NorthWestern Energy is asking a federal appeals court to overturn a Federal Energy Regulatory Commission decision that a 160-MW solar-battery project in Montana is a "qualifying facility" under the Public Utility Regulatory Policies Act (PURPA).
The issue relates to a key FERC case called Broadview Solar that found a QF's nameplate capacity could exceed an 80-MW eligibility limit if it was only capable of injecting 80 MW onto the grid.
The dispute comes as PURPA development in the Northwest has largely stalled, driven by state regulatory decisions, according to Peter Richardson, a Boise-based attorney. However, with natural gas prices spiking, there may be renewed interest for fuel-free resources in the region, Richardson, a PURPA expert, said.
There is about 100 GW of QF capacity across the United States, with about 41 GW under development, including 5 GW in "advanced" development, according to Metin Celebi, a principal at consulting firm Brattle Group.
The leading states for advanced QF activity almost entirely have solar projects underway, Celebi said Wednesday.
|QFs under advanced development
SOURCE: Brattle Group
In some regions like the Northwest and Southeast, PURPA has been an important driver for renewable energy development. However, FERC's PURPA policies in the last two years have become less favorable towards QF development, Celebi said. Under pressure from utilities and state regulators, FERC in July 2020 approved significant changes to its PURPA rules, which are implemented by state utility regulators.
PURPA, passed by Congress in 1978, aimed to spur domestic energy production. Under the law, utilities outside organized wholesale markets are generally obligated to buy electricity from wind and solar QFs no larger than 80 MW.
In another major decision, FERC in September 2020 overturned a long-standing precedent and said QFs that exceed 80 MW, even if they can't deliver more than that amount, don't qualify under PURPA. After Richard Glick was elevated to chairman, FERC reversed its Broadview Solar decision in March 2021.
In a December ruling on Gallatin Power's Shields Valley project, which includes 160 MW of solar and 80 MW of battery capacity, FERC rejected arguments by NorthWestern that the project exceeded the 80-MW limit and said the project qualified under PURPA. The Sioux Falls, South Dakota-based utility company raised similar arguments in opposing the final Broadview decision.
NorthWestern on April 11 asked the U.S. Court of Appeals for the District of Columbia Circuit to overturn FERC's decision.
"All contracts should be fair for our customers and contribute to our responsibility to provide reliable, affordable service," Jo Dee Black, utility spokesperson, said in an email Wednesday.
Federally mandated purchases of power from QFs may increase NorthWestern's costs and hurt grid reliability, while limiting its ability to make generation investments, which could hurt its business, the company said in its most recent annual report with the Securities and Exchange Commission.
NorthWestern's QF contracts require the company to spend $466.9 million on energy from smaller generators at prices ranging from $64/MWh to $136/MWh through 2029, according to the annual report. The Montana Public Service Commission allows NorthWestern to recover about $388.4 million of those costs from ratepayers.
The company, which sold 11.6 million MWh in 2021, bought 1.7 million MWh last year through 36 QF contracts, according to an annual report filed with FERC. The company, for example, paid South Peak Wind, owned by an Allete subsidiary, $6.6 million, or about $22.50/MWh, for 293,532 MWh from its 80-MW wind farm, NorthWestern said in the report.
In Idaho, utility regulators slashed the term on wind and solar QF contracts to two years from 20 years, which effectively killed renewable development in the state under PURPA, according to Richardson. Developers are generally unable to finance projects when they have only two years of guaranteed revenue.
Most states use the cost of gas to set the avoided cost rate, a key component used for setting payments under QF contracts, Richardson noted.
The recent jump in gas prices could lead to higher QF contract rates, according to Richardson.
"Maybe with gas prices spiking, we might see renewed interest in PURPA," Richardson said. "It might spark some more interest in saying let's get back to some non-fuel price dependent resources like wind or solar."