On March 27, 2020, FERC denied NorthWestern Corporation’s (“NorthWestern” or the Company) petition for a declaratory order regarding Qualifying Facility (“QF”) avoided cost pricing during times of excess generation. In its petition, NorthWestern asked the Commission to determine that (1) when excess generation occurs, QF pricing should be set to zero, and (2) nothing in the Public Utilities Regulatory Policies Act (“PURPA”), including the rule against non-discrimination in avoided cost pricing, permits establishing a rate in excess of the utility’s avoided cost. In exercising its discretion to deny the petition, FERC did not reject NorthWestern’s request on the merits, but rather, stated that whether avoided energy costs can be zero depends on the facts of the case, and that NorthWestern had failed to provide sufficient information to support its request.

As relevant to the petition, unless exempted under certain circumstances, PURPA requires utilities to take the output from a QF in exchange for an “avoided cost rate,” that is, a rate equal to the cost that the utility would pay to generate or contract for the energy and capacity elsewhere. In 2017, NorthWestern proposed various avoided cost calculation methods to the Montana Public Service Commission (“Montana PSC”) to comply with PURPA’s “take” mandate in a manner that still allowed for economic re-dispatching of the Company’s resource portfolio based on certain forecasted occurrences. Among other scenarios, in situations where the Company was “long” on energy (i.e., generation in excess of demand) and unable to backdown other resources due to “must run” commitments, the Company requested the ability to price avoided costs at zero, because, as NorthWestern argued, the Company was not avoiding any costs by purchasing from QFs. NorthWestern argued that its proposal was supported by FERC Order No. 69, where the Commission stated that when a QF “seek[s] to make a utility purchase more energy or capacity than the utility requires to meet its total system load[,] . . . the purchase rate should only include payment for energy or capacity which the utility can use to meet its total system load.”

The Montana PSC rejected NorthWestern’s filing, disagreeing with NorthWestern’s interpretation of Order No. 69, and finding that it would be discriminatory to apply the proposed pricing only to QFs. However, the Montana PSC stated that it would change its decision if: (1) the Commission issued a declaratory order regarding Order No. 69; or (2) NorthWestern used a similar analysis of its own costs when acquiring generation in the future.

Accordingly, on October 2, 2018, NorthWestern filed its petition with the Commission, requesting guidance on the ability to set avoided costs at zero during excess generation FERC, and confirmation that nothing in PURPA permits establishing QF payments greater than avoided costs. Several parties intervened and protested NorthWestern’s proposal.

FERC denied NorthWestern’s petition, stating that the Commission was exercising its discretion and declining to address NorthWestern’s petition or the arguments raised in the proceeding. The Commission stated that whether avoided costs can be set at zero depends on the facts of the case, which the Commission found were insufficiently supported in NorthWestern’s petition. The Commission noted, for example, that NorthWestern failed to provide sufficient information about: (1) whether the other resources were truly “must run,” among other concerns; (2) when and for how long the designation allowing for reduced avoided costs pricing would exist; (3) the estimated MW involved; (4) how NorthWestern would attribute excess generation scenarios to QFs, as opposed to other generation; and (5) whether NorthWestern’s request for guidance pertained to as-available avoided cost rates, long-term fixed avoided cost rates, or both.

Ultimately, the Commission concluded that more concrete facts were necessary to determine “whether and when” avoided costs can be set at zero. For these reasons, the Commission denied NorthWestern’s declaratory order request.

Click here to read the full order.