilities to strengthen their monopolies and raise costs for customers.” Gensler suggested SEIA will continue advocating for reforms that “strengthen PURPA and allow solar to compete nationwide.”
Tom Rutigliano, an advocate in the Sustainable FERC Project, an initiative at the International nonprofit environmental organization Natural Resources Defense Council (NRDC), said the measure threatens to undercut small wind, solar, and other clean energy sources. “This order runs counter to the purpose of the law. Instead of promoting small, clean generation, FERC is undercutting the ability of solar and wind power to get a fair chance to compete,” he said. The action will be especially detrimental to smaller generators, such as “[h]omeowners putting solar panels on their roof, farmers leasing their land to wind turbines, and industrial facilities.” But Rutigliano went farther, claiming FERC is “pushing the nation to use more fossil fuels just when it should be doing everything it can to support clean power.” However, he added: “FERC did one thing right today in rejecting the outrageous petition that would have upended the ability of rooftop solar owners to get a fair price for the excess electricity they generate.”