Energy Law Alert: New FERC Order Weakens PURPA's QF "Must Buy" Provisions

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On October 20th, FERC issued an order modifying the obligations of electric utilities to purchase power from qualifying facilities (QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA).

Under PURPA, investor-owned utilities are required to purchase power produced by QF facilities at the utilities' "avoided cost." The 2005 Energy Policy Act (2005 EPAct), however, allows FERC to weaken QF protections by exempting certain electric utilities from the QF "must buy" obligation, if FERC finds that the QF has nondiscriminatory access to one of three wholesale markets described in 2005 EPAct. These markets are (i) auction-based real-time markets (also known as "Day 1" markets), (ii) auction-based day-ahead markets (also known as a "Day 2" markets); and (iii) comparable competitive markets.

In its order, FERC creates the following major rebuttable presumptions:

  1. Small QF presumption. If a QF has a net capacity no greater than 20 MW, FERC rebuttably presumes that the QF does not have nondiscriminatory access to wholesale markets, and the "must buy" obligation thus remains.
  2. Nondiscriminatory access presumption. FERC rebuttably presumes that the QF does have "nondiscriminatory access to" the relevant wholesale markets and that the utility thus will have no "must buy" obligation if the following conditions are present: (i) the QF is larger than 20 MW, (ii) any of the above three competitive markets are present, and (iii) the utility has filed an open access transmission tariff (OATT).
  3. RTO/ERCOT presumptions. For QFs larger than 20 MW, if the utility is a member of the Midwest ISO, PJM, ISO-NE, ERCOT, or NYISO, FERC rebuttably presumes that the QF does have "nondiscriminatory access to" the relevant wholesale market. The utility thus will be eligible for relief from the "must buy" obligation.

While the final rule creates a rebuttable presumption regarding "nondiscriminatory access" across all markets where there is a filed OATT or reciprocity tariff, FERC specifically noted that the rule does not find that any markets meet the statutory criteria at this time, other than the four listed RTO/ISOs and ERCOT. Consequently, no utility located outside the four listed RTO/ISOs and ERCOT will be eligible for relief from the must-buy obligation unless it first establishes that the competitive market in which it participates is comparable to the organized Day 1 and Day 2 markets. This requirement will apply to all western utilities, among others.

The FERC order itself does not terminate the purchase obligation of any utility. Instead, electric utilities must file applications for relief, and QFs may seek to rebut the presumption of access to markets because of operational characteristics or transmission constraints applicable to the particular markets.

A very significant aspect of the final rule is the rebuttable presumption in favor of small QFs. The purchase obligation from the smaller QFs remains in effect in all markets. To rebut the presumption, the filing utility must demonstrate for each small QF that the QF has nondiscriminatory access to the market.

FERC found it was premature to evaluate the California Independent System Operator and Southwest Power Pool markets because these markets have ongoing market design efforts and have only "Day 1" markets. However, the Commission found that these markets met a portion of the statutory standards for "Day 1" markets, and member utilities may rely on these partial findings if they file to terminate their QF "must buy" obligation.

Key Contributors

Jennifer H. Martin
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