By: DSIRE Insight Team
This month’s blog post focuses on state and federal policy changes concerning the Public Utilities Regulatory Policy Act, or PURPA. PURPA requires electric utilities to purchase electricity from small renewable or cogeneration facilities, termed Qualifying Facilities, or QFs, at the utilities’ avoided cost of electricity. While PURPA is a federal law, states have a large role in PURPA policy, with states largely responsible for determining how avoided costs are calculated and setting PURPA contract terms. Differences in state PURPA implementation can have a large effect on patterns of renewable development across states.
PURPA policy has seen some major changes since our last PURPA blog post, most notably the issuance of Federal Energy Regulatory Commission (FERC) Order 872, which significantly adjusts state and utility obligations under PURPA, primarily in the direction of limiting the size and type of QFs that are required to be served through PURPA contracts. Some states have begun revising their own PURPA rules following Order 872. FERC and the states have also continued to grapple with other policy questions, including how energy storage fits into the PURPA framework.
States Considering Changes to PURPA Implementation, Jan. 2020 - Dec. 2020
Major Developments:
FERC Order 872
FERC Order 872, issued in July 2020, makes several significant changes to PURPA implementation requirements. The order followed from a Notice of Proposed Rulemaking (NOPR) issued in September 2019 and contains many of the same elements, although Order 872 did not adopt all of the changes proposed in the NOPR. Order 872’s changes generally go in the direction of limiting the availability of PURPA contracts. Major elements include:
Reducing the maximum system size at which access to competitive markets is presumed from 20 MW to 5 MW.
Adopting a rebuttable presumption that locational marginal prices (LMPs) established through competitive procurement processes reflect utility avoided costs.
Revisions to the language determining whether facilities located nearby to each other are part of the same QF.
A requirement that QFs demonstrate commercial viability and financial commitment before being entitled to a contract or legally enforceable obligation (LEO).
Allowing states to require that PURPA contracts include avoided costs that vary over time (rather than being set at a fixed price) and allowing states to use projected energy costs in determining avoided costs.
The NOPR had proposed several additional elements, which were either not included in Order 872 or significantly scaled back. These included:
A provision allowing utilities to reduce PURPA obligations through use of retail choice programs.
A larger decrease to the maximum system size at which access to competitive markets is presumed (to 1 MW rather than 5 MW).
Adoption of a per se rule (rather than a rebuttable presumption as in the order) that LMPs reflect avoided costs.
States will adjust their PURPA regulations in order to adopt the changes required or allowed by Order 872. Several states, including Colorado, Michigan, Missouri, and New Mexico, have already opened new dockets or incorporated discussion of Order 872 into existing PURPA dockets.
QF + Storage Combinations
As the role of energy storage in the electricity system has grown, questions about how PURPA applies to combinations of renewable generation and storage have emerged.
FERC recently had the opportunity to address this issue in case QF17-454, concerning a solar-plus-storage facility in Montana. However, FERC elected to resolve this case without ruling on the storage question; the matter was decided based on the size of the solar element alone. The ruling does have implications for QFs more broadly, as it indicates that QF capacity is determined through the “power production capacity” of the QF rather than the capacity that it is capable of providing to the grid at any one time (the facility in question has 160 MW of solar PV capacity, but its inverter only allows 80 MW to be supplied to the grid).
State regulatory commissions have also been considering storage treatment under PURPA. Idaho regulators adopted rules in October 2020 for QFs that include storage. The rules establish a separate category for storage systems with less than 100 kW of capacity, with QFs in this category eligible for 20-year standard contracts. Systems above 100 kW in capacity can receive 2-year contracts. The avoided cost methodology to be used to compensate capacity for larger storage systems is based on a methodology developed by Duke Energy.
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Learn more about PURPA changes under consideration or current investor-owned utility avoided cost rates through our DSIRE Insight PURPA and avoided cost offerings, which were recently updated in December 2020. For more information or to request a sample, email us at afproudl@ncsu.edu.