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<title>June 2001: FERC Denies Texas Public Utilities Commission Petition For
Waiver Of PURPA Requirements To Purchase QF Power</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>
June 2001</u>
<br>
</b><strong><font size="6">FERC Denies Texas Public Utilities Commission Petition For
Waiver
Of PURPA Requirements To <br>
Purchase QF Power<br>
</font>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><center>
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<center>
<p ALIGN="JUSTIFY">Fifteen Texas cogeneration facilities ("QFs") filed a
petition with the Federal Energy Regulatory Commission ("FERC") for a
declaratory order asking FERC to declare that, under the Public Utility
Regulatory Policies Act of 1978 ("PURPA"), the utility holding companies
that will be formed as a result of Texas restructuring legislation will
continue to satisfy the PURPA definition of "electric utility" and will,
therefore, continue to be obligated to purchase power from QFs. In response
to the QFs’ filing, the Public Utilities Commission of Texas ("PUCT") filed
a petition with FERC requesting a waiver of FERC regulations promulgated
according to PURPA. The PUCT argued that the PURPA purchase requirements
will hinder the development and function of the competitive market. The PUCT
also argued that the PURPA purchase requirements are unnecessary because the
competitive market will accommodate the QF generation. The QF and PUCT
petitions, along with numerous interventions, were consolidated. The
petitions and interventions were the subject of the May Stateline article.</p>
<font FACE="Palatino" SIZE="2">
<p ALIGN="JUSTIFY"></p>
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<p ALIGN="JUSTIFY">On May 17, 2001, FERC issued a declaratory order granting
the QF petition, to the extent that the petition requested FERC declare that
companies meeting the definition of "electric utility" under PURPA will
continue to have an obligation to purchase power from QFs. The intervening
Texas utilities acknowledged that entities which meet the definition of
"electric utilities" will continue to have an obligation to purchase QF
power under PURPA after Texas implements its restructuring legislation. The
utilities also acknowledged that two of the three types of subsidiary
companies which will be formed under the state restructuring plan (i.e., the
generating company and the retail electric service company) will meet the
PURPA definition of "electric utility."</p>
<font FACE="Palatino" SIZE="2">
<p ALIGN="JUSTIFY"></p>
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<p ALIGN="JUSTIFY">The FERC order denied the PUCT request for waiver of
PURPA’s mandatory purchase requirements. In denying the PUCT’s request for
waiver, FERC stated that the PUCT’s request "is essentially a complete
waiver of the PURPA purchase obligation for all Texas utilities." FERC also
stated the PUCT’s request for waiver under 18 C.F.R. �292.402 of FERC
regulations is not consistent with either the regulations or the precedent
for waiver. 18 C.F.R. �292.402 requires that a state regulatory authority
demonstrate that compliance with the requirements it seeks to waive is: 1)
not necessary to encourage cogeneration and small power production; and 2)
is not otherwise required under section 210 of PURPA. FERC quoted section
210(b) of PURPA, stating that the rates for utility purchases "shall be just
and reasonable to electric consumers of the electric utility and in the
public interest, and … [n]o such rule … shall provide for a rate which
exceeds the incremental cost to the electric utility of alternative electric
energy." The FERC avoided cost rule states that purchase rates will satisfy
section 210(b) if the rate is set at the utility’s avoided costs. </p>
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<p ALIGN="JUSTIFY"></p>
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<p ALIGN="JUSTIFY">In an attempt to satisfy the demonstration requirements
of 18 C.F.R. �292.402, the PUCT argued that compliance with the regulations
would not be necessary in a competitive market because retail competition
would provide incentives for large electric consumers to construct their own
cogeneration facilities. The PUCT also argued that, in the competitive
marketplace, all producers have access to the market, prices will be driven
by market forces, and avoided cost is a proxy for the market price.
Notwithstanding these arguments, FERC found that an adequate market for QF
power will not exist in Texas after restructuring takes place without
application of PURPA requirements. Even the PUCT’s suggestion that QFs could
sell their power to an ISO was not found to be a sufficient substitute for
mandatory purchase requirements because that market for potential sales is
much smaller than that which is provided under the PURPA purchase
obligations. Further, FERC stated the opportunity to make sales is inferior
to having an electric utility purchaser with a mandatory purchase
obligation. </p>
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<p align="left">FERC concluded its order by stating that, while they shared
the PUCT’s concern that administratively determined avoided cost may be
inconsistent with an effective competitive market, the PUCT has the
flexibility to solve the problem and still satisfy PURPA avoided cost based
rate requirements without resorting to the waiver of mandatory purchase
requirements. FERC suggested the PUCT could adopt a more "market-oriented
method" of determining avoided costs.</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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