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On July 16, 2020, the Federal Energy Regulatory Commission (“FERC” or “the Commission”) issued Order No. 872, a Final Rule implementing Sections 201 and 210 of the Public Utility Regulatory Policies Act (“PURPA”). The Final Rule changes a number of practices which have been in place since the initial passage of the Act in 1978. FERC implemented these changes in response to what the Commission called an unprecedented change in the dynamics of the natural gas market, the improved outlook for alternatives to natural gas and oil-fired generation resources, and the introduction of Qualified Facilities (“QFs”) as competing sources of electricity to incumbent electric utilities. The Final Rule implements several key changes to PURPA.

Order No. 872 emphasizes that it grants states and nonregulated electric utilities (collectively, “states”) a number of changes to increase flexibility.  First, it grants states the flexibility to require that energy rates in QF power sales contracts and other legally enforceable obligations (“LEOs”) vary in accordance with changes in the purchasing electric utilities as available. The Final Rule grants states additional flexibility to allow QFs to have a fixed energy rate, but to provide that such state-authorized fixed energy rate can be based on projected energy prices during the term of a QF’s contract based on the anticipated dates of delivery. The Commission grants states flexibility to set “as-available” QF energy rates. Next, states are granted the flexibility to set energy and capacity rates pursuant to the competitive solicitation process.

Order No. 872 clarifies that the Commission’s existing PURPA regulations already require that states, to the extent practicable, must account for reduced loads in setting QF capacity rates. Further, the Final Rule modifies the “one-mile rule” for determining whether generation facilities are considered to be at the same site for purposes of determining qualifications as a qualifying small power facility. In particular, the Final Rule retains the presumption that QFs more than a mile apart are located on separate sites, but makes the presumption rebuttable for small power production QFs located more than one mile but less than ten miles apart. The Commission allows an entity to challenge an initial self-certification or self-recertification without being required to file a separate petition.

Next, the Commission revises its regulations implementing PURPA section 210(m), which provided the termination of an electric utility’s obligation to purchase from a QF with nondiscriminatory access to certain markets. Previously, there was a presumption that QFs with a net capacity at or below 20 MW do not have nondiscriminatory access to markets. Order No. 872 updates this threshold to 5 MW. Finally, a QF must demonstrate commercial viability and a financial commitment to construct its facility pursuant to objective and reasonable state-determined criteria before the QF is entitled to a contract or LEO.

Commissioner Glick issued a dissenting opinion. Requests for rehearing are due August 17, 2020. The Final Rule can be found here.

For further information regarding Order No. 872 and FERC’s Final Rule, please contact Kristen Connolly McCullough, Joshua Adrian, and Sean Neal.