As the vigorous pace of wind and solar energy development continues, the ability of renewable projects to obtain Qualifying Facility status under the Public Utility Regulatory Policies Act of 1978 can be critical to a renewable project’s financing options -- and thus its viability. It can also have important implications for the interconnected utility purchasing the project’s output and the rates of that utility’s customers.
A pending application before the Federal Energy Regulatory Commission (FERC) sets the stage for the regulatory body to clarify aspects of its so-called “one-mile rule” that may influence the way certain renewable projects are developed.
With certain exceptions, the Public Utility Regulatory Policies Act (PURPA) generally imposes a mandatory obligation on an interconnected “electric utility” to purchase the energy and capacity delivered -- or "put" -- to it from a Qualifying Facility (QF) developed on its system. A renewable small power-production facility must be 80 megawatts or less to be a QF. Developers that intend to rely on a project’s QF status and the mandatory purchase provisions of PURPA to sell the output of a project have an incentive to configure each project as a “facility” that does not to exceed the 80 megawatt threshold.
FERC’s one-mile rule (not mandated by the statute, but developed as a mechanism to implement it) provides that, for purposes of determining whether small power-production facilities seeking QF status are considered to be located “at the same site,” FERC will aggregate the capacity of generating facilities that: 1) are located within 1 mile of each other, 2) use the same energy resource (e.g., solar or wind) and 3) are owned by the same persons or their affiliates. FERC’s regulations require the distance between generating facilities for the one-mile rule to be measured “from the electrical generating equipment of each facility."
FERC’s regulations do allow waiver of the one-mile rule “for good cause.” In past orders, FERC has described the one-mile rule as “essentially arbitrary [in] nature” and “inappropriate as applied to certain situations…where it appears that rigid application of the [one-mile] rule would classify a number of facilities as being on the same site, when a commonsense conclusion would reach the opposite result." However, FERC has also emphasized that it “is constrained to implement Congress’ decision…to limit to 80 megawatts the power production capacity of small power production facilities located at the same site,” and considers strict application of the one-mile rule to be part of that effort.
As a practical matter, FERC’s one-mile rule may be most relevant for larger-sized small power-production QFs, or projects at the upper limits of the 80-megawatt threshold, outside of centralized markets (for example, in the bilateral markets of the U.S. West and South).
In other areas, QF status may not mean as much economically because FERC has provided the opportunity for utilities in markets operated by regional transmission organizations (RTOs) or independent system operators (ISOs) to be relieved of their PURPA purchase obligation, and some interconnected transmission and distribution utilities have obtained that relief. FERC has established the rebuttable presumption that QFs above 20 megawatts located in RTO/ISO markets have nondiscriminatory access to wholesale markets without the need for PURPA’s must-purchase obligation, but that QFs 20 megawatts and below are presumed to lack such access and benefit from the must-purchase obligation. In either case, in order to be relieved of the obligation, the utility must make a filing with FERC.
For developers, the ability to meet the QF standards and be entitled to the PURPA “put” to the interconnected utility can be an important backstop to obtain financing for a renewable project. From another perspective, some utilities simply believe that they have too much QF output within their footprint and are concerned about passing costs related to QF purchases along to their retail customers, so QF determinations may be a concern.
Beaver Creek Wind Applications
On February 9, 2017, two entities -- Beaver Creek Wind II and Beaver Creek Wind III -- separately filed applications with FERC seeking an order to certify their respective wind projects in Stillwater County, Montana as QFs. On the same day, two other entities -- Beaver Creek Wind I and Beaver Creek Wind IV -- filed self-certifications as QFs. Each of the four projects would provide capacity of approximately 80 megawatts, and each project shares a boundary with at least one of the other projects. Caithness Beaver Creek will operate each of the Beaver Creek projects.
“Weighted geographic center” approach
Central to the Beaver Creek QF applications is the proposal that FERC calculate the distance between generating facilities for its one-mile rule using a “weighted geographic center” approach, which identifies a single geographic location at the project “center,” averaging the locations of the various wind turbines. The Beaver Creek applicants explain that projects composed of dispersed generating equipment, such as wind projects with an array of various turbines, create a challenge for applying FERC’s one-mile rule, and the Beaver Creek applicants argue that the proposed weighted geographic center approach is a reasonable proxy to calculate the distance between the facilities for purposes of applying FERC’s one-mile rule.
