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<title>May 2001: Texas Public Utilities Commission Petitions FERC For Waiver Of
PURPA Qualifying Facilities Rules</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" width="375" height="75">
</center><p align="left"><b><u><br>
May 2001</u>
<br>
<font size="6">Texas Public Utilities Commission
Petitions FERC For Waiver Of
PURPA Qualifying Facilities Rules<br>
</font>
</b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
200</em>1/10/06)</font></p>
<p align="left"></p>
<center>
<p ALIGN="left">On March 23, 2001, the Public Utilities Commission of Texas
(PUCT) filed a petition with the Federal Energy Regulatory Commission (FERC)
seeking a waiver of the FERC rules promulgated under section 210 of the
Public Utility Regulatory Policies Act of 1978 (PURPA). These FERC rules
require "electric utilities" to purchase power from qualifying cogeneration
and qualifying small power production facilities (QFs) at an avoided cost
rate and require electric utilities to sell power to QFs. The PUCT alleges
in its petition that the rules are unnecessary and are impediments to
competition in light of Texas legislation (SB 7), under which electric
retail competition will begin in January, 2002. Numerous entities have moved
to intervene in the docket, most of whom have also filed answers in support
or opposition. A number of potential intervenors have also sought to
consolidate the docket opened for the PUCT petition (Docket EL01-60) with a
docket opened for a petition filed by Texas QFs seeking a declaration from
FERC that the Texas electric utilities retain their PURPA purchase
obligations after they restructure themselves under SB 7 (Docket EL01-49).</p>
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<p ALIGN="left">Under SB 7, Texas electric utilities are not required to
divest their generation assets; however, they are required to unbundle into
three entities, which may be affiliated: a transmission and distribution
company (T&D), a power generation company (PGC), and a retail electric
provider (REP). Under SB 7, the REP sells energy services to retail
customers, but is prohibited from owning or operating generation facilities.
The Texas law requires the affiliated REP to provide its residential and
small commercial customers with price protections. The PGC is prohibited
from selling energy to customers. The T&D company remains an "electric
utility" under Texas law, but is not an "electric utility" under PURPA. The
PGC and REP are "electric utilities" under PURPA. Under Texas law, the T&D
company is prohibited from selling power and may only purchase power for its
own consumption. </p>
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<p ALIGN="left">In its petition, the PUCT argues the imposition of the PURPA
requirements on any of these entities would be unworkable, given the limited
tasks of each entity and that they need to function in a competitive market.
The PUCT also argues that the goal of PURPA – to stimulate the development
of QFs – would be met once competition starts. Finally, the PUCT argues that
the PURPA requirements would place PGCs at a competitive disadvantage to QFs
because the QFs would have the benefit of a regulatory-imposed obligation to
purchase, which would place affiliated REPs at a competitive disadvantage to
non-affiliated REPs, who are free from offering price protections to their
customers. The PUCT petition alleges that existing contracts for QF
purchases will be honored.</p>
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<p ALIGN="left">Motions to intervene and oppositions to the PUCT’s petition
have been filed by several Texas QFs and trade associations. A number of
arguments have been advanced by the opponents. First, opponents argue
granting the PUCT’s petition would amount to an administrative repeal of a
federal statute, PURPA, in Texas and that such a wholesale waiver of the
PURPA QF requirements is unprecedented. The opponents contend FERC should
defer to Congress when addressing any fundamental changes in PURPA. They
also contend that PURPA preempts Texas legislation which may arguably be
interpreted as preventing PURPA’s implementation in Texas. They also contend
that waivers of FERC rules may only be sought on a single utility basis, and
cannot be sought en masse. </p>
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<p ALIGN="left">Second, opponents assert that the QF development will not,
at least in the near term, be stimulated when retail competition is slated
to begin in 2002, but will be impaired, and that the PUCT bears the burden
of proving whether retail competition actually has stimulated QF development
before it could seek a waiver of the PURPA requirements, thus making the
request premature. Opponents cite a PUCT report concluding that the
wholesale market in one of Texas’ regional districts is illiquid as a result
of short-term trading accounting for 5.7% of total energy consumption. </p>
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<p align="left">The opponents also state market price will not be the same
as the avoided cost rate the QFs are entitled to under PURPA. Opponents also
surmise the QFs’ market for power will be limited given the bilateral
contract nature of the market and the corporate relationship between
affiliated PGCs and REPs. Opponents further stress that the alleged
opportunity to sell energy with the advent of competition is not the same as
the PURPA requirement that electric utilities are obligated to buy QF power.
The opponents point out that QFs need the PURPA requirements in order to
foster a market for their power because QF power generating schedules are
often dependent on their steam host.</p>
<center><font FACE="Palatino" SIZE="2"></font>
<p ALIGN="left">Third, with regard to the protection of existing contracts,
opponents claim electric utilities have taken steps to abrogate QF contracts
in light of SB 7, and further note that most of the existing contracts
contain "regulatory out" clauses, which arguably could jeopardize the
contracts upon a change in the law. As an alternative, the opponents seek a
grandfathering for existing QFs for any waiver. Finally, the QFs argue that
PURPA can be harmonized with SB 7 by requiring affiliated REPs and/or
affiliated PGCs to maintain the PURPA obligations, on the basis that these
entities have inherited the obligation from their previous corporate
identity and on the basis that they remain "electric utilities" under the
terms of PURPA. The opponents further claim that a waiver of the PURPA
requirements would undermine the settled expectations of QF investors.</p>
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<p ALIGN="left">Three electric utilities, Entergy Gulf States, Inc., TXU
Electric Company, and Reliant Energy, Incorporated, and a trade association
of investor-owned utilities, the PURPA Reform Group, have moved to intervene
and submitted comments in support of the PUCT’s petition. The supporters of
the petition argue the continuation of the PURPA requirements will provide
QFs with a competitive advantage, in that QFs will be able to choose from
the higher of two prices: the market price or the avoided cost set by
tariff. They also argue that the market price by definition is the "avoided
cost." The supporters further contend that the only "electric utility"
subject to the PURPA requirements is the T&D company, as only the T&D
company is an "electric utility" under Texas law. Because the T&D companies
are prohibited by state law from selling power, and may only buy power from
a REP, the supporters argue, it would be inefficient to require the T&D
company to buy QF power. </p>
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<p ALIGN="left">The supporters add that the T&D company is not an "electric
utility" under PURPA, and therefore not obligated under PURPA to meet the QF
purchasing requirements. Additionally, the supporters argue that requiring
REPs or PGCs to buy unspecified amounts of QF power would create significant
complications for them in arranging their power supply and generation needs.
</p>
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<p align="left">The supporters argue that certain REPs may be more likely
targets of QF power sales than other REPs, placing these REPs at a
competitive disadvantage. With respect to the issue of existing contracts,
TXU Electric stated that Texas law provides that SB 7 not interfere with
existing contracts. In the event FERC refuses the waiver, the supporters ask
that FERC alternatively grant the PUCT latitude in implementing PURPA’s
rules to harmonize SB 7 with PURPA’s requirements. They also argue that the
QF industry is now a developed industry, no longer needing the protections
of PURPA.</p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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