New Rules on PURPA’s Mandatory Purchase Requirement

On October 20, the Federal Energy Regulatory Commission (FERC) issued Order No. 688, a final rule implementing § 210(m) of the Public Utility Regulatory Policies Act of 1978 (PURPA), which was added in 2005. Section 210(m) provides for termination of an electric utility’s obligation to enter into new power purchase contracts with renewable energy or cogeneration qualifying facilities (qualifying facility, or QF) if FERC makes specific findings about the QF’s access to competitive markets. Order No. 688 takes effect 60 days after its publication in the Federal Register.

Unlike the proposed rule, Order No. 688 does not make the findings necessary to terminate the must-buy requirement in any particular market. Instead, it creates a series of rebuttable presumptions. In sum, the new rule provides that any utility located in MISO, PJM, New England, New York, or ERCOT will be rebuttably presumed to qualify for relief from the must-buy requirement with respect to QFs larger than 20 MW. With respect to other markets, and with respect to all QFs 20 MW or smaller, the utility bears the burden of showing that it qualifies for relief from the must-buy requirement.

Background: Section 210(m) of PURPA

Section 210(m) provides for termination of an electric utility’s obligation to enter into new power purchase contracts with a QF if FERC finds that the QF has non-discriminatory access to:

• Independently-administered, auction-based day-ahead and real-time wholesale markets, and wholesale markets for long-term sales of electric energy and capacity (§ 210(m)(1)(A)); or
• Transmission services provided by a FERC-approved regional transmission entity, and competitive wholesale markets that provide a meaningful opportunity to make long- and short-term sales of energy and capacity (§ 210(m)(1)(B)); or
• Wholesale markets for the sale of electric energy and capacity that are of “comparable competitive quality” to the markets described above (§ 210(m)(1)(C)).

FERC Establishes Rebuttable Presumptions

Any electric utility seeking relief from the must-buy requirements, regardless of location, must apply to FERC for relief. Order No. 688 establishes rebuttable presumptions to guide FERC actions on such applications, including the following:

• It is rebuttably presumed that QFs with a net capacity of 20 MW or less do not have non-discriminatory access to the markets described in § 210(m), and thus electric utilities would continue to be subject to the must-buy requirement with respect to such small QFs.
• It is rebuttably presumed that the markets operated by the Midwest Independent Transmission System Operator, PJM Interconnection, ISO-New England, or New York Independent System Operator satisfy the requirements of § 210(m)(1)(A), and thus that electric utilities located in those markets should be relieved prospectively of the must-buy obligation with respect to QFs larger than 20 MW. A QF may rebut this presumption by showing that transmission constraints or the QF’s operational characteristics prevent it from participating in the market.
• It is rebuttably presumed that the markets operated by the Electric Reliability Council of Texas satisfy the requirements of § 210(m)(1)(C), and thus that electric utilities located in ERCOT should be relieved prospectively of the must-buy obligation with respect to QFs larger than 20 MW.

Procedures for Terminating Mandatory Purchase Requirement

An electric utility seeking relief from the mandatory purchase requirement must file an application at FERC making an affirmative showing that it satisfies the requirements of § 210(m) in its service territory. An electric utility must include in its application existing transmission studies, system impact studies for generation interconnection agreements, and other material relevant to determining whether transfer capability is available to a QF. The electric utility must also provide notice of its application to all potentially affected QFs.

If the must-buy requirement is terminated in an electric utility’s service territory, QFs, state agencies, or others may later petition for reinstatement of the requirement if circumstances have changed such that the criteria in § 210(m) are no longer satisfied.