The Energy Policy Act of 2005: Purpa Reform, the Amendments and Their Implications

I. INTRODUCTION The Energy Policy Act of 2005 (EPAct 2005)1 introduced sweeping changes to nearly every sector of energy industry, including electricity sector. One of more significant provisions of EPAct 2005 is amendment of Public Utility Regulatory Policies Act of 1978 (PURPA or Act).2 Enacted during Carter administration as one of five major energy bills consolidated into the National Energy PURPA sought to promote energy efficiency and encourage use of alternative fuels to lessen nation's dependence on foreign oil.3 This article addresses one of main aspects of PURPA, codified at section 210 of Act, which, together with implementing regulations promulgated by Federal Energy Regulatory Commission (the FERC or Commission), established a class of generators known as (QFs) and provided them certain benefits and exemptions in order to encourage their development. Although each of other components of National Energy Act has been repealed, and PURPA section 210 has been subject of repeal efforts,4 PURPA continues in effect as amended by EPAct 2005. This article describes statutory and regulatory framework established under section 210 of PURPA and FERC's implementing regulations, as well as changes to that framework effected by provisions of EPAct 2005 and regulations recently issued by Commission implementing some of those provisions. This article also examines potential implications of PURPA reforms initiated by EPAct 2005. II. BACKGROUND AND HISTORY A. The Public Utility Regulatory Policies Act of 1978 The National Energy Act, including PURPA, embodied Carter administration's response to energy crises of 1970s, most notably Middle East oil embargo of 1973-74 and a second oil shock in 1977.5 Following those events, administration and Congress sought to create a statutory framework to facilitate diversification of America's energy supplies and to reduce nation's dependence on imported oil, among other objectives. Congress intended PURPA to foster energy efficiency in an environmentally friendly manner by establishing incentives for development of cogeneration facilities and small-scale renewable power projects.6 PURPA's incentives included creation of markets for power produced by these facilities and exemption of facilities from most state and federal utility regulation. 1. Qualifying Facilities PURPA and Commission's implementing regulations established standards for certification of a cogeneration or small power production as a facility entitled to incentives and exemptions under Act. The standards for QF certification cover types and performance of facilities for certification, as well as limitations on their ownership by electric utilities and electric utility holding companies. Although EPAct 2005 substantially modifies or eliminates original standards developed by FERC for QF status, many of original standards will continue to apply to existing QFs, and are therefore described in this section and in following section.7 Facility-Related Conditions. PURPA delegated to FERC responsibility to develop rules for eligibility for QF status of small power production facilities and cogeneration facilities.8 Under FERC's regulations in effect on August 8, 2005, when EPAct 2005 became law (the FERC's original QF regulations), a small power production was qualifying if it satisfied QF ownership requirements, described in next section, and if (1) its primary energy source (i.e., at least 75% of its energy input) was from biomass, waste, renewable resources, geothermal resources, or any combination of foregoing;9 and (2) its total net power production capacity, together with any other facilities at same site, was not greater than 80 megawatts10 or it was an eligible solar, wind, waste or geothermal facility of any size. …