FERC on Thursday rejected challenges to its July order revising how it enforces the Public Utility Regulatory Policies Act but granted clarification on several points (RM19-15-001, AD16-16-001).

Order 872 allowed state regulatory commissions more flexibility in how they establish avoided-cost rates for qualifying facilities and said they could require the rates to vary over the span of a QF’s contract. It also modified the “1-mile rule” and reduced the rebuttable presumption for nondiscriminatory access to power markets, from 20 MW to 5 MW, for small power production, but not cogeneration, facilities. (See FERC Issues Final Rule to ‘Modernize’ PURPA.)

Numerous stakeholders requested rehearing on Aug. 17, including California’s three investor-owned utilities, the Electric Power Supply Association, the Northwest and Intermountain Independent Power Producers Association, the Sierra Club, the Sustainable FERC Project and the Solar Energy Industries Association.

The requests were automatically denied when the commission failed to act within 30 days. In Thursday’s order, FERC explained why the challengers were wrong while also offering some clarifications. The order was supported by Chair James Danly and Commissioner Neil Chatterjee, both Republicans, but opposed by Commissioner Richard Glick, a Democrat, who had dissented in July.

‘Tiered’ Pricing, Variable Energy Rates

The commission rejected a request by Pacific Gas and Electric, San Diego Gas & Electric and Southern California Edison to clarify that it is no longer commission policy to permit states to subsidize QFs by the use of “tiered” avoided costs — the costs of a subset of facilities from which a state has mandated purchases or facilities that meet state requirements such as use of renewable fuel.

“PURPA neither requires nor prohibits states from establishing tiered procurement (and thus tiered pricing), such as California does,” the commission said.

FERC granted SEIA’s request for clarification that a state may only use variable rates to set avoided energy costs if the utility has fulfilled its obligations to disclose avoided-cost data as required under PURPA regulations.

“We do not find the disclosure of such information unreasonable as the commission’s PURPA regulations already require its disclosure,” FERC said. “In addition, although electric utilities are required to disclose this data generally, it is especially important when a state has selected the fixed capacity/variable energy rate construct to ensure that QFs have this data from the purchasing electric utility to provide transparency with regard to a utility’s avoided costs.”

Competitive Solicitations

The commission also clarified the rules regarding the use of competitive solicitations to set QF rates.

“If a competitive solicitation is not conducted in accordance with the requirements of the final rule guidelines, then an aggrieved entity may challenge the competitive solicitation before the commission or in the appropriate fora,” FERC said.

Order 872 allows competitive solicitations as long as they are the result of a transparent process open to all sources, conducted at regular intervals and overseen by an independent administrator.

Rebuttable Presumption of Separate Sites

The commission offered clarification on several aspects of its requirement that the capacity of all small power production facilities “located at the same site” not exceed 80 MW.

“If a hydroelectric generating facility is more than a mile apart (but less than 10 miles apart) from an affiliated facility, yet on the same impoundment, the rebuttable presumption would be that they are at separate sites. We further clarify that, although the second sentence of footnote 769 [in Order 872] suggested that a hydroelectric generating facility in this circumstance was free to seek waiver (most likely in order to eliminate any uncertainty as to its status), it would be unlikely that any such a facility would, in practice, need to request such waiver.”

It also clarified that “the factors that may be used by an applicant to pre-emptively defend against rebuttal include the example factors identified in … paragraph 509 of the final rule.”

Paragraph 509 cited “physical characteristics, including such common characteristics as: infrastructure, property ownership, property leases, control facilities” and “whether the facilities in question are: owned or controlled by the same person(s) or affiliated persons(s), operated and maintained by the same or affiliated entity(ies).”

Rebuttable Presumption of Nondiscriminatory Access to Markets

FERC declined to rule on the argument by wind developer One Energy Enterprises that a behind-the-meter distributed energy resource’s primary purpose is to generate electricity for its host and any potential sale is secondary like cogeneration facilities.

But it clarified that behind-the-meter DERs such as municipal solid waste facilities and biogas facilities may argue that having “‘a predominant purpose other than selling electricity which would warrant the small power QF being treated similarly to cogenerators’ … supports their argument that they lack nondiscriminatory access to markets.”

“We will rule on any such arguments on a case-by-case basis taking into account the specific facts of the DER making the argument,” the commission said.

It also granted a request for clarification “that the list of factors in section 18 CFR 292.309(c) that small power production facilities between 5 and 20 MW can point to in seeking to rebut the presumption that they have nondiscriminatory access was not — but should be — added to 18 CFR 292.309(e) that applies to QFs in ISO-NE, MISO, NYISO and PJM, and also to 18 CFR 292.309(f) that applies to QFs in ERCOT. In order to avoid confusion, we hereby incorporate the factors listed in 18 CFR 292.309(c) into both (e) and (f).”

Glick’s Dissent

Commissioner Glick opposed Thursday’s ruling, saying during the monthly open meeting that the commission’s record was “insufficient to support several of the key changes” in Order 872. Glick said he requested a technical conference to create such a record but was denied by former Chair Chatterjee.

Glick said the commission “is administratively gutting PURPA” in response to utilities and others who had been unsuccessful in getting Congress to revise the law, which was last amended in 2005.

“It doesn’t matter whether you believe PURPA offers substantial benefits or whether you think it’s bad public policy,” he said. “The fact is these are matters for our elected representatives in Congress to decide. We should not be using our regulatory authority just because some might be frustrated by Congress’ inaction.”

The rulemaking eliminates QFs’ guarantee of obtaining a fixed-term, fixed-rate contract, undermining their ability to obtain financing, Glick said. “At the same time, utilities in vertically integrated states can depend on the guarantee that their ratepayers will pay for a generating plant over the life of the facility,” he said. “How is that not discrimination?”

Danly and Chatterjee, however, said claims that the rulemaking discriminates against QFs are “based on the incorrect assumption that electric utilities have not been required to lower their energy rates as prices have declined. The commission found, to the contrary, that utilities typically charge their customers cost-based rates, and, as their fuel and purchased power costs have declined, they typically have been required to provide corresponding reductions in the energy portion of their rates to their customers. …

“Requiring QF avoided-cost energy rates to likewise change as purchasing electric utilities’ avoided energy costs change does not create a discriminatory difference, but rather puts QF rates on par with utility rates,” they added.

Glick also criticized the commission for presumptively authorizing states to use LMPs to set avoided costs, “even though LMP may not fully represent the utility’s avoided costs. This leaves utility generation with a distinct advantage — exactly the opposite of the role Congress intended PURPA to play.”

Danly and Chatterjee rejected arguments that precedent prohibits establishing a rebuttable presumption that LMP reflects avoided costs for as-available energy.

“Because LMP is likely to reflect the true marginal cost of energy in the vast majority of cases … it is ‘so probable that it is sensible and timesaving to assume’ that LMP for a particular utility is an appropriate measure of the utility’s avoided costs for as-available energy, unless disproven in a particular case,” they said. “We leave open for specific cases to determine the appropriateness of using a particular LMP such that a QF could rebut the presumption that LMP is appropriate.”