Petition to Enforce PURPA against Montana PSC Questions Auctions and Capacity

A group of qualifying facility (QF) renewable energy developers (Hydrodynamics Inc., et al) jointly petitioned FERC on June 14, 2013 for enforcement of PURPA against the Montana Public Service Commission (Montana PSC). The QF developers contend that the Montana PSC is denying large QFs the right to enter into long-term PPAs at NorthWestern Energy’s avoided cost. According to the petitioners, QFs over 10 MW in Montana have only two paths to a PURPA contract: win a competitive auction or enter into a “short-term” rate contract. The petitioners argue that the first option is illusory because only one such auction has been held in the last 12 years and because NorthWestern acquires generating resources outside auctions. The petitioners also argue that the short-term option, which is for contracts up to 18 months at energy-only rates, falls short of PURPA.

This FERC docket could impact other states that use auctions to set avoided cost prices for QFs. Auctions are a permissible means for establishing PURPA avoided cost rates, but FERC has provided few guidelines on how auctions should be structured to comply with PURPA. If FERC decides to weigh in on the merits, it could also address whether an 18-month power purchase agreement satisfies PURPA. The Hydrodynamics Inc. petition and similar enforcement petitions filed recently highlight a tension between PURPA’s requirement that QFs are paid no more than full avoided cost with its objective of encouraging development of independently owned renewable generators with contract terms that make projects financeable.

The range of parties seeking to intervene, including Edison Electric Institute (EEI) and National Association of Regulatory Utility Commissioners (NARUC), further signals the national significance of this docket. The lightning rod issues for interveners are likely auctions and capacity payments. FERC could use the docket to set criteria for auctions that satisfy PURPA. FERC could also rule on whether PURPA allows for payment of energy-only rates to QFs when the purchasing utility is acquiring capacity. With the issues at stake and the involvement of EEI and NARUC, this docket is poised to be a focal point for tensions between QFs, utilities, and state regulators across several states.

FERC is most likely to decline to initiate an enforcement action even if it substantively agrees with the petitioners. If it so declines, the petitioners can bring a PURPA enforcement action in federal court.

See Hydrodynamics Inc., FERC Docket No. EL13-73-000 (initiated June 14, 2013).

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