NARUC Calls on FERC to Prioritize PURPA Reform

The National Association of Regulatory Utility Commissioners (NARUC) believes that the Federal Energy Regulatory Commission (FERC) needs to fast-track reform of the Public Utility Regulatory Policies Act of 1978 (PURPA), NARUC President John Betkoski III said in a December 18 letter to the commission.

The letter pushes for FERC's new Chairman, Kevin McIntyre, to make the reform a priority. "As the primary point of responsibility for PURPA's on-the-ground implementation, the States have a strong interest in the reform of PURPA's associated federal administrative regulations and we hope this reform will continue to be a priority under the leadership of Chairman McIntyre," the letter says.

PURPA is out of date, and no longer functions as it should, Betkoski wrote. The rule was enacted in the late 1970s and was partly updated in the Energy Policy Act of 2005 (EPAct 2005). The letter points to four major changes that have impacted the effectiveness of PURPA.

First, the letter notes the rise of wholesale electric markets administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). The EPAct 2005 addressed this issue somewhat by allowing exemptions from PURPA where qualifying facilities (QFs) had access to these markets. "FERC has exempted each of the ISOs and RTOs from PURPA's mandatory purchase obligations for projects over 20 [MW] in size," the letter explains.

The second major change noted in the letter was the growth of renewable energy. "To the degree PURPA was enacted at a time when QF technologies were not the norm, that norm has changed profoundly," the letter says.

Also noted in letter is the requirement of public utilities to have on file an Open-Access Transmission Tariff (OATT) and requirements by state commissions that "utilities subject to their jurisdiction to make use of competitive solicitations as a means of selecting projects, opening an avenue for competition-even outside of those places with ISOs and RTOs-in the wholesale market."

Because PURPA is not currently in-line with these changes, states endure "significant transaction costs" related to administering PURPA regulations, the letter says. "These four changes-the rise of wholesale markets, the place of QF technologies as a commonplace source of power, the open-access regulation of the transmission system, and the use of competitive methods to select projects throughout the States-suggest that PURPA's administrative regulations should be aligned to these developments, instead of obstructing them."

NARUC offers three reforms it thinks would help address these issues.

• FERC should "adopt regulations that move away from the use of administratively determined avoided costs to their measurement through competitive solicitations or market clearing prices. This could be done by expanding the administrative regulations at 18 CFR 292.309 to include other places where QFs have competitive access to the market or at 18 CFR 292.304 to include other ways to determine avoided costs, such as through a utility's competitive solicitation process.
• Reduce or eliminate the 20 MW threshold for the "rebuttable presumption that QFs with a capacity at or below that size do not have nondiscriminatory access to the market"
• Address the disaggregation problem. "There are a number of well-documented incidents where projects have forgone economies of scale to qualify themselves as individual QFs and evade other regulations; for instance, State Commissions requirements for competitive solicitations. The Commission should not encourage this form of regulatory arbitrage," the letter says.

-Abby L. Harvey is a POWER reporter.

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