On July 16, 2020, the Federal Energy Regulatory Commission (“FERC”) issued its final rule changes to the Public Utility Regulatory Policies Act of 1978 (“PURPA”) meant to modernize FERC’s PURPA rules by limiting the size of renewables projects that receive special regulatory treatment under PURPA and providing new flexibility to state regulatory authorities. The PURPA Order passed by a 3-1 vote, with Commissioner Richard Glick dissenting in part, and closely tracks FERC’s PURPA reform proposal issued last year. FERC’s PURPA rules were originally promulgated in 1980 and, as required by the U.S. Congress in PURPA, were designed to encourage the development of small power production and cogeneration facilities, known as qualifying facilities (“QFs”). Except for limited changes required by the Energy Policy Act of 2005, the original PURPA regulations had remained largely unmodified until now.
Specifically, the PURPA Order makes changes to certain aspects of a QF’s regulatory treatment, including: (i) lowering the QF capacity threshold for giving rise to a utility mandatory purchase obligation; (ii) adjustments to the rate a utility is required to pay a QF for its energy; (iii) changes to the aggregation rules for determining whether affiliated QFs are located at the same site; and (iv) certain associated administrative and procedural adjustments. Notably, however, the PURPA Order left intact other aspects of FERC’s regulation of QFs, including, importantly, QF exemption from certain regulatory requirements under the Federal Power Act and state laws governing utility rates and financial organization. The PURPA Order also does not permit disturbance of existing QF contracts or existing facility certifications.