by EQ Research
December 26, 2016

The Public Utility Regulatory Policies Act (PURPA) has garnered the attention -- and the consternation -- of some utilities and regulators in a number of states experiencing rapid growth in their solar markets. PURPA, originally enacted in 1978, requires electric utilities to purchase the output of certain combined heat and power (CHP) and renewables facilities up to 80 megawatts -- known as Qualifying Facilities (QFs) -- at the utility’s avoided-cost rate, and to provide electric supply service to QFs. 

Under PURPA, states must establish standard offer rates for QFs up to 100 kilowatts, and they have discretion to increase the size of QFs eligible for the standard offer. Larger QFs generally negotiate the avoided-cost rate with the applicable utility. For example, North Carolina allows solar QFs up to 5 megawatts to access standard offer rates for contracts of up to 15 years, which, when combined with other state policies and market characteristics, has vaulted North Carolina ahead of all other U.S. states in terms of solar QF projects.

States also have broad latitude in determining how to calculate avoided-cost rates and QF contract terms. Consequently, how states implement the requirements of PURPA has become a focal point for solar developers and utilities during the last several years.

With sharp drops in PV prices contributing to ballooning utility interconnection queues, a number of utilities have recently sought legislative and regulatory changes at the state and federal levels that would temper the utilities’ requirements under PURPA. Recent regulatory proceedings have considered revisions to how the avoided-cost rate is calculated in at least three states (Alaska, Michigan and North Carolina) and the imposition of surcharges on certain small QFs in one state (Minnesota). Eight states (Idaho, Michigan, Montana, North Carolina, Oregon, Utah, Wyoming and Vermont) are considering or recently considered substantial changes to QF contract terms that set facility size limits and contract durations.

Berkshire Hathaway Energy, a holding company mostly owned by Warren Buffett’s Berkshire Hathaway, has emerged as one of the most prominent -- although certainly not the only -- voices in favor of PURPA reforms at both the state and federal level. (BHE is the parent company of a number of vertically integrated Midwest and Western electric utilities, including Pacific Power, Rocky Mountain Power, NV Energy and MidAmerican.)

BHE’s recent PURPA-related proposals include:

  • Rolling back QF contract terms from 15 to 20 years to two to three years for subsidiary utilities in Idaho, Montana, Oregon, Utah and Wyoming.
  • Reducing the eligible size of PV facilities under the standard offer from 10 megawatts to the federal statutory minimum of 100 kilowatts in Oregon.
  • Testifying in favor of federal legislation before the U.S. Senate Energy and Natural Resources Committee in 2015, supporting the weakening of the “must purchase” obligation for utilities participating in the western Energy Imbalance Market. BHE’s testimony was cited by federal legislators in a November 2015 letter to the Federal Energy Regulatory Commission advocating that FERC hold a technical conference examining PURPA policies. FERC held a conference addressing PURPA implementation in June 2016.

PURPA will be a policy to watch in 2017.