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In a massive 490-page order issued on July 16, 2020, the Federal Energy Regulatory Commission (FERC) issued final regulations implementing Sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA). These new rules will be in place within 120 days after publication in the Federal Register.

The FERC issued a notice of proposed rulemaking to address PURPA in September 2019. PURPA and its 1980 vintage FERC-promulgated regulations have only been modified in limited and specific areas in the last 40 years, making these new rules the most comprehensive modification since the early 1980’s.

PURPA is intended to encourage the development of certain types of non-utility electric generation, known as qualifying small power production and cogeneration facilities (QF’s).  This late 1970’s legislation was the first break in the traditional paradigm that electricity generation was the sole province of public utilities.  Among other things, PURPA requires that FERC 1) prescribe rules that encourage QF development and 2) insure that rates paid by utilities to QF’s are just and reasonable to electric consumers and the public. FERC’s PURPA regulations are implemented by the states.

Among other things, the new PURPA rules:

  • Grant the states increased flexibility in requiring that energy rates in QF contracts will vary in accordance with the purchasing utility’s power costs.
  • Grant states additional flexibility to allow QFs to retain their rights to fixed (as opposed to variable) energy rates.
  • Allow states to set “as available” rates for QF energy for QF’s selling to utilities operating in organized wholesale power markets, subject to certain presumptions.
  • Allow states to set energy and capacity rates paid to utilities based on competitive solicitations.
  • Revise FERC’s existing rules that provide for the termination of a utility’s obligation to purchase from a QF with nondiscriminatory access to certain QFs. There is a rebuttable presumption that QFs known as small power production facilities below 5 megawatts in net capacity do not have nondiscriminatory access to power markets.
  • Modify FERC’s existing “one mile” rule for determining when generation facilities are considered to be at the same site for establishing whether the facility is an eligible QF small power production facility.

These new rules will have significant impacts on the development and financing of QF projects. How and when states and state public utility commissions implement these new rules will likely be a major battle ground among key stakeholders, including purchasing utilities, QF developers, financiers, independent power producers and electric consumers. It will be critical to monitor and participate in the state commissions’ inevitable proceedings addressing how they intend to implement these new FERC rules.

The United States Congress may be an additional front that opens on this issue. Reactions to these new FERC rules have been particularly strong by some Congressional democrats who believe the rules will stifle renewable energy development and may be outside of FERC’s legal authority.