Using a proposed formula to calculate the weighted geographic center of each project, the Beaver Creek applicants argue that the geographically averaged “center” of each of the four Beaver Creek Projects (each consisting of multiple separate wind turbines) is located more than a mile from the center of any other Beaver Creek Project, and thereby arguably separately qualifying as a QF under the proposed approach. The Beaver Creek QF applicants make this argument even though they expressly inform FERC that several individual wind turbines near the different Beaver Creek Project boundaries are within one mile of each other.
To the extent that FERC concludes that the one-mile rule would bar these projects from being certified as separate QFs, the Beaver Creek QF applications alternatively request that FERC simply waive the one-mile rule under its regulations and consider the Beaver Creek Projects as separate sites for purposes of certifying the Beaver Creek QF applications, emphasizing that the distance between the facilities of the Beaver Creek Projects is determined by the nature of the wind resource and the equipment required to optimize energy production.
Challenge to the QF applications
NorthWestern Energy is identified as the interconnected utility that would be obligated to purchase the output of any of the Beaver Creek Projects should they obtain QF status. NorthWestern intervened in the proceeding and protested the Beaver Creek QF applications. Northwestern made certain arguments related to the upstream ownership of the Beaver Creek Projects and protested Beaver Creek’s proposed weighted geographic center approach to the one-mile rule.
NorthWestern argued that the various sites of the electrical generating equipment (i.e., the individual wind turbines) cannot be averaged to create a single, artificial project “location,” because doing so would ignore the reality that the turbines are dispersed geographically across vast areas. NorthWestern points out that the proposed weighted center approach in the Beaver Creek QF applications would make it likely that the boundaries of an expansive wind farm with arrays of neighboring wind turbines could be configured into separate projects that would be considered to be located more than 1 mile from each other.
For example, NorthWestern’s protest highlights the fact that the proposed weighted center approach would allow a project consisting of various turbines to be configured to include a distant (even non-contiguous) minor portion of the generating equipment in order to shift the weighted center location of one project away from another, so that each project can be a QF that is not located at “the same site” under the one-mile rule.
FERC deficiency letters, response and action on the Beaver Creek QF Applications
Due to a follow-up request from FERC, the deadline for FERC to act on the Beaver Creek QF applications has been reset to September, and it is conceivable that the deadline for FERC action could be further extended.
FERC may choose this case as an opportunity to comment on the one-mile rule. Because the requirement is a regulation, FERC would not be able to eliminate the requirement without further process. Significantly, however, the statutory language does not require the one-mile rule. The weighted geographic center concept, if adopted, could minimize the rule’s effect on wind, hydroelectric and solar projects.
In the context of such multiple turbine facilities, the proposed weighted center concept could allow line-drawing in order to achieve a particular outcome (i.e., the PURPA QF status for multi-turbine projects). FERC could rely on this case as an opportunity to update and explain its current policy views on this issue. PURPA, an almost 40-year-old statute, has been increasingly debated in legislative circles because its original purposes (energy independence, increased fossil-fuel efficiency and non-utility investment) have been either largely achieved or are no longer priorities. PURPA came up in the Senate confirmation hearings for FERC commissioners, and both nominees Neil Chatterjee and Robert Powelson stated that revision of the statute was a task for Congress.
Whether that debate will translate into revision of the statute remains to be seen, but in any event, that would not likely occur before FERC’s action with respect to these Beaver Creek QF applications.
It's worth noting that FERC currently lacks the required number of commissioners for the quorum necessary to decide contested proceedings such as this one, although confirmation of two new FERC commissioners that would restore a quorum appears imminent. Regardless of when the new FERC commissioners are seated, the existing backlog of competing cases and policy issues will likely require the newly constituted FERC to prioritize, and the timing of a decision on the Beaver Creek QF applications may shift as a result. Notwithstanding the timing uncertainties, the Beaver Creek QF applications provide FERC with an opportunity to clarify a rule that, going forward, may affect the development of various renewable projects with dispersed generation equipment seeking QF status.
Seth Lucia is counsel and David Poe is a partner in Bracewell LLP’s energy practice in Washington, D.C. Lucia advises clients on a wide range of energy regulation and policy matters before FERC. Poe represents and provides advice to clients who own infrastructure assets subject to governmental regulation in their ownership and/or operation.