REGULATION & POLICY
Once an Obscure Law, PURPA Now Drives Utility-Scale Solar.
Regulatory Conflict Quickly Followed
Montana is the latest state where
utilities and developers are
pitted against each other over
rate design under PURPA.
by Chris Warren
February 23, 2017
When the Public Utility Regulatory Policies Act of 1978 was first enacted, it was a bit of
an abstraction.
A response to the energy crisis of the early 1970s, and championed by renewable
energy advocate President Jimmy Carter, PURPA was designed to encourage energy
conservation and support domestic renewable energy sources.
PURPA compelled utilities to purchase energy produced by so-called Qualified Facilities
(QFs) if they were developed at cost equal or below what a utility would have to pay for
a traditional power plant -- in PURPA parlance, that is what’s known as the utility’s
avoided cost.
From the late 1970s through even the past few years, solar and wind energy were so
expensive that no utility had to worry about them matching or besting their avoided
cost. But circumstances have changed dramatically, thanks to precipitous declines in
the cost of renewables.
In many states, contracted solar prices have fallen below 5 cents per kilowatt-hour.
The result: PURPA has become a significant driver
(https://www.greentechmedia.com/articles/read/What-Drives-Utility-Solar-Growth-in-
a-Post-ITC-Extension-World) in the development of utility-scale solar projects,
particularly in states like Utah, Idaho and Montana, which have not traditionally been
among the leaders in solar and wind deployment.
Utilities’ PURPA pushback
Put simply, PURPA has become a big deal, particularly for utility solar. “We expect
PURPA to be the No. 1 driver of utility solar in 2017, and we still expect it to drive
significant new utility capacity additions in 2018,” said Colin Smith, a solar analyst with
GTM Research.
Now utilities in states such as North Carolina, Oregon, Utah and Montana are pushing
back by proposing new contract lengths, rates and other changes that solar developers
claim would make it impossible to finance projects.
“Utilities have to take these contracts. They can’t say no. There’s no legal pushback to
say this is beyond the load forecast or more than they can handle on their transmission
network,” said Smith. “There is no feedback mechanism to curb PURPA, which led to
explosive growth in projects and, oftentimes, pushback from utilities.”
A PURPA battle in Montana: Changing the
rules mid-game?
A contentious and ongoing PURPA squabble that erupted last spring in Montana has
attracted considerable attention. Utilities and developers disagree over rates and
terms that should apply to a number of solar projects in the state -- resulting in a
declaratory order from the Federal Energy Regulatory Commission (FERC), which has
oversight over PURPA.
FERC issued its order last December, saying that the Montana Public Service
Commission had ruled in a way that was inconsistent with PURPA. Nevertheless, FERC
failed to go to court to enforce the law.
It’s a sequence of events that raises questions for GTM’s Smith.
“What is really interesting are the precedents being set by FERC in terms of how much
they will intervene,” he said. “In a circumstance where FERC is saying the local utility
commission has acted illegally but they’re not willing to intervene, there’s a big
question around how they uphold PURPA and what happens moving forward.”
Last May, Montana’s largest investor-owned utility, NorthWestern Energy, filed an
application with the state’s public service commission to begin the process of revising
QF avoided-cost rates. Almost everyone agreed that the rates, pegged at $66 per
megawatt-hour, were out of date, having last been updated in 2013.
As NorthWestern explained in a filing, the rates did not reflect the utility’s current
avoided costs for a number of reasons. “This inaccuracy is largely due to changes in
market prices and forecasts and in NorthWestern’s resource portfolio,” the utility
wrote. “First, there has been a substantial decrease in natural gas and electricity
market prices and forecasts since the Commission set the rates in the 2013 Tariff.
Second, NorthWestern acquired wind and hydroelectric resources after 2013 resulting
in a decrease of the cost of the Company’s avoidable resources.”
Two weeks later, NorthWestern went back to the commission and filed an emergency
motion, asking regulators for a complete suspension of QF rates for solar projects
above 100 kilowatts. The utility expressed concern that because the avoided cost rate
of $66 per megawatt-hour was so out of date, it would result in a flood of requests for
new solar PPAs. NorthWestern’s case for an emergency motion was buttressed by the
Montana Consumer Counsel, which argued that the state’s ratepayers were going to get
buried by an avalanche of costly solar projects.
