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FERC Issues Two Orders with Significant Implications for Renewable Facilities

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Today, July 16, 2020, the Federal Energy Regulatory Commission (FERC) issued two significant orders concerning renewable electric generation facilities: (1) a Final Rule modernizing its regulations under the Public Utility Regulatory Policies Act of 1978 (PURPA); and (2) an order dismissing, on procedural grounds, a Petition for Declaratory Order filed by the New England Ratepayers Association (NERA) requesting that FERC assert jurisdiction over energy generated by facilities subject to “Full Net Metering” programs currently regulated by states (PDO Order).  

These orders have significant implications for behind the meter generation resources, qualifying small power production facilities and qualifying cogeneration facilities (QFs), investors, and utilities.  Specifically: 

  • The PURPA Final Rule affords states more flexibility in determining rates for QFs and, as a result, provides less price certainty to QFs.  This could affect financing terms and conditions for these projects. 

  • The PDO Order leaves in place longstanding precedent that “Full Net Metering” programs are regulated by states, not FERC, and it preserves the current economics of behind-the-meter generation.  Had the petition been granted, behind-the-meter generation would have been regulated by FERC going forward, and these facilities would likely have been compensated at a rate less than the credits they currently receive under state net metering programs.  However, as discussed in the separate concurring statements of Commissioners McNamee and Danly, the substantive issues raised in the petition regarding jurisdiction over net metering could be raised again in the future in a FERC rulemaking or complaint or in lawsuits filed in federal district courts.  The parties to the current proceeding can also seek rehearing and then judicial review.    

PURPA Final Order

Today’s final order adopts a number of revisions to FERC’s regulations implementing PURPA.  Highlighted below are some of the most notable changes.

  • Mandatory Purchase Obligation:  There is currently a rebuttable presumption that QFs with a capacity greater than 20 MW have non-discriminatory access to organized wholesale electric markets, and that utilities that are members of RTOs/ISOs should be relieved of the obligation to purchase from such QFs.  Today’s order lowers that threshold from 20 MW to 5 MW for small power production facilities including renewables, but leaves it unchanged for cogeneration facilities.  By lowering the threshold, small projects are no longer guaranteed to receive mandatory compensation from interconnected utilities.     

  • Rates: The Final Order grants states more flexibility with respect to the rates to be received by QFs, including the ability to:

    • require that energy rates (but not capacity rates) in QF contracts vary in accordance with changes in the purchasing utility’s avoided costs at the time the energy is delivered;

    • set QF fixed energy rates on projections of what energy prices will be during the term of a QF’s contract;

    • set as-available QF energy rates: (a) if the QF is selling to a utility in an organized wholesale power market, at the locational marginal price in that market; or (b) if the QF is selling to a utility outside of an organized wholesale power market, at competitive prices from liquid market hubs or calculated from a formula based on natural gas price indices and heat rates; and

    • set energy and capacity rates based on competitive solicitations (such as RFPs) conducted in a transparent and non-discriminatory manner.

  • One-Mile Rule: While maintaining the irrebuttable presumption that facilities one mile apart or less constitute a single facility, parties will now be able to challenge whether multiple facilities that are located more than one mile apart, but less than 10 miles apart, are separate facilities.  The Final Rule also adopts an irrebuttable presumption that facilities located 10 miles or more apart are separate facilities.

  • Legally Enforceable Obligation (LEO): Historically, FERC has allowed the states to determine when a LEO is formed (i.e., the date that the QF may fix its avoided cost rate).  The Final Rule now requires states to establish objective and reasonable criteria to determine a QF’s commercial viability and financial commitment to construction before a QF is entitled to a contract or LEO.

  • Challenging QF Certifications: Parties may now protest a QF’s self-certification (or-recertification) without the need to file and pay for a separate PDO.

Order Dismissing NERA Complaint

As discussed in our previous alert, on April 14, 2020, NERA filed a PDO requesting that FERC: (1) assert exclusive jurisdiction over energy “sales” made by behind the meter generation (such as rooftop solar) under state-administered “Full Net Metering” programs; and (2) direct that “sales” of such energy be priced consistent with PURPA (i.e., at a utility’s avoided cost) or at a rate approved by FERC pursuant to Section 205 of the Federal Power Act. 

In today’s order, FERC dismissed NERA’s request on procedural grounds, maintaining the current status quo for the regulation of net metering.  FERC found that NERA did not raise a specific controversy or harm appropriate for resolution through a declaratory order, but instead raised only generalized claims about all net metering programs.  Further, FERC found that NERA was not permitted by PURPA to challenge net metering programs on grounds related to that act because it was not an electric utility, qualifying small power production facility, or qualifying cogeneration facility.

Parties have 30 days to seek rehearing by FERC of today’s orders.  Because of the importance of the issues involved, rehearing is a certainty, so these orders will not be the last word on these issues.  Following rehearing, it is also likely that one or both of these orders will be appealed to the federal courts.  As discussed in the separate concurring statements of Commissioners McNamee and Danly, the substantive issues could in the future be raised again in a request for a FERC rulemaking, a complaint filed under the Federal Power Act, or in a lawsuit filed in a federal district court.  Therefore, because FERC did not act on the merits of the petition, further challenges are likely.  

 

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