Is South Dakota violating PURPA?

by Bill Powers

The Public Utilities Regulatory Policies Act(PURPA) was enacted it 1978. Its purpose is to encourage alternative energy development by providing qualified facility (QF) status to eligible cogeneration and small renewables with rights to sell to utilities.

It requires that utilities have a mandatory obligation to purchase power from qualified facilities (QFs)at “avoided cost based rates” with just and reasonable, non-discrimination standards.

“Avoided Cost” is legally defined to be “the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.” (http://www.gpo.gov/fdsys/pkg/CFR-2010-title18-vol1/pdf/CFR-2010-title18-vol1-sec292-101.pdf)

The Federal Energy Regulatory Commission (FERC) mandated by authority from the Energy Policy Act (EPAct) of 2005, which revised the Public Utility Regulatory Policies Act of 1978 (PURPA), requires that nonregulated electric utilities are required to purchase supplementary power from a qualified facility (QF)or to sell backup power to a QF, at an avoided cost rate.

By law, “supplementary power means electric energy or capacity supplied by an electric utility, regularly used by a qualifying facility in addition to that which the facility generates itself;” and “back-up power means electric energy or capacity supplied by an electric utility to replace energy ordinarily generated by a facility’s own generation equipment during an unscheduled outage of the facility.”

There are quite a few Avoided Cost Methodologies. The most common are:

  • Differential Revenue Requirement (DRR): Calculates the difference in cost for a utility with and without the QF contribution to generating capacity.
  • IRP Based Avoided Cost Methodology: Relies on state integrated resource planning to predict future needs and costs that will be avoided by QF generation; based on IRP, may then apply proxy, DRR or other methodologies.
  • Market Based Pricing (MBP): QFs with access to competitive markets receive energy and capacity payments at market rates. MBP appears to be the most common, but yields a price generally not sufficient to incentivize qualified facility development. DRR is not transparent and complicated.

The EPAct states in Subtitle E – Amendments to PURPA:

SEC. 1251. NET METERING AND ADDITIONAL STANDARDS.
(a) ADOPTION OF STANDARDS.-Section 111(d) of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2621(d)) is
amended by adding at the end the following: “(11) NET METERING.-Each electric utility shall make available upon request net metering service to any electric consumer that the electric utility serves. For purposes of this paragraph, the term ‘net metering service’ means service to an electric consumer under which electric energy generated by that electric consumer from an eligible on-site generating facility and delivered to the local distribution facilities may be used to offset electric energy provided by the electric utility to the electric consumer during the applicable billing period.

(b) COMPLIANCE.- (1) TIME LIMITATIONS.-Section 112(b) of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2622(b)) is amended by adding at the end the following: “(3)(A) Not later than 2 years after the enactment of this paragraph, each State regulatory authority (with respect to each electric utility for which it has ratemaking authority) and each nonregulated electric utility shall commence the consideration referred to in section 111, or set a hearing date
for such consideration, with respect to each standard established by paragraphs (11) through (13) of section 111(d).”
“(B) Not later than 3 years after the date of the enactment of this paragraph, each State regulatory authority (with respect to each electric utility for which it has ratemaking authority), and each nonregulated electric utility, shall complete the consideration, and shall make the determination, referred to in section 111 with respect to each standard established by paragraphs (11) through (13) of section 111(d).”

PURPA provides to the Federal government through the FERC enforcement responsibilities and powers to insure state compliance with the requirements of PURPA. States are required to devise rules and policies to implement PURPA within parameters of PURPA and FERC Regulations.

South Dakota appears to be in violation of the EPAct Subtitle E, section 1251(b).

I have spoken to the South Dakota Municipal Electric Association. They are unaware of any municipal electric supplier that has any net-metering policy. They are, however, ready and willing to work with SDMEA members to develop such a policy.

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