Reed Smith Client Alerts

On July 16, 2020, the Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 872, which substantially modifies the Commission’s regulations concerning the Public Utility Regulatory Policies Act of 1978 (PURPA). Order No. 872 adopts 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. The new regulations will become effective 120 days after publication in the Federal Register.

Authors: Colette D. Honorable Debra Ann Palmer

PURPA was enacted in 1978 to counter the nation’s dependence on foreign oil and to “encourage conservation and more efficient use of scarce energy resources.”1 PURPA implemented a number of policies to encourage the development of energy-efficient cogeneration and small power-production facilities, including renewable energy sources such as wind and solar generators. PURPA assists these “Qualifying Facilities” (QFs) by imposing a “purchase obligation” that requires electric utilities to purchase energy and capacity from QFs.

After PURPA was enacted, 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.” State regulatory authorities were responsible for calculating avoided-cost rates for utilities subject to their jurisdiction.

More recently, however, critics have argued that the legal framework developed in 1978 no longer adequately addresses the challenges facing the energy industry. For example, in the past 40 years, the country has experienced the shale gas and oil boom and has developed organized wholesale electricity markets. PURPA permits FERC to revisit its implementing regulations “from time to time.”2 On September 19, 2019, FERC issued a Notice of Proposed Rulemaking (NOPR) containing several proposals to modify its PURPA regulations. Order No. 872 revises those regulations in an attempt to reflect current conditions in the energy industry.