Is Colorado the Next Front in the PURPA Wars?

In 1978, the Public Utility Regulatory Policies Act (PURPA) was signed into law with the overall goals of promoting energy conservation and encouraging the development of domestic renewable energy resources.  Among other mechanisms, PURPA sought to accomplish these goals through the recognition of a new class of generating facilities – Qualifying Facilities (QF).  In general, QFs consist of small power production facilities with a capacity of 80 MW or less and which use renewable, biomass, waste, or geothermal resources as their primary energy supply, and cogeneration facilities of any size that produce electricity and other thermal energy.  PURPA essentially created a market for power from such facilities by providing that QFs may provide to electric utilities energy as the QF determines such energy to be available, or to provide energy and capacity pursuant to a legally enforceable obligation over a specified term, and electric utilities must purchase such energy and/or capacity at rates that are just, reasonable, nondiscriminatory, and which do not exceed the utility’s avoided costs.

In recent years, these latter provisions concerning the terms of QF sales to electric utilities have resulted in a number of utilities becoming embroiled in various controversies before state utility commissions, the Federal Energy Regulatory Commission (FERC), and in the courts.  For example, in Montana and Idaho state regulators have lowered the avoided cost rates paid by utilities to QFs and have reduced the length of QF contracts, changes that were strongly resisted by the QF community.  Similar disputes, as well as others related to different aspects of PURPA implementation, have arisen in states as varied as California, Connecticut, Oregon, Utah, and Wyoming.  Contemporaneously, FERC has conducted technical conferences on the status of PURPA and its implementation at the state level, while some members of Congress have called for fundamental reform of PURPA itself.  Amid all of this controversy, Colorado has largely been on the sidelines, that is, until recently.

In October 2017, the Colorado Public Utilities Commission commenced a wide-ranging proceeding focused on potential updates and revisions to its rules related to electric resource planning, renewable energy standards, QF procurement, small generator interconnections, and possible new rules related to distribution resource planning.  (Proceeding No. 17M-0694E)  Over the course of nearly one year, the Commission has solicited input from a variety of stakeholders and has convened numerous workshops on each of the identified topics with the goal of informing a comprehensive rulemaking in the near future.  During the course of these pre-rulemaking efforts, the Commission identified a need to clarify a potential inconsistency in its QF and electric resource planning rules.  The Commission’s existing QF rules provide that a “utility is obligated to purchase capacity or energy from a qualifying facility only if the qualifying facility is awarded a contract under the [utility’s bid or auction or combination process used to establish its avoided costs].”  The Commission noted that this language had not been updated to recognize various other mechanisms by which a utility could enter into a contract or legally enforceable obligation with a QF.  Accordingly, the Commission proposed a targeted rulemaking to delete the inconsistent language while reserving other potential revisions for the more comprehensive rulemaking to follow.  (Proceeding No. 18R-0492E)

In late-August, 2018, participants in this targeted rulemaking filed comments indicating that, while the proposed rule change was generally welcomed, there remain broader questions concerning whether the Commission’s overall QF rules comply with PURPA’s requirements.  The investor-owned utilities generally supported the merits of the Commission’s existing rules concerning a utility’s “QF must buy” obligation and avoided cost determination mechanism, however, independent power producers and renewable energy advocates were somewhat divided on these issues.  Some stakeholders argued that the competitive bidding process underlying Colorado’s electric resource planning and current QF rules should be retained, others argued this same requirement was directly inconsistent with PURPA, and yet others advocated for a more thorough examination of these interrelated issues in the forthcoming comprehensive rulemaking.  A further round of comments is due on September 7, 2018, and a Commission decision is possible before the end of the year.

It should be noted that the Colorado Commission’s current rulemaking proceeding is occurring at the same time as a pending federal court case in which a QF developer is challenging the same rule language the Commission proposes to delete.  (sPower Development Company, LLC v. Colorado Public Utilities Commission, et al., U.S. District Court for the District of Colorado, Civil Action No. 17-cv-00683-CMA-NYW)

While the outcome of this litigation and the current and prospective Colorado rulemaking proceedings is uncertain, the questions to be answered have the potential to fundamentally change the relationship between Colorado’s investor-owned utilities’ electric resource planning and acquisition processes and the manner in which QFs exercise their PURPA rights.  One thing is clear; Colorado has now joined the fray over states’ implementation of PURPA.