On January 19, 2006, FERC issued the latest of its proposed rules implementing the Energy Policy Act of 2005 (EPAct 2005). Section 1253 of EPAct 2005 added Section 210(m) to the Public Utility Regulatory Policies Act of 1978 (PURPA), and significantly altered the mandatory purchase obligation by utilities of power from qualifying small power production and cogeneration facilities (QFs). The EPAct 2005 amendments generally provide that when a competitive power market meeting certain standards exists, a utility could be relieved of its obligation to purchase power and capacity from and to sell power to QFs. FERC’s proposed rules provide details on the circumstances pursuant to which the mandatory purchase obligation can be terminated, and proposes blanket pre-approval for terminations in most of the existing Independent System Operator (ISO) and Regional Transmission Organization (RTO) control areas.

The proposed rules implement EPAct 2005 by terminating the purchase obligation (as well as the requirement that utilities sell electric energy to QFs) upon a finding that QFs have nondiscriminatory access to:

  • Independently administered, auction-based day-ahead and real-time wholesale markets for electric energy and wholesale markets for longterm sales of capacity and electric energy; or
  • Transmission and interconnection services provided by an RTO or ISO pursuant to an open-access transmission tariff that affords nondiscriminatory treatment to all customers, and competitive wholesale markets that provide a meaningful opportunity to sell capacity and energy on a short-term and long-term basis; or
  • Wholesale markets for the sale of capacity and energy that are at a minimum of comparable competitive quality as those described above.

EPAct 2005 permits electric utilities to file applications for relief from the mandatory purchase obligation and requires that the Commission act on such applications within 90 days. However, the Commission determined that it could better implement Section 210(m) through a generic rulemaking.

The Commission proposes that electric utilities that are members of the Midwest Independent System Operator, PJM Interconnection, ISO-New England and the New York Independent System Operator already qualify for relief from the mandatory purchase obligation, and will be relieved of the obligation after a "ministerial" filing. FERC believes this blanket pre-approval is appropriate because those RTOs operate auction-based day-ahead and real-time markets and bilateral long-term contracts are available to QFs in those markets. FERC does not interpret EPAct 2005 as requiring an auction-based market for longterm sales. Finally, those markets provide nondiscriminatory open-access transmission service and independently administered wholesale markets. Two other independent system operators, the California ISO and Southwest Power Pool, were found not to qualify for a blanket exemption because they lacked dayahead markets, even though they met the open-access transmission requirement.

Outside of the five pre-approved RTOs, FERC proposes to determine on a caseby- case basis whether a utility has met the new EPAct 2005 standards for relief from the purchase obligation. A utility must demonstrate the "factual basis upon which relief is requested." Under the proposed rule, utilities will need to provide actual sales data for (1) long-term and short-term capacity, and (2) long-term, short-term, and real-time energy as well as evidence that the utility operates in a competitive wholesale market. Consistent with its treatment of applications already filed by Alliant and Montana-Dakota Utilities to terminate purchase obligations, the Commission will require that the applicant identify (by name and address) all potentially affected QFs, including (1) those with existing power purchase agreements with the applicant, (2) other QFs that sell to applicant or have pending requests to do so, (3) any developer with whom the applicant is discussing a power purchase agreement, (4) developers with pending state avoided cost proceedings, and (5) any other QFs that applicants reasonably believe will be affected by the petition. In order for the Commission to make a finding with the 90-day deadline mandated by EPAct 2005, the applicant must file its entire case in brief, including all evidence, testimony, and exhibits.

The Commission will permit all the jurisdictional utilities in a given market to file for relief at the same time. In addition, the rule establishes a procedure for QFs to file to reinstate the purchase obligation if there is a material change in conditions under which the exemption was predicated. The applicant, which can be a QF, state agency, or affected person, bears the burden of supporting the application with evidence and providing notice to all potentially affected utilities. The Commission invites comment on whether the purchase obligation should be retained for certain categories of QFs, e.g., small renewable QFs of 5 MW or less.

As provided in EPAct 2005, the proposed rule would protect existing rights under any contract or obligation in effect or pending approval involving purchases from or sales to QFs. However, when a contract expires on its own accord, a utility granted an exemption from the purchase obligation will not be required to enter into a new, successor contract. While EPAct 2005 provided that utilities would be entitled to recover "all prudently incurred costs associated with the purchase" from QFs, the Commission does not believe that any regulations were necessary "at this time."

Comments on the proposed rule will be due 30 days after publication of the NOPR in the Federal Register.

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