Week Ending May 18, 2018

McIntyre Says FERC Will Review PURPA to Determine if Changes Can be Made

This Article Appears as Published in Foster Report No 3199
McIntyre Says FERC Will Review PURPA to Determine if Changes Can be Made

FERC Chairman Kevin McIntyre on May 17 said he is directing FERC staff to “reinvigorate” the Commission’s review of the Public Utility Regulatory Policies Act (PURPA) to determine if there are steps FERC can take to improve implementation of the law.

The scope and format of the review are yet to be determined, McIntyre said during the monthly FERC meeting, noting that he will consult with the commissioners on that element.

One of the issues likely to be examined is the “one-mile rule” that has been a bone of contention among utilities, regulators and qualified facility (QF) developers that build renewable power projects with utility purchase obligations under PURPA, commissioners said at the meeting.

McIntyre and the commissioners noted that FERC has examined its role in carrying out the law previously, with a technical conference in 2016 and subsequent comments received in that proceeding (AD16-16). “I have an open mind” on the issues surrounding PURPA, McIntyre said.

Commissioner Cheryl LaFleur thanked McIntyre for acknowledging the previous examination of the law and technical conference, when the Commission heard from people on all sides of the issues. Among the topics that parties commented on were a revision to the “one-mile rule” and QF contract standards, she said. “I hope that we can build on that work as we move forward,” LaFleur said in reference to the earlier proceeding.

Commissioner Neil Chatterjee added that PURPA reform has been a priority for him since he came to FERC, and that many voices have expressed a desire for FERC to take a fresh look at the way the law is carried out.

Utilities, state regulators and federal lawmakers have expressed interest in PURPA reform in various formats, as QF purchase obligations of utilities in areas without organized wholesale markets can create a financial strain for those utilities. The law imposes mandatory purchase obligations from QF projects at what is deemed to be avoided costs, though exemptions are available in areas with organized wholesale markets.

Commissioner Richard Glick, who like Chatterjee moved to FERC from Capitol Hill, said any major reforms would have to come through Congress. But FERC has a large role in carrying it out and “it certainly makes sense for us to consider whether we can improve how the statute is administered,” Glick said.

The commissioners noted that the record from the previous examination of PURPA is well developed. Given the existing record, “we need an expedited review of PURPA,” said Commissioner Robert Powelson.

Congress passed the law in 1978 and has modified it since then, but the energy landscape is far different than it was just a few years ago, Powelson noted.

When the law was passed, renewable resources like wind and solar projects were in their infancy and independent system operators had not yet been created. Renewable resources are now abundant and lower in cost, with an era of energy abundance where FERC largely relies on competitive wholesale power markets to ensure that power prices are just and reasonable.

Among the areas ripe for reform, FERC and Congress have heard, is the “one-mile rule.” PURPA defined QFs as small generation facilities not greater than 80 MW, with FERC implementation of the law establishing a one-mile rule that facilities located within one mile of each other are deemed to be at the same QF site.

But as witnesses at the 2016 technical conference and Congressional hearings have complained, renewable power project developers can abuse the rule by splitting up what would be considered one large project, with multiple sets of wind turbines or solar power facilities spread out more than one mile apart, into multiple QF projects that fall below what is now a 20-MW size threshold. The QF project developers do that to take advantage of the mandatory purchase obligation through more advantageous avoided cost calculations.

State regulators have been some of the more adamant advocates for changing the law, and Powelson, a former state regulator from Pennsylvania, said he is looking forward to any reforms that FERC can address quickly. There are elements that are clearly within the purview of Congress, “though sometimes it takes them two hours to watch 60 minutes,” he said.

“We are very capable here at the FERC to provide expedited treatment of PURPA reform”, Powelson said.

Speaking with reporters after the meeting, McIntyre said he shares Powelson’s hope to address the issues promptly. The review of the law “is not my brainchild,” but something that has been sought by the energy sector, state regulators and lawmakers, he said.

Among PURPA reform legislation debated on Capitol Hill have been measures to eliminate a nationwide policy and replace it with a state-by-state regime in which state agencies could relieve utilities of their obligation to purchase power from QFs upon certifying to FERC that there is no need for the QFs’ output.

Earlier this year, in remarks to the National Association of Regulatory Utility Commissioners, McIntyre said states are viewed as “boots on the ground” to calculate avoided costs and the purchase of power from QFs in individual proceedings. Any major reform of PURPA will have to come from Congress, with questions about whether steps can be taken at FERC in the absence of congressional action. McIntyre suggested that the answer is yes “and we’re looking very hard at that right now,” he said in a February speech at NARUC’s winter meeting.

NARUC sent a letter to FERC in late 2017 asking the Commission to consider certain issues that have changed since PURPA was passed, and the group is pleased to hear of McIntyre’s announcement, a NARUC spokeswoman said. “We believe that there are certain reforms that FERC can enact administratively that will result in more efficient and cost-effective PURPA projects,” she said.

By Tom Tiernan TTiernan@fosterreport.com

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