Commissioner Bernard L. McNamee
July 16, 2020
Docket No. RM19-15-000 and AD16-16-000
Order No. 872
Order: E-1
Today the Commission issues the Final Rule revising its Public Utility Regulatory Policies Act of 1978 (PURPA) regulations.
With the modernization of this rule, we continue to meet our statutory duty to encourage the development of alternative generation facilities and cogeneration facilities; but we will also ensure that we meet our additional statutory duty to protect customers from paying excessive rates. We do this by ensuring that customers are not paying more for power under PURPA contracts than they would if they obtained that power from their utility or the market.
Modernizing PURPA should not be controversial; nor should our decision to do so be surprising. Not only did Congress direct the Commission to revise its PURPA regulations “from time to time,” but it has been 40 years since the Commission first adopted its PURPA regulations and, over that time, much has changed in how electricity is generated and priced.
With this new rule, the Commission provides more options to the states for setting energy rates paid to QFs. In doing so, we do not mandate any particular approach. In fact, under this rule, states still have the option to allow QFs to have a fixed energy rate, but now states will also have the flexibility to set energy rates for QFs under a variety of methods and to allow such rates to fluctuate so as to better match the actual cost of power at the time the energy is delivered.
These changes were necessary because the record demonstrated that, under the old PURPA implementation regime, it was likely that customers were overpaying for the power they received from QFs. Evidence was provided in the record that certain customers may have been overpaying for electricity by as much as $2.26 billion to $3.9 billion.
To address this problem, some states were shortening the duration of PURPA contracts for QFs, which in turn may have actually made it harder for potential QFs to obtain project financing. So, with these revisions, the Commission still requires that capacity costs to be set, but it allows energy rates to fluctuate by being tied to market prices.
The passage of PURPA was an important first step by Congress in promoting competition in electric markets—and the Commission has played an important role in implementing PURPA. With this Final Rule, we are fulfilling our statutory obligations to continue to encourage the development of QFs and to protect customers from paying excessive rates.