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Western PURPA War Update: Retreats, Advances, But Little Clarity

February 04, 2014 posted by Eric Christensen

As we discussed last summer, the expansion of renewable energy generation, especially wind generation, has produced an escalating conflict between the Federal Energy Regulatory Commission ("FERC") and several Western states over the application of the Public Utility Regulatory Policies Act ("PURPA"). In recent months, at least one major conflict has been resolved, while other conflicts continue to develop. While future developments may depend upon whether newly-nominated FERC Chairman Norman Bay adopts the aggressive enforcement policy of his predecessor, Jon Wellinghoff, recent action provides some hints as to the future legal landscape. PURPA is a 1978 law that, among other requirements, mandates that utilities purchase power produced by smaller renewable generators. Recent conflicts have arisen over PURPA's basic mandate, which requires utilities to purchase power from PURPA-eligible generators, called "Qualifying Facilities" or "QFs", at avoided-cost rates. Conflicts have also arisen from efforts to square PURPA with recent industry developments, such as ownership of Renewable Energy Credits and integration of variable renewable resources.. Perhaps most notably, after launching its lawsuit against the Idaho Public Utilities Commission ("IPUC") last spring with a considerable bang, FERC settled the lawsuit in December with something of a whimper. FERC launched that lawsuit in federal court after repeatedly finding that the IPUC had failed to honor FERC policy which dictates that QFs can form "legally enforceable obligations" under PURPA by tendering a signed contract to the incumbent utility, while the IPUC took the position that no obligation is formed until the contract is counter-signed by the utility. While, in the abstract, the issue seems rather mundane, it is of vital importance for the wind generators involved in the underlying disputes because, under FERC's view, they may qualify for the higher avoided cost rates in effect at the time they claim to have tendered legally enforceable obligations to Idaho Power Company, rather than when Idaho Power counter-signed the contracts, after new, lower rates went into effect. In the Christmas Eve settlement, the IPUC agrees only that "a legally enforceable obligation may be incurred prior to the formal memorialization of a contract to writing," leaving the fate of the wind farms involved in the underlying controversies up in the air, while promising a new era of "cooperative federalism" in a joint IPUC-FERC press release. The decision to settle, made shortly after the departure of Jon Wellinghoff as FERC Chairman, was widely seen as a signal that FERC will take a less confrontational approach on PURPA issues in the future. This view was reinforced by another order, issued on the eve of Chairman Wellinghoff's departure. There, FERC concluded that the City of Burlington, Vermont, was not obligated under PURPA to purchase the output of a small hydroelectric project located in the City because Burlington allowed the project to move power to the New England ISO. The dam operator therefore has access to organized markets, which excuses Burlington from its PURPA obligations under amendments added to PURPA as part of the Energy Policy Act of 2005. In one of his last official acts, Chairman Wellinghoff issued a strongly worded dissent, arguing that Burlington failed to meet its burden to show that the dam operator had unfettered access to the New England markets and that, in any event, the dam operator may have grandfathered rights under PURPA. Attempts to draw conclusions about FERC's future course from these cases, however, were overtaken by events this week, when President Obama nominated Norman Bay to be the new Chairman of FERC. If confirmed, he will replace Commissioner Cheryl LeFleur, who has been Acting Chairman since Mr. Wellinghoff's departure. Mr. Bay's record as the Director of FERC's Office of Enforcement suggests he may well take a firm hand in enforcement matters that is closer to Chairman Wellinghoff's approach. In any event, the IPUC settlement and the Burlington decision do not signal a full retreat by FERC on PURPA issues. On the contrary, several recent decisions indicate that FERC will not hesitate to rule in favor of QFs and against state commissions where circumstances warrant. For example, on December 19, FERC reaffirmed its decision to reject the Oregon Public Utility Commission's conclusion regarding the point of delivery from a QF generator operated by Kootenai Electric Cooperative, a rural electric coop in North Idaho. Kootenai argued that, by purchasing transmission service that would allow it to deliver power into Oregon, it was entitled under FERC rules to Oregon avoided cost rates. Idaho Power Company countered that it received power from Kootenai at its Lolo Substation, near Lewiston, Idaho, which is the boundary of its Control Area, and Kootenai was entitled only to lower avoided cost rates established in Idaho. While the Oregon Commission accepted this argument, FERC rejected it, finding that Kootenai had purchased rights to deliver power to the physical boundary of Idaho Power's service territory in Eastern Oregon, and Kootenai was therefore entitled to the higher Oregon avoided cost rates. Similarly, on December 16, FERC issued an order involving a dispute between Pioneer Wind Park and Rocky Mountain Power, PacifiCorp's Wyoming subsidiary. FERC accepted Pioneer Wind's claim that PacifiCorp violated PURPA by offering interconnection service to Pioneer Wind that would allow PacifiCorp to curtail output from the Pioneer wind farm before it curtailed output from PacifiCorp-owned generators. This arrangement violates PURPA, FERC concluded, because PURPA allows utility purchasers to curtail QF deliveries only in emergencies and generally requires utilities to purchase QF output in all other circumstances. The decision prompted PacifiCorp to propose a new "two stream" contract approach to the Wyoming Public Service Commission. Under the "two stream" proposal, PacifiCorp will provide a lower price for QFs built in transmission-constrained areas unless and until new transmission is built, at which time a higher avoided-cost rate would kick in. A number of important PURPA issues and cases are still being considered at FERC and before a number of Western state commissions. It is difficult to predict how these matters will play out, especially given recent changes in FERC leadership. However, even if the recent thawing of state-federal tensions continues, FERC is unlikely to back off enforcing PURPA's core requirements. If you have any questions about FERC, PURPA, Western state utility commissions, or other matters discussed in this post, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group or Environment & Natural Resources practice group. We're proud that our partner Jim Waldo was recently named 2013 Lawyer of the Year for Energy and Natural Resources Law, and practice group members Don Cohen, Bill Lynn, and Brad Jones were all named among Seattle's Best Lawyers.