As the vigorous pace of wind and solar energy development continues, the ability of renewable projects to obtain Qualifying Facility (“QF”) status under the Public Utility Regulatory Policies Act of 1978 (“PURPA”) can be critical to a renewable project’s viability and can have important cost implications for the utility receiving the project’s output. A pending application before the Federal Energy Regulatory Commission (“FERC”) sets the stage for FERC to clarify aspects of its so-called “one-mile rule” that may impact the way certain renewable projects can be configured to gain QF status as separate facilities.
PURPA generally imposes a mandatory obligation on any “electric utility” to purchase the energy and capacity delivered to it from a QF. See 18 C.F.R. § 292.303(a). Additionally, a renewable facility must be 80 MW or less to qualify as a QF. 16 U.S.C. § 796(17)(A). Developers who intend to rely on a project’s QF status and the mandatory purchase provisions of PURPA to sell the output of a project have an incentive to configure each project as a “facility” that does not to exceed the 80 MW threshold. FERC’s one-mile rule provides that, for purposes of determining whether facilities seeking QF status are considered to be located “at the same site,” FERC will aggregate the capacity of generating facilities that: (1) are located within one mile of each other, (2) use the same energy resource, e.g., solar or wind, and (3) are owned by the same persons or their affiliates. 18 C.F.R. § 292.204(a). Under FERC’s regulations, the distance between generating facilities for the one-mile rule is measured from the electrical generating equipment of each facility. 18 C.F.R. § 292.204(a)(2)(ii).
FERC’s regulations allow waiver of the one-mile rule “for good cause,” 18 C.F.R. § 292.204(a)(3), and FERC has taken differing approaches toward waiver over the years. For example, at times FERC has taken a “common sense” approach, bluntly describing the one-mile rule as “essentially arbitrary [in] nature” and “inappropriate as applied to certain situations … [w]here it appears that rigid application of the [one-mile] rule would classify a number of facilities as being on the same site, when a common sense conclusion would reach the opposite result.” More often, however, FERC has strictly applied the rule without waiver, explaining that FERC “is constrained to implement Congress’ decision … to limit to 80 MW the power production capacity of small power production facilities located at the same site,” as set forth in the one-mile rule.
Beaver Creek Wind Applications
On February 9, 2017, two entities Beaver Creek Wind II, LLC and Beaver Creek Wind III, LLC separately filed applications with FERC to certify their respective wind projects in Stillwater County, Montana as QFs (“Beaver Creek QF applications”). On the same day, two other entities (Beaver Creek Wind I, LLC and Beaver Creek Wind IV, LLC) filed self-certifications as QFs. Each of the four projects (collectively, “Beaver Creek Projects”) is configured to provide capacity of approximately 80 MW, and each project shares a boundary with at least one of the other projects. Caithness Beaver Creek, LLC will operate each of the Beaver Creek Projects.
“Weighted Geographic Center” Approach: Central to the Beaver Creek QF applications is the proposal that FERC calculate the distance between generating facilities for its one-mile rule using a “weighted geographic center” approach, which identifies a single geographic location at the project “center,” averaging the locations of the various wind turbines. The Beaver Creek applicants explain that projects composed of dispersed generating equipment, such as wind projects with an array of various turbines, create a challenge for applying FERC’s one-mile rule, and the Beaver Creek applicants argue that the proposed weighted geographic center approach is a reasonable proxy to calculate the distance between the facilities for purposes of applying FERC’s one-mile rule. Using a proposed formula to calculate the weighted geographic center of each project, the Beaver Creek applicants show that the geographically averaged “center” of each of the four Beaver Creek Projects (each consisting of separate wind turbines) is located more than a mile from the center of any other Beaver Creek Project, thereby separately qualifying as a QF under the proposed approach, even though several individual wind turbines near the different Beaver Creek Project boundaries are apparently within one mile of each other. To the extent that the one-mile rule would bar these projects from being certified as separate QFs, the Beaver Creek QF applications alternatively request that FERC simply waive the one-mile rule under its regulations and consider the Beaver Creek Projects as separate sites for purposes of certifying the Beaver Creek QF applications, emphasizing that the distance between the facilities of the Beaver Creek Projects is determined by the nature of the wind resource and the equipment required to optimize energy production.
Challenge to the QF Applications: NorthWestern Energy (“NorthWestern”) is identified as the utility that will be obligated to purchase the output of any of the Beaver Creek Projects that are QFs, and NorthWestern intervened and protested the Beaver Creek QF applications. In addition to arguing that the applications contain incomplete information of the ultimate ownership of the Beaver Creek Projects, NorthWestern protested Beaver Creek’s proposed weighted geographic center approach to the one-mile rule. NorthWestern argued that the various sites of the electrical generating equipment, i.e., the wind turbines, cannot be averaged to create a single, artificial project “location” because doing so would ignore the reality that the turbines are dispersed geographically across vast areas. NorthWestern points out that the proposed weighted center approach in the Beaver Creek QF applications would make it likely that the boundaries of an expansive wind farm with arrays of neighboring wind turbines could regularly be configured into separate projects that would be considered more than one-mile from each other. For example, NorthWestern’s protest highlights the fact that the proposed weighted center approach would allow a project consisting of various turbines to be configured to include a distant (even non-contiguous) minor portion of the generating equipment in order to shift the weighted center location of one project away from another so that each project can be a QF that is not located at “the same site” under the one-mile rule.
FERC Deficiency Letters and Action on the Beaver Creek QF Applications: On May 10, 2017, FERC Staff issued deficiency letters in the proceedings for the Beaver Creek QF applications, focusing on the weighted geographic center approach proposed in the Beaver Creek QF applications. Once the Beaver Creek entities respond to FERC Staff’s deficiency letters, the 90-day clock will reset for FERC to act on the Beaver Creek QF applications.
The issue for FERC will be whether the one-mile rule continues to make sense as policy since the statute does not compel it. The weighted geographic center concept, if adopted, essentially would minimize the rule’s effect on multi-generator projects, whether they are wind projects, solar projects or hydro projects using water from the same impoundment. In the context of such multi-generator projects, the proposed weighted center concept would allow line-drawing in order to achieve a particular outcome, i.e. QF status for separate multi-generator projects under PURPA. With this case, FERC can explain its current policy views on this issue. PURPA was enacted nearly 40 years ago in large part to address that era’s national vulnerability to foreign fuel suppliers. Given the changed circumstances since then, critics and supporters of PURPA are increasingly debating in legislative circles questions of PURPA’s continued relevance. Whether that debate will translate into revision of the statute remains to be seen but in any event will not occur before FERC’s action with respect to these Beaver Creek QF applications.
FERC currently lacks the required number of commissioners for a quorum that is necessary to decide contested proceedings, although confirmation of two new FERC commissioners that would restore a quorum appears imminent. Regardless of when the new FERC commissioners are seated, there will be a backlog of competing cases and policy issues that will require the newly-constituted FERC to prioritize. The timing of a decision on these Beaver Creek QF applications may shift as a result, and FERC may decide to issue an order tolling the 90-day clock to allow more time to decide the Beaver Creek QF applications. Notwithstanding the timing uncertainties, these Beaver Creek QF applications will provide FERC an opportunity to clarify a rule that, going forward, may impact the configuration of various renewable projects with dispersed generation equipment seeking QF status.