Reed Smith Client Alerts

On September 19, 2019, the Federal Energy Regulatory Commission (FERC or the Commission) issued a notice of proposed rulemaking (NOPR) in FERC Docket Nos. RM1915000 and AD16160001 recommending substantial modifications to its regulations concerning the Public Utility Regulatory Policies Act of 1978 (PURPA)2. The NOPR proposes extensive changes to critical pillars of the PURPA framework, including the Qualifying Facility (QF) rate calculation, the one-mile rule, and the QF purchase mandate. Comments on the NOPR modernization proposal will be due 60 days from the date of publication in the Federal Register.

President Jimmy Carter signed PURPA into law on November 9, 1978, to counter the United States’ dependence on foreign oil and to “encourage conservation and more efficient use of scarce energy resources.”To that end, PURPA implemented a raft of policies to support the development of energy-efficient cogeneration and small power-production facilities, including renewable energy sources such as wind and solar generators. These generation facilities are known as “Qualifying Facilities” (QF). PURPA helped QFs establish their footing in wholesale markets by imposing a “purchase obligation” on electric utilities, a core feature of PURPA that required electric utilities to purchase energy and capacity from QFs.

Pursuant to section 210 of PURPA, the Commission promulgated rules requiring utilities to purchase and sell power generated by QFs at rates not to exceed “the incremental cost to the electric utility of alternative electric energy,” otherwise referred to as the “avoided cost.”4 PURPA tasked state regulatory authorities with calculating just and reasonable avoidedcost rates for utilities subject to their jurisdiction. Under this shared federal and state system, PURPA began to open wholesale electricity markets across the country and spurred the development of significant amounts of new independently owned generation resources, including renewable resources.

PURPA’s critics, however, have argued that a legal framework born in the late 1970s no longer addresses the challenges facing a 21st century energy industry given the changes that have occurred in the last 40 years. Since PURPA was enacted, the country has experienced the shale gas and oil boom and has developed organized wholesale electricity markets. Therefore, as PURPA permits FERC to revisit its implementing regulations “from time to time,” the Commission has proposed an ambitious reform of those regulations.5 The key reforms proposed by the Commission are described below, with the Commission seeking industry input on each of these issues.