Energy Legal Blog

FERC to Electric Utilities and Qualifying Facilities: Presume This!

To address the energy shortages of the 1970s, the Public Utility Regulatory Policies Act was enacted to empower qualifying cogenerators or small power producers (from renewables) ― qualifying facilities or QFs ― to "put" their electric generation to an interconnected electric utility and charge the utility an avoided-cost rate, and also demand backup power from the utility.  Because the avoided-cost rate was often locked in at relatively high prices, utilities for years sough repeal or amendment of the "put."  In the Energy Policy Act of  2005, Congress agreed and directed FERC to end prospectively the "put" for post-October 8, 2005, power sales by QFs that are found to enjoy nondiscriminatory market access.

Responding to this directive, FERC originally proposed to end generically the "put" for all electric utilities participating in independent transmission system operations that offer auction-based day-ahead and real-time energy markets ― the so-called Day 2 markets of ISO New England, the Midwest ISO, the New York ISO and the PJM Interconnection.  But in an October 20 ruling, the agency retreated to a more nuanced approach that creates rebuttable presumptions as to when a QF enjoys nondiscriminatory market access and when it doesn't.

One presumption is that QFs of 20 megawatts or less do not have nondiscriminatory market access.  But for a QF larger than 20 megawatts the "put" presumptively ends if, on a utility purchaser's application, FERC finds the QF is connected to an open-access transmission system that can access a Day 2 market, a Day 1 (an auction-based real-time market only) RTO that also includes sufficiently competitive markets, or the functional equivalent of these.  New England, the Midwest, New York and PJM qualify as Day 2; pending implementation of scheduled new market redesigns, SPP and the California ISO will remain Day 1 (leaving to case-by-case determinations the question whether the markets are sufficiently competitive); and FERC deemed ERCOT a functional equivalent.  The larger QFs can rebut the presumption of nondiscriminatory access by showing that characteristics of how they operate ― for example erratic cogeneration available for sale or non-dispatchability, or where they operate ― for examples in proximity to a binding transmission constraint ― preclude market access.

The new rule provides not only for termination of the "put" in circumstances where a QF fails to rebut the presumption of nondiscriminatory market access, but also for its reinstatement where a QF later shows that the nondiscriminatory market access it once enjoyed is no longer accessible.