CEO’s Report: Reenergizing PURPA review efforts

The PURPA discussion at our recently held Annual Meeting was especially timely as on May 17, Federal Energy Regulatory Commission Chairman Kevin McIntyre said he has directed staff to “reenergize” FERC’s Public Utility Regulatory Policies Act of 1978 review initiative.

PURPA was enacted following the energy crisis of the 1970s. It was designed to encourage energy conservation and promote greater use of domestic, renewable energy and cogeneration.

The Act requires utilities to purchase electric energy from qualifying facilities (QF): cogeneration facilities and small power production facilities of 80 MW or less. FERC and the states were directed to implement PURPA, with FERC determining what constitutes a QF.

PURPA provides that all small power production facilities located at the same site count toward the 80 MW size limit.

Under FERC’s one-mile rule, the agency deems small power production facilities located more than one mile apart to be located at different sites. Some renewable developers have spread power production facilities that are more than 80 MW over a larger area, to divide the overall project into smaller ones that meet PURPA’s QF requirements.

Much has changed in the 40 years since PURPA was enacted including development of organized wholesale electricity markets and adoption of state and federal incentives to promote generation from wind and solar resources. Today, 15 percent of electric generation is from wind and solar versus virtually none in 1978.

McIntyre pointed out that much has changed even since 2015 and 2016 when PURPA reviews were first initiated and a technical conference was held. For one thing, the makeup of FERC is significantly different than at that time. Chairman McIntyre and Commissioner Glick were confirmed in November 2017, Commissioners Chatterjee and Powelson in August 2017. Only Commissioner LaFleur was a member of FERC during the initial review.

This latest review will look at issues involved with PURPA so the commission can determine if improvements and updates need to be made to the PURPA policies.

He also promised that the process would allow for stakeholder input, something I know we at Heartland will be eager to provide.

Commissioner Neil Chatterjee expressed his interest in the topic, stating that the current energy landscape “is profoundly different than that of the late ‘70s when PURPA was enacted and because of this many have rightly voiced their desire for a fresh look at existing policy to better align PURPA with the realities we face today.”

Any changes to the fundamental features of PURPA require congressional action. However, the FERC commissioners seem to agree they can play a role by examining existing regulations. A number of concerns were raised during the 2016 technical conference by both the industry and qualifying facility developers.

U.S. Representative Tim Walberg, R-Mich., introduced H.R. 4476, the PUPA Modernization Act of 2017, late last year.

The legislation would amend PURPA section 210(m) so that small power production facilities of 2.5 MW or greater would be presumed to have non-discriminatory access to wholesale markets for purposes of allowing electric utilities to terminate the mandatory QF purchase obligation.

The bill would also empower state PUCs and non-jurisdictional entities (such as public power utilities) to waive the mandatory purchase obligation on a case-by-case basis for small power production facility QFs if additional power is not needed to meet consumers’ electricity needs. It would also direct FERC to relax its strict one-mile rule to prevent abuse of the rule.

PURPA’s mandatory purchase obligation has forced many public power utilities, including Heartland customers, to buy QF power they don’t need, often at rates that are higher than what can be obtained from the market. Further, for Heartland customers, this obligation interferes with their power supply contract. It can also impact Heartland’s long-term generation capacity planning when we are unexpectedly required to purchase power not accounted for in our integrated resource plan.

We look forward to the review process and to providing input as it takes place. We do not believe Congress ever intended for utilities to have to buy power they don’t need, at rates higher than market. The cost of this excess power must be spread across a utility’s entire customer base, unfairly charging higher rates to customers who are not benefitting from the QFs. It is past time this outdated legislation be reviewed.