FERC rejects PPL Electric request to not take power from small QF

The Federal Energy Regulatory Commission on Oct. 17 rejected a request by PPL Electric Utilities to be relieved of the obligation to buy power from a qualifying facility (QF) of IPS Power Engineering.

On May 17, PPL Electric Utilities requested to be relieved of its requirement to enter into a new contract or obligation to purchase electric energy from IPS Power Engineering’s Souderton LLC cogeneration QF. The IPS Power facility will be located in the city of Souderton, Montgomery County, Pa., at a beef processing facility owned and operated by JBS Swift. Expected to begin operation on April 1, 2014, the IPS project will have a net capacity of 18.146 MW.

The IPS Power project would use two Wartsila 20v34SG gensets (reciprocating). This generation will be natural gas-fueled using existing connections from BP Oil to the thermal customer’s plant.

In 2009, the commission terminated PPL Electric’s mandatory purchase obligation to purchase capacity and energy from QFs larger than 20 MW in its service territory within the PJM Interconnection region. The termination of PPL Electric’s mandatory purchase obligation was based on the finding that the PJM markets qualify as markets that warrant termination of the mandatory purchase obligation and on the rebuttable presumption that QFs larger than 20 MW have nondiscriminatory access to the PJM markets.

However, the commission created another rebuttable presumption; QFs with a net capacity of 20 MW or below do not have nondiscriminatory access to markets sufficient to warrant termination of the mandatory purchase obligation. In creating this rebuttable presumption the commission found persuasive arguments that some QF’s may, in practice, not have nondiscriminatory access to markets in light of their small size. The commission noted that there was agreement among commenters representing both QFs and utilities that small size could affect a QF’s ability to access markets. The commission explained that it adopted this rebuttable presumption for small QFs to reflect that smaller QFs are often interconnected at a distribution level and that QFs interconnected at the distribution level may, in practice, lack the same level of access to markets as those connected to transmission lines.

The commission also explained that smaller QFs were more likely to have to overcome obstacles that larger QFs would not have to overcome, such as jurisdictional differences, pancaked delivery rates, and administrative burdens to obtaining access to distant buyers. The commission found that such difficulties supported a rebuttable presumption that smaller QFs have “substantially less ability to access wholesale markets than do larger QFs.”

The commission has explained that, to overcome this rebuttable presumption that smaller QFs lack nondiscriminatory access to markets, the electric utility must make additional showings to demonstrate, on a QF by QF basis, that each small QF, in fact, has nondiscriminatory access to the relevant wholesale markets. Order No. 688 placed the burden of proof on the utility to demonstrate that a small QF has nondiscriminatory access to the markets of which the electric utility is a member (i.e., in this case, PJM Interconnection). To date, the commission noted that it has not granted any utility relief from the mandatory purchase obligation for a QF that is 20 MW or smaller.

PPL turned back on arguments about PJM market access for this QF

PPL Electric argued that it should be relieved from the obligation to purchase power from the Souderton QF because it believes the Souderton QF will have nondiscriminatory access to PJM, an independently administered, auction-based day ahead and real time wholesale market for energy and long-term sales of capacity. PPL Electric stated that the Souderton QF will have no operational constraints that will prevent it from participating in the PJM energy and capacity markets. PPL Electric argued that it appears that the Souderton QF will be available to run 24 hours a day, 7 days a week and will be fully dispatchable with 98% expected availability.

On July 19, PPL Electric amended its application, arguing that the Souderton QF will be too big to interconnect with PPL Electric directly and must connect via PJM’s interconnection procedures instead. PPL Electric also reiterated its contention that the Souderton QF’s operational characteristics will allow it to engage in regular, steady and predictable wholesale sales in PJM markets, and that it has the necessary nondiscriminatory access to PJM markets.

IPS Power argued that PPL Electric has not demonstrated that the Souderton QF will have nondiscriminatory access to PJM’s wholesale markets, and has failed to carry its burden of proof. IPS Power argued the Souderton QF will not have access to wholesale markets for long-term sales of capacity and electric energy, also referred to as “Day 2” markets as defined in the commission’s regulations.

Additionally, IPS Power argued that, although PJM is attempting to develop a voluntary long-term capacity auction to support future investment, that market does not currently exist. Instead, IPS Power contends that PJM’s capacity market construct, the Reliability Pricing Model, has been unsuccessful in attracting appreciable new generation since its inception in 2007. IPS Power further argued that Pennsylvania currently also does not have long-term markets for capacity and energy.

The commission on Oct. 17 denied PPL Electric’s application. PPL Electric relies heavily on the commission’s findings when it previously granted PPL Electric’s request for termination of its mandatory purchase obligation for QFs over 20 MW, and has not made the showings necessary to rebut the presumption in the commission’s regulations for those QFs that are 20 MW or smaller, the order said.

“While PPL Electric argues that it is not aware of any problematic operational characteristics, transmission constraints or congestion, it does not appear, based on the record before us, that there have been any QF-specific studies, e.g., an interconnection study, that would demonstrate the absence of any specific transmission constraints that may be facing the Souderton QF,” the commission wrote. “Additionally, while PPL Electric contends that the design of the Souderton QF, as detailed in the Souderton QF’s self-certification, should allow for IPS Power to readily sell net capacity into the PJM markets, it is too early to determine whether the QF will, in fact, be built according to its anticipated plan, and it is similarly too early to know whether, in practice, the Souderton QF will be able to sell net capacity into the PJM markets at that time.”

Two commissioners say more guidance is needed

Commissioners’ Philip Moller and Tony Clark said in an Oct. 17 joint statement about this case: “Insofar as this decision generally comports with Commission precedent we support it, but we would encourage the Commission to consider how it can provide more guidance to applicants such as PPL Electric regarding how they can be relieved of PURPA obligations for 20 MW and below facilities.”

They added: “Here, PPL Electric uses unit-specific information to support its application, as provided by the developer, IPS Power Engineering, in its self-certification of the Souderton QF. The question, then, should be whether PPL Electric provided the Commission with enough evidence to determine that the Souderton QF indeed has nondiscriminatory access to the PJM market. While we concur with the overall finding in this order and agree that PPL’s application lacked certain QF-specific information required under the Commission’s regulations, such as a system impact study for the interconnection, we do not agree that the PJM market rules and planning process are irrelevant for purposes of determining QF-specific market access. These provisions are fundamental to our evaluation of whether the Souderton QF will have nondiscriminatory access to the markets, as they provide the playbook for the interconnection process, transmission system operations, and revenues earned by a resource in the region where the Souderton QF will be located.”

The two commissioners said it is important that the commission’s standard for rebutting the presumption not be so high as to preclude a utility from successfully making a showing before the QF is fully operational and the utility is obligated to purchase. “Such a circular result would not be a reasonable interpretation of the statute or our own regulations,” they said. “By considering unit-specific information submitted by an applicant, alongside the opportunities available to suppliers through open markets in an RTO, we can prevent this outcome and avoid rendering meaningless the opportunity to rebut the presumption and obtain PURPA relief.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.