FERC to Consider Updating PURPA: May Signal Big Changes Without New Legislation

by Farris J. Gillman

The Federal Energy Regulatory Commission (FERC) announced at its most recent monthly conference that it is taking a new look at PURPA. The Public Utility Regulatory Policies Act (PURPA) was enacted in 1978 in response to the 1970’s energy crisis. It was meant to decrease energy demand by implementing conservation measures and increase supply by giving states tools to force vertically integrated public utilities to deal with more efficient or renewable generators.

Today’s energy landscape is very different from that of the 1970s. According to one FERC Commissioner, the United States energy market has transitioned from a “scarcity environment” to “energy dominance or independence” in the years since PURPA was passed.

Congress has not amended the Federal Power Act (FPA) in a major way since the Energy Policy Act of 2005, but that may soon change. The PURPA Modernization Act of 2017 was introduced by House Republican Tim Walberg in late November of 2017, and the Senate has a related UPDATE PURPA Act, that was introduced in late April this year.

While FERC Commissioner Glick noted at the agency’s press conference that “[m]ajor changes need to be decided by Congress, not this commission,” the agency has historically not always waited on Congress to reinterpret its authority under existing statutes and effect major change.

When originally passed, PURPA required public utility companies to connect to certain small scale energy generating qualified facilities, or “QFs.” In particular, public utilities could be forced to connect transmission lines to QFs, and if a QF could produce electricity at a lower cost than the public utility’s “avoided cost” then the public utility would have to buy from the QF first. However, PURPA was a tool created for the states and many barely used it.

In the mid-1990s FERC reevaluated its powers under sections 205 and 206 of the Federal Power Act, in light of PURPA. Section 205 of the FPA mandates that no public utility can give unduly preferential treatment in its power sales or energy transmission. Section 206 of the FPA gives FERC the authority to remedy price discrimination. In 1996, four years after the most recent amendment to FPA, FERC shook the regulatory landscape with Order No. 888.

Under this order, FERC determined that virtually the entire electric utilities system was “unduly preferential” by having different rules for the QFs and the public utilities; therefore, FERC required public utilities to publish their avoided costs, unbundle their energy generation costs from their transmission costs, and comply with other measures that in effect forced public utilities to purchase power from QFs with lower costs. The question is whether FERCs review of PURPA will result in a similar regulatory change.

At the last press conference, the Commissioners did not set a timeline, or give much detail about how their review of PURPA will proceed, though they did mention that they were aware of a particular aspect of PURPA wherein an energy generator has to be within one mile of existing transmission lines to be a QF. Whether FERC makes any regulatory changes in response to its review is yet to be seen, but the potential for a massive regulatory change is there, and for that reason, energy generators, transmitters, state regulators, and consumers have an interest in following the process.

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