FERC Confirms Distribution Cooperatives Must Purchase QF Output

Eversheds Sutherland (US) LLP

A distribution cooperative must purchase the electrical output made available to it by a qualifying facility (QF), notwithstanding restrictions in the cooperative’s all-requirements contract with its generation and transmission supplier (G&T) on third-party contracts. In a recent order, the Federal Energy Regulatory Commission (FERC) confirmed that restrictions in the all-requirements contract could not defease the rights granted by the Public Utility Regulatory Policies Act of 1978 (PURPA) to a QF to sell its output to an electric utility. Otherwise, such contractual restrictions could hinder the development of cogeneration and small power production by QFs.


FERC also declined to enforce a G&T policy that required its distribution cooperative members to seek a waiver of the QF purchase obligation. FERC has granted many of these waivers to G&Ts and their members, effectively allowing the distribution cooperative to avoid having to purchase QF output because the G&T has stepped into its shoes for purposes of the QF purchase obligation. Waivers are granted at the request of utilities that have the purchase obligation, and FERC held that it would not impose an obligation to file for a waiver at another party’s request.


Finally, FERC confirmed that a G&T with more than 4 million MWh of energy sales per year that  borrows from the Rural Utilities Service (RUS) will be exempt from regulation under the Federal Power Act (FPA) after it is no longer an RUS borrower, if each G&T member is exempt from regulation under FPA Section 201(f)— whether as a coop with RUS financing, a small coop (less than 4 million MWh of energy sales/year) or a municipal utility. That conclusion will be familiar to most in the electric cooperative legal community, but FERC’s order is a clear statement of the legal conclusion.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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