FERC Rules that PURPA Purchase Obligation Trumps Post-PURPA Requirements Contracts

By Harvey Reiter

Last year, responding to a petition for declaratory order by a rural electric distribution cooperative (Delta-Montrose), FERC declared that, notwithstanding provisions in Delta-Montrose's agreement to purchase 95 percent of its power requirements from Tri-State Generation and Transmission Association (a G&T rural cooperative), Delta Montrose had an obligation under the Public Utility Regulatory Policies Act (PURPA) to purchase power offered to it by any PURPA "qualifying facility" or QF. In February of this year, Tri-State filed a petition for declaratory order of its own, seeking clarification about the scope of FERC's earlier ruling, and seeking to implement a board policy that would direct cost allocation if a member utility has entered into a QF.

The Delta-Montrose order, Tri-State said, was limited. It ruled only that Delta Montrose (1) had an obligation to purchase from QFs, its contract with Tri-State notwithstanding, and (2) that Delta Montrose was free to negotiate the rates it would pay the QF for its power. Citing FERC's Order No. 69 – the 1980 order establishing FERC's original PURPA regulations – Tri-State asked FERC to clarify that executing a contract to purchase power from a QF would not thereby relieve Delta Montrose of its obligation to keep Tri-State's other customers whole from all unrecovered fixed costs associated with Delta Montrose's QF power purchases that exceeded the 5 percent limitation.

In its June 17 order, FERC disagreed and declared that Tri-State’s board policy proposal sought to undermine the Commission’s prior order in Delta-Montrose, by imposing financial burdens on Delta-Montrose, and perhaps Delta-Montrose alone, that could affect its purchasing from QFs above the contract’s 5 percent limitation. FERC did not want to discourage such purchases. In rejecting Tri-State's position FERC declared — we believe for the first time — that the make whole provision in Order No. 69 applied only to contracts executed before the enactment of PURPA. FERC reasoned that, while Order No. 69 allowed wholesale requirements suppliers to recover lost revenue directly from wholesale customers who reduce their purchases to make purchases from a QF, that protection was only appropriate for suppliers who "could not have anticipated what Congress or the Commission would do."

For more information about the new FERC order, please contact Harvey Reiter, Craig Silverstein or the Stinson Leonard Street contact with whom you regularly work.

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