In a September 1, 2020 order 1 the Federal Energy Regulatory Commission ("FERC") overturned longstanding precedent and denied a renewable developer's application to designate a solar-plus-storage hybrid facility as a small power production Qualifying Facility ("QF") under the Public Utility Regulatory Policies Act of 1978 ("PURPA"). FERC concluded that the facility exceeded PURPA's 80 MW limit for small power production QFs because the facility's design included a 160 MW solar array, even though other system components rendered the facility as a whole physically incapable of providing a net output of more than 80 MW of electricity.2 FERC's new approach for determining the 80 MW limit will complicate the ability of projects like the one addressed in the order to achieve QF status, i.e., projects designed with oversized generation components (for example, to optimize output across time periods) that are otherwise limited by other components to achieve an output of no more than 80 MW to the grid. FERC's reasoning in this order is consistent with FERC's recent general reforms of its PURPA regulations.
QF STATUS UNDER PURPA
Only renewable "small power production" facilities with a net capacity of 80 MW or less are eligible for small power production QF status under PURPA.3 QF status under PURPA can be critical for some renewable developers seeking an offtake arrangement because, absent separate relief from FERC, the statute generally obligates the local electric utility to interconnect and purchase or transmit the QF's output.4 As a result, staying within the 80 MW threshold is essential for renewable developers that rely on a project's QF status to achieve an offtake agreement.
FERC's prior precedent allowed for QFs to meet the 80 MW power production standard based, not on the size of individual components, but on the facility's maximum net output, or "send out," as measured at the point of interconnection.5 Under FERC's prior reasoning, renewable projects with rated generating capacity above 80 MW could still be eligible for QF status if other components of the facility limited the net output to no more than 80 MW.
BROADVIEW SOLAR CASE
In December of 2016, Broadview Solar, LLC ("Broadview Solar") self-certified its solar project located in Yellowstone County, Montana, as a small power production QF ("Project") with a gross generating capacity of over 104 MW but a net capacity of 80 MW.6 On March 13, 2019, Broadview submitted a self-recertification and revised Form No. 556 for the Project, describing an updated gross solar generating capacity of 160 MW and the planned addition of 50 MW of battery storage to the Project, while still maintaining a net capacity of 80 MW. Months later, on September 11, 2019, Broadview Solar requested a formal determination by FERC of the Project's status as a small power production QF.7
In its application, Broadview Solar explained that the oversized solar capacity and the battery storage component would optimize energy production and allow "time-shifted" energy production capable of sustaining output for additional hours in the day. Broadview Solar argued that its design was consistent with FERC precedent related to the 80 MW threshold because the Project's generating components and battery storage system were located "behind" inverters, making it impossible for the Project to exceed 80 MW of output at any time.8
FERC's NEW APPROACH IN BROADVIEW SOLAR
In its order, FERC rejected Broadview Solar's position and overturned longstanding precedent to calculate a QF's capacity. FERC held that the Project exceeds the 80 MW statutory limit because the Project's solar array "has the capability to produce 160 MW of DC power."9 FERC concluded that its prior reasoning strayed from PURPA's plain language by improperly focusing on the concept of a facility's "output" instead of simply looking at a facility's "power production capacity."10 The Broadview Solar order indicates that a project's rated capacity, rather than its output, will dictate FERC's view of a facility's "power production capacity." Moreover, FERC made clear that it will not permit an oversized renewable project to meet the statutory 80 MW requirement by relying on inverters "or other output limiting devices" to limit the QF's output.11
According to the dissent, the majority improperly concluded that the Project's "power production capacity exceeds the 80-MW ceiling for qualifying as a QF based entirely on the fact that its solar array is rated at 160 MW" and applied an overly rigid and impractical view of the facts.12 The dissent would retain FERC's prior reasoning and consider the potential output of a facility as a whole to determine the power production capacity of a facility, not simply its rated capacity.13 Procedurally, Broadview Solar may challenge the order, and the dissenting opinion in the order could bolster arguments advanced by the company in any potential challenge of this order.
