The Energy Information Administration (EIA) released data on renewable generation developed under certain provisions of the Public Utility Regulatory Policies Act of 1978 (PURPA). PURPA established a new category of generators, Qualifying Facilities (QFs), to receive special regulatory treatment. QFs can be either cogeneration facilities or small renewable resources of 80 MW or fewer. Electric utilities are required to (1) purchase energy and capacity made available by QFs, (2) sell energy and capacity to QFs, and (3) interconnect with QFs.
In the past ten years, PURPA has been a driver of the growth of renewable capacity in the United States. EIA data show that from 2008 to 2017, 14 GW of capacity has come online from QFs certified as small renewable resources. This is approximately 13.5% of all renewable generating capacity, and almost one third of all solar photovoltaic (PV) capacity, added during that time period.
Although PURPA requires electric utilities to purchase energy and capacity made available by QFs, the rates for these purchases are not to exceed the cost the utility would otherwise pay if it had to build new capacity or purchase from a non-QF generator (this is referred to as the utility’s “avoided cost”). EIA explains that over the past decade, the cost of solar PV installations has dropped below utilities’ avoided costs, and, as a result, QFs have become more cost competitive. States, the Federal Energy Regulatory Commission (FERC), and Congress, however, are all considering actions that would change how PURPA is implemented.
States. While PURPA is a federal statute, states and nonregulated electric utilities have the initial responsibility for determining avoided-cost rates, consistent with FERC’s regulations. In recent years, some states, such as North Carolina, have updated how avoid costs are determined in ways that lower these rates, whereas others, such as Michigan, have new methodologies that increase avoided-cost rates. States are also considering changes to their requirements for standard contract terms and conditions, such as fixed standard contract lengths for certain QFs.
FERC. In its May 2018 meeting, Chairman McIntyre announced that FERC was “reenergizing” its PURPA review initiative. FERC cannot change the fundamental PURPA obligations required by the statute, but it can revisit its regulations governing the implementing PURPA. These regulations cover issues such as when an electric utility can terminate its obligation to purchase from QFs who have nondiscriminatory access to certain markets and when multiple facilities (e.g., multiple solar panels or wind turbines) are considered a single “facility” for purposes of the 80-MW limit on small renewable QFs.
Congress. The most significant changes to PURPA would have to come from Congress, which enacted PURPA in the first place. PURPA reform bills have been introduced in both the House and the Senate. Along with changes similar to those FERC is considering, both of these bills would allow states and nonregulated utilities to eliminate the obligation for an electric utility to purchase from small renewable QFs if they determine that the utility has no need to purchase such energy or if the utility conducts a competitive resource procurement process open to these QFs.
