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Where Are PURPA’s Defenders?

Feb.03.2017

In recent orders, the Federal Energy Regulatory Commission (FERC or “Commission”) addressed claims that some states and local utilities have not been complying with the Public Utility Regulatory Policies Act of 1978 (PURPA), and generally reinforced the Commission’s long-standing policies in a manner supportive of generation developers. But PURPA’s opponents have persistently made their case before FERC and Congress that PURPA must be amended or repealed. They argue that PURPA is obsolete, a vestige of the pre-competitive era, and that PURPA saddles ratepayers with the costs of unneeded, overpriced power. And with PURPA’s supporters largely remaining silent as the anti-PURPA coalition has made its case over the past few years, these calls for reform very likely could gain traction with the new Congress and administration.

PURPA was enacted to encourage alternative energy resources such as renewable power and cogeneration, or Qualifying Facilities (QFs) by, among other things, requiring otherwise reluctant utilities to purchase QF power at such utility’s “avoided cost.” And to this day, many developers still rely on the “mandatory purchase” requirement to develop QF projects, most of which projects, while vital in permitting states to achieve their respective renewable portfolio goals, would not have gone forward but for PURPA. Nevertheless, in the wake of utility testimony last Congress before the Senate Energy and Natural Resources Committee and the House Energy and Commerce Committee attacking PURPA’s “mandatory purchase” requirement, FERC held a PURPA technical conference last June to identify potential administrative or legislative reforms. So once the Trump administration fills outstanding vacancies on the Commission, there is every reason to expect that PURPA reform could well be taken up by FERC and possibly even by Congress.

In the meantime since the technical conference, FERC has issued a series of orders on individual QF petitions that are generally supportive of QF developers. Some states had imposed requirements making it more difficult for QFs to show that under state law, a utility had a legally enforceable obligation (LEO) to purchase the QF’s output. For instance, Montana conditioned a LEO on the QF having an interconnection agreement and Connecticut conditioned a LEO on the QF having participated in a request for proposals. In both cases FERC held that these state limitations were impermissible. FERC said that just as its regulations are intended to prevent the utility from circumventing its PURPA requirements simply by delaying or refusing to sign a contract, they also prohibit requiring an executed interconnection agreement as a precondition to establishing a LEO. In another Connecticut case, FERC considered that state’s effort, even where a LEO had been established, to limit payments for a QF’s energy to only the actual market price at the time of delivery, thereby preventing a QF from locking-in a rate at the time the LEO is incurred and potentially making it impossible for the QF to be financed. FERC found this, too, was an impermissible limitation because QFs have a right to lock-in a rate at the time a LEO is established, and the LEO had to last long enough to allow QFs reasonable opportunities to attract capital from potential investors.

Thus, up to now FERC has not shied away from reinforcing long-standing PURPA requirements, and has remained sensitive to at least some of the challenges facing QF developers. But much of that could change in the months ahead. PURPA repeal or reform is likely to be a hot topic in the confirmation hearings for the new FERC Commissioners, and also could be addressed in energy legislation in the new Congress. Presumably PURPA’s opponents will continue to press PURPA reform; and without equally strong and galvanized support by PURPA’s defenders, the political dynamics suggest that this effort might well succeed.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Larry F. Eisenstat
Partner – Washington, D.C.
Phone: +1 202.624.2600
Email: leisenstat@crowell.com
Patricia M. Alexander
Senior Policy Advisor – Washington, D.C.
Phone: +1 202.624.2788
Email: palexander@crowell.com
Diana A. Jeschke
Counsel – Washington, D.C.
Phone: +1 202.624.2619
Email: djeschke@crowell.com