POWER September 2013 - 30

PURPA at 35:
At a Crossroads?
By Glenn S. Benson
I
n March 2013, and for the first time in the 35-year history
of the Public Utility Regulatory Policies Act of 1978 (PURPA),
the Federal Energy Regulatory Commission (FERC) initiated
an enforcement action in federal district court against a state
public service commission for alleged violations of FERC's PURPA
regulations. Congress enacted PURPA to promote the development
of certain cogeneration and non-fossil fuel-fired generation
facilities. The legislation accordingly specified certain generation
facilities that would " qualify " (the " QFs " ) for the right to compel
an electric utility to purchase any power made available by the
QF at the utility's " avoided cost " (the cost the utility would have
incurred to obtain the power from alternative resources).
PURPA is a unique federal law in that it provides responsibilities
and rights in both FERC and state commissions, with FERC to
determine the facilities that qualify as a QF and state commissions
to determine the purchasing utility's avoided cost. As a result,
there has always been potential for jurisdictional disputes.
In the event of a dispute, however, PURPA provides FERC superior
rights through its ability to initiate enforcement actions against
state commissions.
This statutory scheme has worked well historically. States have
generally restrained themselves from encroaching on FERC's authority,
and FERC has given states wide latitude in implementing
avoided cost pricing protocols. Until now, the initiation of
enforcement action was viewed as something akin to a " nuclear
option " that FERC had not hitherto seen fit to exercise.
FERC v. Idaho Commission
The genesis of the March 2013 dispute lies in FERC's regulations
implementing PURPA, which offer each QF the option of
providing energy to the utility on an " as available " basis-in
which case the QF is paid the purchasing utility's avoided cost
calculated at the time of energy delivery-or under a so-called
" legally enforceable obligation " (LEO), which the QF may unilaterally
elect at the outset to have avoided cost calculated at the
time the LEO is established. Giving QFs the ability to elect the
LEO option to secure long-term pricing based on upfront calculations
of avoided cost is intended to promote financing of wind
and solar projects. Fixing payments at the contract's inception
insulates the project's revenue stream from the vicissitudes of
the power market.
FERC's enforcement action alleges that the Idaho Commission
violated FERC's regulations in rejecting certain power purchase
agreements involving three Idaho QF wind developers. The Idaho
Commission had adopted a cap on the size of wind QFs that
would be eligible to receive certain avoided cost rates and rejected
the QF agreements on grounds that they exceeded the size
eligibility requirement.
FERC alleges that the Idaho Commission denied the QFs the
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FERC-given right to establish LEOs unilaterally. It did so, according
to FERC, by failing to recognize that, before the size
limitation had become effective, the QFs had each taken certain
actions that should have been sufficient to establish a LEO.
The Idaho Commission contends that it, not FERC, has jurisdiction
to determine when a LEO was created, and that, in these
instances, no LEO was timely created.
The Tip of the Iceberg?
FERC's case against the Idaho Commission may prove to be just
the tip of the iceberg. In the relatively short time since FERC
announced its action against the Idaho Commission, petitions
requesting FERC action to enforce alleged LEOs have been filed
by QFs in Minnesota, Vermont, Montana, and Texas. Most notably,
the Texas QF issue involves state regulations that generally
preclude intermittent resources, both wind and solar, from being
able to establish a LEO. The Texas commission's rules limit wind
and solar generators to selling power on an " as available " basis
and thus deny them the potentially more favorable " firm " pricing
opportunities available to a LEO. The Texas commission claims
its restrictions on LEO pricing are fully within the state commission's
discretion in implementing FERC's PURPA regulations
and defends further that California, Florida, Kentucky, Louisiana,
Montana, and Oregon have adopted similar limitations.
Avoiding Armageddon
These actions by state commissions to deny QFs the ability to
establish a LEO are testing the legislative balance PURPA created,
as evidenced by FERC believing it necessary to bring its first
enforcement action. Will FERC's action have the adverse consequences
of deploying a true nuclear option? Will it precipitate a
prolonged state/FERC dispute over respective PURPA rights and
create uncertainty that is harmful to all constituents in the energy
industry? Or will it simply help wind and solar projects obtain
more favorable pricing and secure financing?
Any such possible PURPA Armageddon can be avoided if:
■ States respect that their PURPA responsibilities are generally
limited to implementing FERC's regulations, such as by setting
avoided cost;
■ FERC views its action against the Idaho commission as an extraordinary,
once-in-a-generation initiative, not an everyday
regulatory tool; and
■ The courts issue timely and consistent rulings that are sensitive
to, but clearly delineate, the respective roles PURPA provides
FERC and the state commissions. ■
-Glenn S. Benson (glennbenson@dwt.com) is a partner in Davis
Wright Tremaine LLP's Energy Practice Group.
www.powermag.com
POWER | September 2013
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POWER September 2013

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