According to a filing by FLS Energy/Cypress Creek earlier this month, the emergency
motion came at a time when the developers were “on the verge” of entering into a total
of 16 PPAs at the QF avoided cost rate of $66 per megawatt-hour.
“NorthWestern represented to Movants (FLS and Cypress Creek) prior to the hearing on
the motion that the utility would execute the PPAs that had been tendered,” the filing
read. That meant QF projects totaling 108.5 megawatts would have received the rate of
$66 per megawatt-hour.
Case closed? Hardly.
By a vote of 3-2, the commission granted NorthWestern’s emergency motion and
altered the terms under which projects between 100 kilowatts and 3 megawatts were
allowed to receive the existing QF rate. It included only those that had a signed PPA and
executed interconnection agreements by June 16, 2016. None of FLS/Cypress Creek
projects in the pipeline met the standard of the commission’s order.
FERC weighs in
After efforts to get the Montana Public Service Commission to reconsider its ruling,
FLS filed a petition with FERC last October. The company argued that both the
commission and NorthWestern were not implementing PURPA in a way that was
consistent with the law or FERC’s own regulations. The petition asked FERC to begin an
enforcement action against both the utility and the commission.
FERC’s December response declined FLS’ request to launch an enforcement action,
instead saying that FLS could pursue it in court. But FERC also weighed in on a
declaratory order about the Montana commission’s decision to only grandfather in
projects under the $66 per megawatt-hour QF rate that had both a signed PPA and an
executed interconnection agreement before June 16, 2016.
Requiring both a signed PPA and an executed interconnection agreement was the
commission’s legally enforceable obligation (LEO) standard, which basically ensures
that a project is real and will deliver on its promises. But FERC said that standard was
incompatible with PURPA because, essentially, they were terms that could be
manipulated by the utility.
“Such a requirement allows the utility to control whether and when a legally
enforceable obligation exists -- for example, by delaying the facilities study or by
delaying the tendering by the utility to the QF of an executable interconnection
agreement,” wrote FERC. “Thus, the Montana Commission’s legally enforceable
obligation standard is inconsistent with PURPA and our regulations under PURPA.”
Back to the commission
With FERC’s declaratory order as ammunition, FLS/Cypress Creek filed a motion this
month seeking relief from the previous QF rate suspension with the Montana
commission, as part of the ongoing process of developing a new QF rate. The
developers revised their request for projects they believed were eligible for the $66
per megawatt-hour rate, from 108.5 megawatts down to 40.2 megawatts.
Granting the request for relief would accord with NorthWestern’s original proposal for
accepting grandfathered projects and fall well below the 54-megawatt cap commission
staff had proposed, argued FLS/Cypress. The developer also called into question how
much of an emergency Montana was actually facing with PURPA-driven solar projects.
“Granting Movants’ request for relief would not result in a huge influx of new solar
capacity onto NorthWestern’s system -- the purported 'emergency' that led to Order
7500,” the companies wrote. “To the extent that there ever was the threat of a 'flood' of
solar projects in Montana, Order 7500 effectively prevented that from occurring. The
only remaining questions pertain to those projects that were under development at the
time of the Commission’s June 16, 2016 decision.”
What happens now?
According to a spokesperson for the Montana Public Service Commission, interveners
in the QF avoided-cost docket must submit briefs by March 10, and a final decision
about a new rate should come by mid-April. The last time NorthWestern applied to
change the rate in 2014, the commission declined to do so. That's why the rate was so
high.
It’s unclear whether the commission will rule on FLS/Cypress Creek’s request for their
grandfathered projects to move forward. If the commission doesn’t rule, the developers
can pursue their case in federal court.
It's also unclear what this means for PURPA solar projects. One legal expert
interviewed for this story said it’s normal for FERC to decline pursuing PURPA
enforcement actions, and that the declaratory order the commission issued was helpful
to solar developers. But it’s also clear that PURPA is under attack on many fronts and
will likely be tested further -- perhaps even from within FERC itself, as President
Trump changes the makeup of the regulatory body through new appointments.