On July 21, 2016, FERC issued a declaratory order related to a qualifying facility’s (“QF”) right to sell its capacity and energy pursuant to a legally enforceable obligation under the Public Utilities Regulatory Policies Act of 1978 (“PURPA”). Specifically, FERC held that: (1) regardless of whether a QF has previously sold its renewable energy credits (“RECs”) under a separate contract, a QF has the right to sell its output pursuant to a legally enforceable obligation (“LEO”), and (2) regardless of whether a QF has participated in a request for proposal, a QF has the right to obtain a LEO.

FERC’s declaratory order results from a petition brought by Windham Solar LLC (“Windham”) and Allco Finance Limited (“Allco”) against the Connecticut Public Utilities Regulatory Authority (“Connecticut Authority”). The petition challenged a Connecticut law, which, according to Windham and Allco, prevented a QF that has already separately sold its RECs from then selling energy and capacity pursuant to a LEO. Generally speaking, the establishment of a LEO allows a QF, by unequivocally committing to sell energy and capacity to a utility, to require a utility to purchase its output over a “specified term,” at the avoided cost in effect at the time the LEO was created. Further, the petition challenged certain Connecticut Authority regulations that allegedly required a QF to participate in a request for proposals as a condition to obtaining a LEO. In the petition, Windham and Allco requested that FERC initiate an enforcement action on grounds that the Connecticut law and the Connecticut Authority’s regulations violate section 210 of PURPA. FERC declined to initiate an enforcement action.

In reaching its decision on the Connecticut law related to RECs, FERC explained that it had previously determined that “the automatic transfer of RECs within a sale of power at wholesale must find its authority in state law, not PURPA.” However, FERC went on to clarify that avoided cost rates in PURPA contracts only provide compensation for capacity and energy, thus it is impermissible for a state regulatory authority to assign ownership of RECs to utilities on grounds that the avoided cost rates already compensate QFs for RECs.

With respect to the Connecticut Authority’s regulations that allegedly compelled a QF to participate in a request for proposal, FERC emphasized that is has previously held that “requiring a QF to win a competitive solicitation as a condition to obtaining a long-term contract imposes an unreasonable obstacle to obtaining a [LEO].”

The order is available here.