The Nickel Report

The House Energy & Commerce Committee is considering revising the Public Utility Regulatory Policies Act (PURPA), a 1978 law enacted in the wake of the 1973 oil embargo to promote energy conservation and production by domestic alternative energy sources, including renewables. Why is Congress considering changing it, and what would the proposed revisions do?

Section 210 of the law required electric utilities to buy power from “qualifying facilities,” or QFs. The law established two types of QFs – cogeneration facilities (ones that produce both usable heat and power for electricity), and small power production facilities. The law required utilities to buy power from these facilities at “avoided cost,” which is defined by regulation to mean “the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility . . . such utility would generate itself or purchase from another source.”

The law left it to states to further interpret avoided cost. Some states set their rates higher than others, which resulted in some states having more QF contracts than others. States can change the rates, as the Michigan Public Service Commission did last November.

The utility industry has changed significantly since 1978. Most significantly, when utilities buy power from other generators (what is termed a “wholesale” sale), they now typically buy at market-based rates, rather than a rate set by regulation. This is in recognition that robust competition among generators assures consumers just and reasonable rates. Furthermore, many states now have retail electric competition, meaning that utilities in those states no longer have guaranteed customers for the generation they sell. Instead they compete for customers based on price.

In the ‘00s, many argued that given this competition, utilities should no longer be required to buy power from QFs, since the “avoided cost” purchase price might exceed the prices being offered to consumers. With the Energy Policy Act of 2005 (EPACT ‘05), Congress addressed this concern, repealing the requirement that utilities buy power from QFs, under certain conditions. The mandatory purchase requirement was terminated in cases where the Federal Energy Regulatory Commission (“FERC”) finds the QF has non-discriminatory access to independently administered, auction-based wholesale markets and transmission and interconnection through a FERC-approved regional transmission organization (“RTO”) or access to wholesale markets comparably competitive to those administered by an RTO.

In recent years, some have voiced concern that certain projects have been structured to avoid PURPA’s size limit for small power production facilities. While the size limit generally is 80 megawatts, as a practical matter it has been 20 megawatts for many areas since FERC’s implementation of EPACT ’05, because FERC by regulation established a rebuttable presumption that QFs larger than 20 megawatts located in RTO markets have non-discriminatory access to markets, based on a determination that larger QFs have better market access.

A key issue is the determination of what it means for a facility to be located “at the same site” as another facility. Facilities that are at the same site, use the same energy resource, and are owned by the same entity are considered together for purposes of eligibility as a small power production facility (and thus eligibility for mandatory purchase). FERC regulations consider a facility to be at the same site as another if they are located within one mile of each other.

In 2017, the Energy and Commerce Committee heard testimony that some projects with the same ownership and energy source, and with a combined electric generating capacity in excess of small power production facility limits, were being located just beyond one mile from each other.

On November 29, Congressman Tim Walberg (R-MI) introduced H.R 4476, the PURPA Modernization Act of 2017. The bill would do several things aimed at changing the requirements for small power production facilities. The bill would:

• Establish a statutory presumption that a facility with an installed capacity of 2.5 megawatts or greater has nondiscriminatory access to transmission and interconnection service and wholesale markets, lowering it from the current capacity limit of 20 megawatts established by regulation.
• Require the FERC, within 180 days of enactment, to issue a final rule setting forth a rebuttable presumption that facilities within a mile of each other are at the same site, and facilities beyond one mile are not.
• Allow any person to rebut the “same site” presumption.
• Establish a set of factors to be considered in determining whether the “same site” presumption is rebutted, including common ownership or affiliation of the facilities; treatment of the facilities as a single project for regulatory or other purposes; whether the facilities use the same energy resource, the same lead line or interconnection point, common lease or land rights, or common financing; and whether the facilities are part of a common development plan or permitting.

Provide that the mandatory purchase obligation shall not apply if a state regulatory agency (or, in the case of a non-regulated utility, the utility) submits to FERC a written determination that the utility does not need the power produced by the small power production facility, or the utility uses integrated resource planning and competitive procurement that provides an opportunity for small power production facilities to supply energy.