IMPACT OF BROADVIEW SOLAR FOR QUALFIYING FACILITIES
Oversized Renewable Projects
The Broadview Solar case modifies longstanding precedent to determine QF status at the 80 MW threshold and could have significant impacts on the ability of projects similar to the Broadview Solar facility to obtain QF status, i.e., projects with oversized capacity components (which may include battery storage components) whose output is nevertheless limited to 80 MW. FERC clarifies that it will apply its reasoning only prospectively to projects that have not filed Form No. 556 for QF status.[14] However, FERC does not provide relief for projects that might be well under development and committed to a design similar to the Broadview Solar facility. This order also has the potential to shape the design or strategy of future project development for projects near the 80 MW threshold, e.g., the sizing of a project's capacity component, whether the project will rely on QF status to obtain an offtake agreement, etc.
No Clarity for Treatment of Battery Storage Capacity Under PURPA
Broadview Solar amended its Project description to add battery storage and solar capacity in order to optimize the Project's ability to generate electricity for longer periods and across different portions of the day, without increasing the facility's capacity output at any one time. Thus, Broadview Solar's application raised the question of whether the battery storage portion of the Project should be treated as a separate QF facility under PURPA for purposes of determining the 80 MW limit. Although the question was teed up, FERC declined to address the treatment of hybrid battery storage capacity in the order because the 160 MW solar component allowed FERC to address the issue without the need to discuss the 50 MW of battery storage capacity.15 As a result, this significant question related to the treatment of hybrid battery storage capacity remains unaddressed by FERC, even though this issue may grow in importance because of the ways battery storage can optimize renewable QF projects near the 80 MW threshold.
FERC Order Is Consistent with Other FERC Reforms of PURPA
This order limits the ability of certain projects to qualify for QF status in order to avail themselves of various regulatory benefits. In this respect, this order advances FERC's more recent posture toward PURPA. For example, for the first time since 1980, FERC issued major reforms to its PURPA regulations in an order on July 16, 2020.16 Among other things, those reforms granted greater flexibility to state regulatory authorities in establishing avoided cost rates for QF sales and allowed energy rates paid for energy (not capacity) to QFs to vary during the life of a QF contract. FERC also decreased the rebuttable presumption for "nondiscriminatory access" to centralized markets from 20 MW to 5 MW for small power production QFs. Viewed together, this order and FERC's recent PURPA reforms indicate FERC's general orientation has shifted in order to narrow the ability of some projects to obtain QF status or otherwise access regulatory benefits under PURPA.
A copy of FERC's order in the Broadview Solar case may be found here.
Footnotes
1 Broadview Solar, LLC, 172 FERC ¶ 61,194 (2020) ("Broadview Solar Order").
2 Id. at PP 21, 25.
3 See 16 U.S.C. § 796(17)(A)(ii).
4 See 18 C.F.R. § 292.303.
5 Broadview Solar Order at PP 18, 19 (citing Occidental Geothermal, Inc., 17 FERC ¶ 61,231, at 61,445 (1991)).
6 See Broadview Solar, LLC, Form No. 556, Docket No. QF 17-454-000 (Dec. 19, 2016).
7 See Broadview Solar, LLC, Application for Certification of Qualifying Small Power Production Facility Status, Docket No. QF17-454-004 (Sept. 11, 2019) ("Application").
8 Application at 4, 6.
9 Broadview Solar Order at P 25.
10 Id. at P 23.
11 Id. at fn 60 and P 25 (finding that the developer "cannot meet the statutory limit by relying on inverters as a limiting element on a QF's output").
12 Broadview Solar Order, Cmnr Glick Dissent, at PP 1, 5 (emphasis added).
13 Id.
14 Broadview Solar Order at P 27.
15 Broadview Solar Order at P 21, fn 57 (explaining that "[i]n this order, because the 160 MW solar array is double the 80 MW statutory limit for power production capacity, we do not need to address whether the associated battery storage system is a separate facility or whether and how the battery storage system should be considered in determining the facility's power production capacity").
16 Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Order No. 872, 172 FERC ¶ 61,041 (2020).
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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