On July 9, 2018, FERC denied Cloverland Electric Cooperative’s (“Cloverland”) application to terminate its mandatory obligation under the Public Utilities Regulatory Policies Act of 1978 (“PURPA”) to purchase electric energy and capacity from qualifying cogeneration or small power production facilities (“QF”) with a net capacity in excess of 20 megawatts.  In denying the request, FERC emphasized that direct membership in regional transmission organizations or independent system operators is necessary to meet the exemption Cloverland requested under PURPA.

Within the PURPA framework, an electric utility may be relieved of its obligation to purchase QF output if it satisfies certain requirements.  For QFs larger than 20 MW, FERC will allow the termination of the requirement to purchase the QF output if FERC finds that the QF has nondiscriminatory access to competitive or independently administered markets, whereby it can meaningfully participate and sell its capacity and electric energy output.  In particular, PURPA section 210(m)(1)(a) provides that access to an “independently administered, auction-based day ahead and real time wholesale markets for the sale of electric energy” is enough.  FERC has specifically found that the Midcontinent Independent System Operator, Inc. (“MISO”) and other regional transmission organizations qualify as a wholesale markets for purposes of this determination.

In its application, Cloverland stated that it is a member-owned distribution cooperative with its service territory located wholly within MISO.  Cloverland explained that, while it is not itself a member of MISO, it is a market participant in MISO’s energy markets and a transmission-dependent utility that purchases transmission service from American Transmission Company, LLC (“ATC”)—a MISO member—under MISO’s Open Access Transmission, Energy, and Operating Reserve Markets Tariff.

FERC denied Cloverland’s application, finding that Cloverland sought to claim the benefit of ATC’s MISO membership in requesting relief from PURPA’s mandatory purchase obligation.  FERC explained that it had previously found that being a market participant in MISO’s service territory is not sufficient.  Quoting Order No. 688, FERC stated that “[f]or purposes of establishing a rebuttable presumption that QFs interconnected with certain utilities have access to ‘Day 2’ markets, we think that a reasonable line to draw is with the member utilities of RTO/ISOs.”  Since Cloverland is not itself a member of MISO, FERC did not find it was entitled to relief from PURPA’s mandatory purchase obligation under PURPA section 210(m)(1)(a).