Energy Bar Association’s Energy Law Series
Daniel Frank is a partner in the Washington, D.C. office of Eversheds Sutherland (US) LLP. He counsels clients on regulatory and compliance matters before the Federal Energy Regulatory Commission, including under the Public Utility Regulatory Policies Act of 1978, as amended (PURPA).
In hearing from lawyers, engineers, marketers, and others in the electric utility industry, there seems to be some confusion about the differences between a partial waiver of a utility's obligation to buy power from a qualifying cogeneration or small power production facility (QF), and the termination of the utility's obligation to buy power from QFs. This article is intended to help clear up that confusion.
Part of the problem is one of nomenclature - incorrectly using "waiver" and "termination" interchangeably. But hopefully this article will also lead to a better understanding of the differences between the two, and when each action is appropriate and justified.
Under the Public Utility Regulatory Policies Act of 1978, as amended (PURPA), electric utilities have an obligation to purchase electric energy and capacity made available by a QF. Both partial waivers and terminations address this "must-purchase" obligation.
The rates for a utility's purchase of QF power are to reflect the utility's avoided costs, meaning the incremental cost of the power that the utility would have generated or purchased but for the purchase of the QF's electrical output. The utility and the QF can also always negotiate a rate for the purchase.