A notice of proposed rulemaking (NOPR) issued Thursday by FERC would modernize the regulations governing small power producers and cogenerators under the Public Utility Regulatory Policy Act of 1978 (PURPA), "to better address consumer concerns and market changes in the energy landscape in recent decades," the Commission said.
Congress enacted PURPA to address a national energy crisis by encouraging development of small power producers and cogenerators to reduce demand for traditional fossil fuels, which were considered to be in short supply. The Federal Energy Regulatory Commission first enacted its rules in 1980.
"PURPA laid the foundation for the Commission's open access transmission policies and the competitive wholesale power markets that we have today," said FERC Chairman Neil Chatterjee. "But a lot has changed since 1980. We have seen tremendous technological advancements in renewables, increasing sophistication in competitive electric power markets, and abundant supplies of domestic natural gas. It's time to modernize the Commission's implementation of PURPA to reflect those significant developments."
In the 40 years since congress adopted PURPA, analysts, commissioners and congress itself have called for reviews of the regulations. There have been changes to PURPA. Notably, in 2006 FERC made changes to its mandatory power purchase obligation rules under PURPA to implement new provisions under the Energy Policy Act of 2005 (EPAct). Among other things, FERC allowed utilities in five organized power markets to file for relief from the mandatory purchase obligation under PURPA. That decision was blasted by industrial associations, consumer groups and environmental organizations for its potential impact on power supply and the environment.
But the NOPR issued Thursday is the first comprehensive review of the PURPA regulations since they were enacted 40 years ago, according to FERC [RM19-15]. It would allow states to incorporate market pricing into avoided cost energy rates in various ways, allow states to require energy rates (but not capacity rates) to vary during the life of qualifying facility (QF) contracts, modify the "one-mile rule," and lower the threshold presumption for non-discriminatory access to power markets from 20 MW to 1 MW for small power production, but not cogeneration, facilities.
The proposal would also require states to establish objective and reasonable standards for QFs to obtain legally enforceable obligations for the purchase of their power. And it would permit protests of QF self-certifications or self-recertifications without the need to file and pay for a separate petition for declaratory order.
"The changes the Commission is proposing through this notice of proposed rulemaking are designed to protect consumers while also encouraging the development of alternative generation and cogeneration facilities," said Commissioner Bernard McNamee. "To achieve these ends, the proposed rules will provide state utility regulators more flexibility to rely on market pricing when determining the rates utilities pay to qualifying facilities under PURPA, provide more transparency to interested stakeholders, and extend the benefits of competition to a greater number of consumers."
At least one energy group took a precautionary tone toward the NOPR. The Electricity Consumers Resource Council (ELCON) said "PURPA's aim to promote competition remains essential to this day.
"The majority of states remain under cost-of-service regulation, where industrial self-supply and competitive power generation face uncompetitive conditions both within and outside of organized wholesale electricity markets. It is imperative that FERC proceed in a manner that enhances competition and reduces barriers to self-supply in regulated states, whereas loosening PURPA implementation would run counter to FERC's stated intent of protecting consumers and preserving competition," ELCON said.
The proposed changes would "save consumers money and provide for the cost effective and fair integration of renewable energy resources into our grid," according to the U.S. Chamber of Commerce.
FERC will accept comments on the NOPR for 60 days following publication in the Federal Register.