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Executive Summary of FERC Order No. 872: Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978 [1]

I. Overview

On July 16, 2020, the Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 872, the Commission’s final order revising its regulations implementing Sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) [2]. This order, which follows a 2016 technical conference on PURPA issues and a September 2019 Notice of Proposed Rulemaking (NOPR) [3], is the first major set of revisions to FERC’s regulations implementing PURPA since they were established through Order No. 69 in 1980.

As FERC explained in the NOPR, the energy landscape has evolved in significant ways since the initial PURPA regulations were established, which includes increased supplies of natural gas, a more matured renewables industry, and the growing presence of non-Qualifying Facility (QF) independent power producers. These and other changes prompted FERC to revise its PURPA regulations, many of which are implemented by the states. These new changes provide additional guidance to state commissions regarding PURPA implementation and rests additional authority in state commissions regarding QF rates and contract terms.

On April 23, 2020 the Federal Communications Commission (“FCC”) issued a Report and Order adopting rules to make 1,200 megahertz of spectrum in the 6 GHz band—a band of airwaves used for communications in the operation of electric, oil, natural gas, and water companies—also available for unlicensed use by Wi-Fi and Bluetooth-connected consumer products. The FCC stated that expanding unlicensed broadband operations would provide opportunity for innovation and improve broadband speed and connectivity. The FCC also adopted an Automated Frequency Coordination (“AFC”) system to prevent unlicensed use from interfering with incumbent users including utilities. The Report and Order follows a December 2019 letter from FERC Chairman Neil Chatterjee and Commissioners Richard Glick and Bernard McNamee to FCC Chairman Ajit Pai, urging the FCC to consider additional testing of the AFC system to guarantee that unlicensed devices do not interfere with incumbent users.

On April 16, 2020, FERC addressed the American Public Power Association (“APPA”) and Exelon Corporation and its public utility subsidiaries (collectively, “Exelon Companies”) requests for rehearing and clarification of Order No. 864.  Specifically, FERC:

  • granted in part APPA’s request, clarifying that public utilities with stated transmission rates are required to use some ratemaking method to appropriately account for excess or deficient accumulated deferred income taxes (“ADIT”) resulting from the Tax Cuts and Jobs Act (“TCJA”), which will be subject to review in the utility’s next rate case;
  • confirmed that, consistent with prior precedent, any excess or deficient ADIT will not result in a windfall to either shareholders or ratepayers of public utilities with stated transmission rates; and
  • denied Exelon Companies’ request for rehearing, reaffirming Order No. 864’s requirement that public utilities with transmission formula rates return to customers the full amount of excess ADIT resulting from TCJA.

On April 2, 2020, FERC issued several orders aimed at helping regulated entities manage compliance deadlines and related issues in the wake of COVID-19 response.  Chairman Neil Chatterjee also issued a press release confirming the pandemic qualifies as an emergency under the Commission’s rules and detailing additional steps in FERC’s plan to help regulated entities manage potential enforcement and compliance-related burdens during the pandemic, including two new task forces to expedite standards of conduct waiver requests and no-action letters.

On January 10, 2020, the Council on Environmental Quality (CEQ) published the long-awaited proposed rule to amend its regulations implementing the National Environmental Policy Act of 1969 (NEPA).  The statute, sometimes pejoratively referred to as a “paper-tiger,” requires a federal agency to take a hard look at the environmental impacts…

On November 21, 2019, FERC announced that public utilities with transmission formula rates must revise those rates to account for changes in accumulated deferred income taxes (“ADIT”) resulting from the Tax Cuts and Jobs Act of 2017 (“TCJA”). Utilities with transmission formula rates under an Open Access Transmission Tariff, a transmission owner tariff, or a rate schedule must:

  • include a mechanism to deduct any excess ADIT from, or add any deficient ADIT to, their rate base in order to ensure rate base neutrality (the “Rate Base Adjustment Mechanism”);
  • return to, or recover from, customers any excess or deficient ADIT through an adjustment to the formula rate’s income tax allowance (“Income Tax Allowance Adjustment Mechanism”); and
  • incorporate a new permanent worksheet into the formula rate to annually track ADIT amounts.

FERC declined to adopt any compliance requirements for transmission stated rates, finding that the utility’s next rate case would be the most appropriate place to address excess or deficient ADIT resulting from the TCJA. Compliance filings are due the later of: (1) 30 days from the effective date of the final rule; or (2) the utility’s next informational filing following the final rule. 

On November 8, 2019, Representative Frank Pallone, Jr. (D-NJ), Chairman of the House  Energy and Commerce Committee, and Representative Bobby L. Rush (D-IL), Chairman of the Subcommittee on Energy (collectively the “Chairmen”), wrote a letter to FERC Chairman Neil Chatterjee expressing their concerns regarding FERC’s proposed changes to sections 201 and 210 of the Public Utility Regulatory Policies Act (“PURPA”).

On September 19, 2019, FERC proposed substantial revisions to its Public Utility Regulatory Policies Act of 1978 (“PURPA”) regulations.  If adopted, the package of reforms proposed in the Notice of Proposed Rulemaking (“NOPR”) would: (1) allow states more flexibility to incorporate competitive forces when setting avoided cost rates for Qualifying Facilities (“QFs”), (2) modify the “one-mile rule,” (3) reduce the size threshold for the rebuttable presumption about QFs’ ability to access markets, (4) provide clarity on establishing a legally enforceable obligation (“LEO”), and (5) establish a simplified process to challenge a project’s QF status.  FERC requested comments on a number of proposals, which are due 60 days from publication of the NOPR in the Federal Register.