FERC last Thursday proposed changes to its mandatory power purchase obligation rules under the Public Utility Regulatory Policies Act (PURPA) to implement new provisions under the Energy Policy Act of 2005 (EPAct). The Commission issued a notice of proposed rulemaking (NOPR) at its latest open meeting [RM06-10].

Among other things, FERC has preliminarily determined that electric utilities that are members of the Midwest Independent Transmission System Operator (MISO), PJM Interconnection, ISO New England (ISO-NE) and the New York Independent System Operator (NYISO) qualify for relief from the mandatory purchase obligation. MISO, PJM and ISO-NE are all FERC-certified regional transmission organizations (RTOs).

FERC Chairman Joseph Kelliher noted that under a new section of PURPA -- 210(m) -- electric utilities may apply to the Commission for relief from the mandatory purchase obligation on a service territory-wide basis and the Commission may terminate the purchase obligation if it makes certain findings.

Last year, two utilities -- Alliant Energy Corporate Services and Montana-Dakota Utilities -- filed petitions at FERC in which they cited the new PURPA section, which was created under EPAct, in their efforts to get relief from any obligation to enter into new power purchase arrangements with qualifying facilities (QFs).

Kelliher noted that the new section of PURPA also charges the Commission with protecting existing rights and remedies under any contract or obligation in effect or pending approval involving the purchase of energy or capacity from a qualifying facility or sale to a qualifying facility. Further, the Commission is authorized to issue and enforce rules to ensure that an electric utility recovers all prudently incurred costs associated with the purchase of energy from a QF.

The FERC chairman said that under EPAct, the Commission may terminate the mandatory purchase obligation if it finds, in effect, that there is a sufficiently competitive market for a QF to sell its power. "Essentially, Congress directed the Commission to make determinations about the competitiveness of three types of wholesale markets: (1) 'Day 2' RTO and ISO markets, (2) 'Day 1' RTO and ISO markets, and (3) other wholesale markets." The statutory findings required vary depending on the nature of the wholesale market, he noted.

"As we discuss in the proposed rules, many of these determinations will have to be made on a case-by-case basis," Kelliher said. "However, there are certain findings that can be made generically and thereby reduce the administrative burdens of handling each request individually."

FERC's NOPR finds that electric utilities that are members of the "Day 2" markets in MISO, PJM, ISO-NE and NYISO meet the requirements for relief from the mandatory purchase obligation because these RTOs administer day ahead and real time markets and bilateral long term contracts for the sale of capacity and electric energy are available to QFs in these markets.

"Effectively, the Commission is preapproving termination of the mandatory purchase obligation in these areas, and electric utilities in these regions would only have to make certain compliance filings," Kelliher said.

He said that in "Day 1" regions, the proposed rule finds that the transmission and interconnection services provided by the California Independent System Operator (CAISO) and Southwest Power Pool (SPP) meet the statutory standard because these entities are Commission-approved RTOs or ISOs that provide non-discriminatory open access transmission services under an open access transmission tariff. CAISO is an ISO, while SPP has been certified by FERC as an RTO.

"Electric utilities in these regions would have to show that they are members of these organizations. They would also have to show that qualifying facilities in the region have a 'meaningful opportunity' to sell energy and capacity, as defined in the Energy Policy Act, which appears to require a case-by-case approach," Kelliher noted.

With respect to bilateral wholesale markets, "the statutory language is not clear on its face," the Commission chairman said. "The language allows the Commission to terminate the mandatory purchase obligation in these wholesale markets if the sale of energy and capacity is 'at a minimum, of comparable competitive quality' as the other wholesale markets. We interpret this language by reference to the statutory language governing the other wholesale markets to require nondiscriminatory access to transmission and interconnection services and competitive short term and long term energy and capacity markets."

Kelliher said the "provisions here appear to require a case-by-case approach," but the Commission is seeking comment on whether it can make generic findings that would narrow the scope of issues to be addressed in case-by-case determinations.

"For example, the Commission proposes that the OATT and reciprocity tariff are sufficient to assure nondiscriminatory access by a qualifying facility to transmission services. We also propose that an organized procurement process would demonstrate access to competitive short term and long term energy and capacity markets. We are not imposing any particular form of competitive solicitation on electric utilities, and we seek comment on other means of demonstrating market access by qualifying facilities."

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