FERC moves to gut PURPA

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The administration of Donald Trump has made several efforts to tilt energy markets in favor of coal and nuclear power, not the least of which was an attempt to ram a coal and nuclear bailout through the Federal Energy Regulatory Commission (FERC). However, yesterday Trump’s appointees on FERC took this a step further and moved to gut a law that has spurred substantial renewable energy development.

Yesterday FERC moved to adopt a proposed rule that would make several changes to the Public Utilities Regulatory Policies Act of 1978 (PURPA), which taken together would greatly weaken the law. The biggest changes would remove the fixed-price nature of PURPA contracts, by giving states one of several options.

  1. Voiding the fixed-price nature of energy payments in PURPA contracts, and instead setting payments to market prices under one of two options
  2. Allowing states to alternatively keep a fixed-price contract, but set it to what they think the energy price will be when the power is actually delivered, not a utility’s current “avoided costs”.
  3. Allowing states to set prices for PURPA contracts based on competitive solicitations

The proposed rule would also shrink the size of projects that utilities must buy power from under PURPA contracts from 20 MW to 1 MW, and make other changes. The proposal will now be published in the Federal Register, which will initiate a 60-day comment period.

 

Administration over-reach?

Richard Glick, the one Democrat on FERC, issued a partial dissent. Glick described this as the administration moving to “gut” PURPA and primarily argued that as PURPA is a federal law, changes to it should be made by Congress.

Whether PURPA’s goals remain relevant is a decision for Congress, not an administrative agency. The Commission should not be seizing the reins from Congress in order to isolate an important debate about national energy policy within an independent regulatory agency.

However, Glick’s concerns about process do not appeared to be shared by his fellow commissioners, one of whom, Bernard McNamee, was an outspoken advocate for fossil fuels before being appointed by President Trump to FERC.

However, this move by a federal agency to make substantial changes to a federal law could open up the ruling to legal challenges. “We are currently reviewing the NOPR FERC released to ensure that FERC continues to support the development of renewables, as required by law,” stated Alex Hobson, the VP of communications at American Council on Renewable Energy.

 

Market impacts?

Solar Energy Industries Association (SEIA) was among those who condemned the ruling, stating that it gives too much power to utilities. Per the statement by VP of Regulatory Affairs Katherine Gensler:

Rather than focusing on PURPA’s goal of ensuring competition, this proposal would have the effect of dampening competition and allowing utilities to strengthen their monopoly status, to the detriment of customers… the proposed rule is a move away from competition and we hope FERC rethinks the most harmful portions of this proposal. 

However this proposal also comes as PURPA is on the wane as a driver of solar deployment. Wood Mackenzie estimates that 1.7 GWdc of solar was put online through PURPA in 2016 and 1.6 GW in 2017, but only around 700 MW in 2018.

This was largely the result of state-level policy changes. PURPA gives a lot of leeway for state-level implementation, and in many states where the policy was driving significant solar market growth utilities pushed state regulators to make changes to slow the deployment of solar.

Among the states where PURPA underwent significant changes is North Carolina. There a compromise between the solar industry and the state’s utilities, including Duke, led to the adoption of a system based on competitive solicitation. And while this kept the utilities from entirely killing the law, under this system the state’s large-scale solar market is much smaller than it was before.

Colin Smith, a solar analyst at Wood Mackenzie, says that most of the remaining PURPA development for solar is in states like South Carolina and Michigan where regulators are compelling utilities to let “lingering” projects come online, and that this could total around 700 MWdc annually through 2023.

Since FERC’s proposed ruling will take time to complete and implement at the state level, a lot of those projects could end up being built before any federal changes take effect.

 

Update: This article was updated at 1:15 PM EST on September 20 to include more recent figures on solar deployment under PURPA by Wood Mackenzie, which increased the total MW in 2018, as well as analysis.