On September 1, 2020, FERC issued an order overturning 40 years of Public Utility Regulatory Policies Act of 1978 (“PURPA”) precedent and revoking the qualifying facility (“QF”) status of Broadview Solar, LLC (“Broadview Solar”) after finding that it could not rely on inverters to meet PURPA’s statutory size limit. In a separate QF matter, the Supreme Court of the State of Montana (“Montana Supreme Court”) issued an opinion on August 24, 2020 finding the Montana Public Service Commission (“Montana Commission”) unlawfully set solar QF standard-offer rates by failing to consider carbon offsets and undervaluing solar QFs’ capacity contribution. Both cases will have substantial impacts for QF developers.

Broadview Solar filed an application with FERC for QF recertification in September 2019, asking FERC to confirm that its combined solar and battery storage facility in Montana, where both the solar array and battery storage system operate behind inverters that limited the maximum net power production capacity, meet PURPA’s 80 MW size threshold regardless of its maximum gross power capacity. Broadview Solar argued that because its 160 MW solar array and 50 MW battery storage systems operate in DC—and behind DC-to-AC inverters that limit the amount of AC power that can be delivered to the AC grid—its inverters effectively limit the maximum gross power capacity of the facility. Broadview Solar bases it determination on FERC precedent, including Occidental Geothermal, Inc., 17 FERC ¶ 61,231 (1981) (“Occidental”), which determined QF eligibility based on the QF’s net capacity, or the amount of the facility’s “send out” to the interconnection facilities as opposed the maximum nameplate capacity of each of its components.

The interconnected utility, NorthWestern Energy (“NorthWestern”), argued, among other things, that the solar array and battery storage should be considered two separate facilities at the same site. In the utility’s view, the net output of the solar array and battery storage system should be calculated individually and then aggregated to determine if they combined system is within the 80 MW statutory threshold.

In its order, FERC overturned its previous precedent that considered a facility’s “send out” to determine whether the facility met the QF size limit, finding that it was inconsistent with the plain language of PURPA. FERC reasoned that the inverters provide a “conversion limit” but do not limit the facility’s overall power production capacity. Recognizing its new interpretation could cause industry disruption, FERC is applying this finding prospectively and grandfathering projects with a Form No. 556 on file prior to the date of the Broadview Solar order with respect to the applicability of Occidental. FERC declined to address whether Broadview Solar’s battery storage should be considered a separate facility, simply noting that the solar array was double the statutory limit for power production capacity.

Commissioner Richard Glick wrote separately to dissent, arguing that Broadview Solar’s larger solar array does nothing to increase the power production capacity and instead simply increases its capacity factor. In Commissioner Glick’s view, this configuration would allow Broadview Solar to generate a higher fraction of its total 80 MW capacity than it could with at a smaller array, but would never allow Broadview to generate more than 80 MW. Likewise, Commissioner Glick explained the battery storage similarly increases the capacity factor, not its production capacity, because the electricity discharged by the battery is produced exclusively by the solar array.

Separately, the Montana Commission issued an opinion following litigation over avoided cost rates for NorthWestern that the Montana Commission set in 2016. Three different complaints were consolidated for judicial review, which left the courts considering whether the Montana Commission erred in reducing QF avoided cost rates by 1) excluding a carbon adder; 2) substantially lowering solar QFs’ rates (and solar capacity contribution); or 3) reducing the overall contract term from 25 to 15 years. The Montana Eighth Judicial District Court (“Montana District Court”) found that the Montana Commission failed to adequately explain its departures from past precedent and therefore found its orders arbitrary and unlawful. The Montana Supreme Court stayed that ruling during its appeal.

The Montana Supreme Court affirmed the Montana District Court opinion. In doing so, the court found it was arbitrary and unreasonable to consider the carbon adder “inherently speculative in nature” based on then-current federal actions because the Montana Commission had rejected that same rationale only months earlier in a separate proceeding. According to the Montana Supreme Court, “[m]ere speculation based on political forecasting hardly constitutes technical or scientific knowledge worthy of defense.” On avoided costs, the court determined it was arbitrary and unlawful to use different methodologies (as well as model different resource types using different timing schedules) to calculate the energy and capacity components because PURPA mandates that energy and capacity be calculated together when determining avoided cost rates. On capacity contribution, the Montana Supreme Court found that the Montana Commission arbitrarily determined that solar QFs contribute 6.1% of their overall generating capacity to NorthWestern’s capacity needs because that fails to consider NorthWestern summer capacity needs. The court also took issue with NorthWestern’s application of the Southwest Power Pool, Inc. methodology and the Montana Commission’s failure to explain why it adopted an interpretation of a methodology in what appeared to be contrary to its plain language. Finally, with respect to contract term, the court found the Montana Commission’s justification for adopting a 15 year contract period was not supported by the record evidence and therefore arbitrary and unreasonable. The Montana Supreme Court affirmed the Montana District Court opinion, but explained that since NorthWestern had already issued its 2019 resource procurement plan with new avoided cost data, it would leave the stay in place and remand to the Montana Commission for consideration when setting avoided cost rates and contract lengths in its future proceedings.

A dissenting opinion found the court had overstepped, substituted its own judgement rather than provide deference to the agency, and focused too much on the statutory intent of PURPA (to encourage QF development) over the implicit standard for setting rates (ratepayer indifference). To this point, the dissenting opinion cautioned that “locking NorthWestern into long-term, inflated QF contracts will also lock ratepayers into long-term, inflated rates, in direct violation of what is the clear mandate of PURPA, ratepayer financial indifference.” Regarding the carbon adder, the dissent argued that courts “should not be imposing costs that regulatory bodies have not found a basis to impose.”

A copy of the FERC order is available here and a copy of the Montana Supreme Court decision is available here.