The Federal Energy Regulatory Commission (FERC) has finalized changes to its regulations, making it more difficult for small renewable generators and cogenerators to require utilities to purchase their energy and capacity under the Public Utility Regulatory Policies Act of 1978 (PURPA) and providing states with greater flexibility in setting the rates for those purchases. The changes will take effect 120 days after their publication in the Federal Register.
The changes, which Chairman Neil Chatterjee touted as "modernizing" FERC's implementation of PURPA, largely adopt modifications FERC proposed in its September 2019 Notice of Proposed Rulemaking (NOPR) that we previously described. Specifically, the order, which FERC designated as Order 872, implements the following significant revisions:
In addition, Order 872 allows states in an organized electric market (RTO/ISO) to set the rate for as-available energy at a variable rate equal to the RTO/ISO locational marginal price (LMP), based on a rebuttable presumption (rather than a per se rule as FERC proposed in its NOPR) that the LMP represents the as-available avoided costs of utilities located in that market. States outside of RTO/ISO markets may set the energy rate at a "competitive market price" established by liquid market hubs or calculated from a formula based on natural gas indices and specified heat rates, which can also be a variable rate. In each instance, FERC's new regulations provide greater flexibility to the states in determining whether such rates accurately reflect the purchasing utility's avoided cost at the time of delivery.
Order 872 also permits states to set energy and capacity rates pursuant to competitive solicitation processes but only so long as those processes are transparent and nondiscriminatory. FERC, however, declined to adopt a NOPR proposal to permit states with retail competition to relieve their utilities from PURPA's mandatory purchase obligation. Instead, FERC clarified that its existing PURPA regulations "already do and will continue to allow states," in setting avoided cost rates, to take into account an electric utility’s ability to avoid costs. In other words, states will be able to continue to account for reduced loads in a purchasing electric utility's supply obligations in light of retail competition and a purchasing electric utility's Provider of Last Resort obligations under state law when setting QF capacity rates. FERC also made clear that its clarification was not meant to serve as a MW-for-MW reduction (or increase) based on yearly changes in load. Thus, states cannot terminate a purchasing utility's mandatory purchase obligation under PURPA.
Order 872 may be challenged through a request for rehearing on or before August 17, 2020. FERC will have 30 days to rule on such request, and a final order on rehearing is subject to potential appeal to the federal courts. Commissioner Richard Glick dissented in part from Order 872, opining that the order "administratively gut[s] PURPA." His partial dissent presages likely grounds to challenge Order 872 that FERC may need to address more fully on rehearing and on appeal.
 Qualifying Facility Rates and Requirements; Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Order No. 872, 172 FERC ¶ 61,041 (July 2020).
 16 U.S.C. § 2601 et seq. (2018). PURPA was enacted to help lessen the dependence on fossil fuels and promote the development of power generation from nonutility power producers.
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