By: Danielle Powers, Senior Vice President
Published: September 10, 2019
Forty years after the Public Utilities Regulatory Policy Act (PURPA) was enacted, the controversy over implementation at the state level and the larger issue of compatibility with the current energy landscape continues to swirl. On July 29, 2019, the Ninth Circuit Court of Appeals affirmed a lower court’s decision in Winding Creek Solar LLC v. Peterman that a Renewable Market Adjusting Tariff (Re-MAT) established by the California Public Utilities Commission (CPUC) violates two basic tenants of PURPA:
- The amount of energy that utilities are required to purchase from Qualifying Facilities (QFs) under PURPA are not subject to caps on procurement.
- The energy pricing must be based on the utilities’ avoided costs.
The Ninth Circuit Court also rejected the QF standard contract, finding that the standard contract also violated PURPA. Under PURPA, QFs have the option of choosing an avoided cost rate as calculated either at the time of contracting or at the time of delivery. According to the Ninth Circuit, since the standard contract only has one formula for calculating avoided costs, and that formula relies on variables that are unknown at the time of contracting, the standard contract does not provide QFs with the required option to calculate an avoided cost rate at the time of contracting.
Without guidance at the federal level, states continue to grapple with how to comply with PURPA, and developers of QF facilities and utilities have continued to disagree on the letter and intent of PURPA.
- In August 2019, several New Mexico citizens and a non-profit organization filed a complaint against the City of Farmington, New Mexico alleging a failure by the City to implement its obligations under federal law not to discriminate through electricity rates against customers who own solar generation. The complaint alleges a violation of PURPA arguing unreasonable and discriminatory rates for electricity service for customers who offset some of their electricity purchases with customer-generated solar power.
- Cypress Creek Renewables and sPower filed complaints with state regulators against Consumers Energy alleging that the utility violated state and federal law which requires the purchase of power from independent power producers. The developers claim Consumers Energy is blocking billions of dollars in near-term investment. Consumers Energy states the avoided cost rates approved by the Michigan Public Service Commission in October are now out of date, and entering into contracts with Cypress Creek will cost their customers billions of dollars.
- A Montana judge sided with the solar developers in a lawsuit faulting NorthWestern Energy and state regulators for impeding small renewable energy projects by deliberately creating contract and pricing terms that were well below historical levels, making solar energy projects uneconomical.
The issues with PURPA are likely to be amplified in the future. Beyond the traditional legal arguments around contract terms and pricing, the role of new technologies will likely lead to a whole new class of disputes. For example, battery storage is becoming both a technologically and financially feasible energy resource, which raises a number of questions in relation to PURPA:
- Is battery storage alone eligible for QF status?
- Are co-located battery storage systems considered separate QFs or part of the renewable QF?
- Will the continued influx of renewables threaten to overwhelm utilities with interconnection requests and as they become more cost-competitive?
The challenge of interconnecting and purchasing from increasing numbers of QFs dates back to the 1990s when utilities began to use competitive bidding to manage the number of QFs on their system. While it may have been manageable to have QFs rationed by price when QFs bore some resemblance to utility-avoided generation, lower-cost renewable QFs have shifted the balance among the parties. PURPA reform is the only resolution that will bring clarity to these problems.
Want to learn more about the current state of PURPA reform and the implications for your organization? Please contact info@ceadvisors.com to schedule a consultation with Danielle Powers.