Thread by @AriPeskoe

In its PURPA Rollback proposal, FERC proposes to eliminate the rule that QFs must have the option of a fixed-price long-term contract. This part of the proposal is not well supported and legally questionable. A deep dive into paragraphs 63-76 of the NOPR: ferc.gov/whats-new/comm…

Under FERC’s regs, every QF may enter into a long-term fixed price contract with the utility purchaser prior to coming online. FERC proposes to allow states (which set QF rates pursuant to FERC regs) to provide only a *variable* rate for energy (and a fixed rate for capacity).

Revenue certainty helps finance QFs. Because a purpose of the law is to “encourage” QF development, QF developers (and in particular renewables) will argue that eliminating the fixed-price mandate is inconsistent with the law.

FERC responds that it “does not view the proposed modification to the PURPA Regulations as materially affecting the ability of QFs to obtain financing.” Here’s how FERC attempts to rationalize the rollback -

FERC “understands that fixed energy rates are not generally required in the electric industry in order for electric generation facilities to be financed.” FERC then cites RTO capacity markets as evidence that generation is financed through fixed capacity and variable energy rates

But RTO capacity markets implicitly favor non-QF NG gens, according to @jacob_mays and FERC’s top economist - papers.ssrn.com/sol3/papers.cf…. That RTO markets may finance non-QF natural gas gens is irrelevant to “encouraging” QFs.

@jacob_mays FERC then cites comments filed by SoCo about its contracts with non-QFs. Again, not relevant to QFs. Next FERC quotes SEIA’s comment that “Developers need rates for such sales of energy and/or capacity to be fixed” ferc.gov/CalendarFiles/…

@jacob_mays But since states may set capacity rates to zero when the utility has sufficient capacity, a fixed capacity rate with a variable energy rate does not “encourage” QF development.

@jacob_mays [It would be ironic if, after citing RTO capacity auctions as evidence that renewables can get financing outside of PURPA, FERC then effectively locks renewables out of the PJM capacity auction with a MOPR]

@jacob_mays FERC then cites EIA data about renewables growth. It claims that this data “is highly relevant to the question of whether the existing PURPA avoided cost provisions…are necessary for QFs to obtain financing.” It’s not.

@jacob_mays Some of these projects *do* have long-term fixed-price contracts. Some states require long-term contracts. In other cases, utilities respond to mandates by signing long-term contracts. EIA data about renewables growth tells us nothing about project financing.

@jacob_mays Incentives and mandates provide renewable project developers with options. But those programs aren’t available in every state and they don’t excuse FERC from implementing PURPA consistently with Congress’s purpose.

@jacob_mays DOE has more relevant data (although still not directly on point) that FERC ignores. From DOE’s 2018 Wind Technologies Report: energy.gov/eere/wind/down…

@jacob_mays FERC next claims that “EIA data on independently-owned natural gas-fired generation capacity tells a similar story,” but that’s even less relevant than the renewables data. FERC then concedes –

@jacob_mays FERC also mentions “financial products [that] can provide additional comfort to lenders regarding the level of energy rate revenues.” I’ll be interested to see what the QF industry says about that in comments.

@jacob_mays Here’s FERC’s proposed regulatory language to implement this rollback:

@jacob_mays It’s not clear that (2) would be upheld by a court. After FERC issued its initial PURPA regs in 1980, utilities sued. Ultimately SCOTUS upheld FERC’s regs and concluded that Congress did not impose “traditional utility ratemaking concepts” on QFs. caselaw.findlaw.com/us-supreme-cou…

@jacob_mays Courts have concluded that “reconsideration of long term contracts with established estimated costs imposes utility-type regulations over QFs.” In other words, a PUC-mandated contract that allows the PUC to update the rate may be illegal. leagle.com/decision/19932…