FERC Revises PURPA Mandatory Purchase Obligation for Electric Utilities
November 1, 2006 // Published as a news service by IHS
The rulemaking implements a mandate of the Energy Policy Act of 2005 (EPAct).
"Today the commission acts to implement another part of the Energy Policy Act of 2005, namely the provisions relating to termination of the PURPA mandatory purchase obligation. The approach we take is consistent with the statute, and faithful to Congressional intent," said Chairman Joseph T. Kelliher.
The FERC found that the Midwest Independent Transmission System Operator, PJM Interconnection, ISO-New England and the New York Independent System Operator provide wholesale markets that meet the statutory criteria for member utilities to qualify for relief from the mandatory purchase obligation.
It also establishes a rebuttable presumption that qualifying facilities (QFs) above 20 MWs net capacity have non-discriminatory access to these four markets and that electric utility members should be relieved of their mandatory purchase obligation.
These regional transmission entities meet the statutory test by operating the transmission facilities of their member utilities and providing open-access transmission services. They also administer auction-based, day-ahead and real-time markets (Day 2 markets), and within these regions bilateral long-term contracts are available to market participants and qualifying facilities, the FERC found.
The FERC further determined that the Electric Reliability Council of Texas (ERCOT), the regional reliability entity in Texas, offers comparable competitive wholesale power market access and meets the statutory criteria making electric utilities in ERCOT also eligible for relief from the PURPA mandatory purchase obligation.
The FERC said, however, that it is not terminating the purchase obligation of any utility with the final rule. Electric utilities must file applications for relief and QFs in the above markets may be able to rebut the presumption of access to markets because of operational characteristics or transmission constraints.
With respect to all markets, the rule establishes a rebuttable presumption that, except for QFs with a net capacity of no greater than 20 MWs, QFs have nondiscriminatory access to markets if they are eligible for service under a FERC-approved open access transmission tariff, or a reciprocity tariff filed by non-jurisdictional transmission owners.
Recognizing the special circumstances faced by QFs 20 megawatts and smaller, the final rule also establishes a rebuttable presumption that the purchase obligation remains in effect in all markets. To rebut the presumption, the filing utility must demonstrate for each small QF that the QF has nondiscriminatory access to the market.
The rule establishes filing requirements for electric utilities to seek relief from the purchase obligation and also provides for reinstatement of the mandatory purchase obligation upon a showing that the conditions for terminating the requirement are no longer met.
The FERC said it was premature to evaluate the California Independent System Operator and Southwest Power Pool markets since they have ongoing market design efforts and have only Day 1 markets. The rule defines Day 1 markets as those offering auction based real-time markets but not auction based day-ahead markets.
However, the FERC found that their markets met a portion of the statutory standard as they relate to transmission and interconnection services in Day 1 markets and member utilities may rely on these partial findings if they file to terminate the mandatory purchase obligation.
FERC continues to support QF development by ensuring that where the requirements of the PURPA regulations are met, QF development will, as determined by Congress, be stimulated by market forces. Where those requirements have not been met, QF development will continue to be encouraged through the mandatory purchase obligation, the FERC said.
Section 1253(a) of EPAct added section 210(m) to PURPA, which provides for termination of a utility's obligation to purchase electric energy from QFs and to sell electric energy to QFs, upon a finding that QFs have nondiscriminatory access to:
- Independently administered, auction-based day-ahead and real-time wholesale markets for electric energy and wholesale markets for long-term sales of capacity and electric energy.
- Transmission and interconnection services that are provided by a FERC approved regional transmission entity pursuant to an open-access transmission tariff that affords nondiscriminatory treatment to all customers and competitive wholesale markets that provide a meaningful opportunity to sell capacity and energy on a short-term and long-term basis.
- Wholesale markets for the sale of capacity and electric energy that are at a minimum of comparable competitive quality as those described above.
The final rule preserves existing contracts and also sets out a process by which a QF may seek reinstatement of the requirement to purchase electric energy if certain conditions are met.
PURPA was designed to overcome obstacles that QFs faced in trying to interconnect their operations with a utility and in finding a market for their power. Under section 201 of PURPA, cogeneration and small power production facilities that meet certain operating and ownership standards may become QFs. Under current regulations, a QF's power output must be purchased by an electric utility and the utility is also required to sell power to QF.
The final rule, "New PURPA Section 210(m) Regulations, Applicable to Small Power Production and Cogeneration Facilities," takes effect 60 days after publication in the Federal Register.