Last week, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued a pair of highly anticipated orders that will significantly impact the regulatory landscape for solar resources across the United States. First, the Commission issued an order (the “Order”) dismissing the petition filed by the New England Ratepayers Association (“NERA”) on April 14, 2020. NERA’s petition for a declaratory order (the “Petition”) sought to effectively upend state net metering programs, and requested that the Commission (i) declare that there is exclusive federal jurisdiction over wholesale energy sales from generation sources located on the customer side of the retail meter and (ii) order that the rates for such sales be priced in accordance with the Federal Power Act or Public Utility Regulatory Policies Act of 1978 (“PURPA”). The Commission dismissed the Petition on procedural grounds, finding that NERA did not identify specific controversy, uncertainty, or harm that the Commission should address or resolve in a declaratory order. The Commission made clear that its Order does not address the merits of any of the substantive issues underlying the Petition, leaving the door open for future potential challenges to states’ authority over net metering.

The Commission also issued a draft final rule (the “Final Rule”) concerning certain regulations implementing PURPA. Specifically, the Final Rule revises existing regulations implementing Sections 201 and 210 of PURPA and marks the most extensive changes to the Commission’s regulations implementing PURPA in four decades. The Final Rule largely adopts the Commission’s proposed rule issued in September 2019. The major changes contemplated by the Final Rule include:

1. The Final Rule grants states the flexibility to require that energy rates, but not capacity rates, in qualifying facility (“QF”) power sales contracts and other legally enforceable obligations must vary in accordance with changes in the purchasing electric utility’s as-available avoided cost at the time the energy is delivered (See P 57).
2. The Final Rule grants states the flexibility to allow QFs to have a fixed energy rate, which can be based on projected energy prices during the term of a QF’s contract based on anticipated dates of delivery (See P 58).
3. The Final Rule grants states the flexibility to set “as-available” QF energy rates based on the locational marginal price (“LMP”) established in wholesale power markets and establishes a rebuttable presumption that the LMP represents the purchasing utility’s avoided cost. With respect to the QF selling to electric utilities located outside of the organized wholesale power markets, the Final Rule further provides states the option to set as-available energy rates either at competitive market prices from liquid market hubs or calculate such rates from a formula based on natural gas price indices and heat rates, provided the states determine that such prices represent the utility’s avoided cost. The Final Rule provides states with the flexibility to choose to adopt one or more of these options (See P 59).
4. The Final Rule provides states the flexibility to set energy and capacity rates pursuant to competitive solicitation processes conducted pursuant to transparent and non-discriminatory procedures (See P 60).
5. The Final Rule modifies the Commission's one-mile rule for determining whether affiliated small power production facilities are considered to be at the same site for purposes of determining whether a small power production facility meets the statutory 80-megawatt limit. Pursuant to the Final Rule, a facility one mile or less from an affiliated small power production QF would be deemed to be at the same site. An affiliate located more than one mile but less than ten miles from the affiliated small power production QF would be presumed to be at different site, but such presumption would be rebuttable. Finally, an affiliate located more than ten miles away would be deemed to be at a separate site (See P 62).
6. The Final Rule allows electric utilities, state regulatory authorities, and other interested parties to challenge a QF’s certification or recertification by filing a protest and not a petition for declaratory order, which requires an associated filing fee of over $30,000 (See P 63).
7. The Final Rule revises regulations providing for the termination of electric utilities' obligation to purchase from a QF with non-discriminatory access to wholesale power markets. Prior to the Final Rule, there was a rebuttable presumption that all QFs that were 20 MW or larger had non-discriminatory access to wholesale power markets and, therefore, utilities were not required to purchase power from such QFs. The Final Rule changes the applicable threshold from 20 MW to 5 MW for small production facilities (such as renewable energy resources) but did not change the threshold for co-generation facilities (See P 64).
8. Finally, the Final Rule clarifies that a QF must demonstrate commercial viability and financial commitment, pursuant to objective and reasonable state-determined criteria, before the QF is entitled to a contract or legally enforceable obligation. Notably, the Final Rule notes that states may not impose any requirements for a legally enforceable obligation other than a showing of commercial viability and a financial commitment to construct the facility. The Final Rule states that a QF need only show that it has applied for all required permits and paid all applicable fees, not that it has obtained such permits, to establish such legally enforceable obligation (See P 65).

The revisions implemented in the Final Rule will take effect 120 days after publication in the Federal Register. Notably, the Final Rule permits states to make changes to their rules implementing PURPA but does not require states to make any changes allowed in the Final Rule in most instances. This means that for any of the changes contemplated in the Final Rule to have a practical impact on the development of solar projects in a particular jurisdicition, states will have to take additional actions.