FERC Explains Notices of Intent Not to Act

New Mexico Commission Should Not Rely on Notice to Support Interpretation of FERC’s Rules
Mark Reishus
February 5, 2019 at 09:53:48 ET
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On Feb. 4, 2019, FERC issued a “Notice of Intent Not to Act” on a petition for enforcement filed by Great Divide Wind Farm 2 LLC and Great Divide Wind Farm 3 LLC (together, Great Divide) against the New Mexico Public Regulation Commission (New Mexico Commission) pursuant to section 210(h)(2)(B) of the Public Utility Regulatory Policies Act of 1978 (PURPA). FERC took the opportunity to declare that “Notices of Intent Not to Act in the absence of an associated declaratory order cannot be read to mean that the Commission has accepted or agreed with (or alternatively, rejected or disagreed with) any argument made by any party, or with any substantive determination by a state regulatory authority or unregulated electric utility described in the petition for enforcement.”

The Petition

On Dec. 6, 2018, Great Divide filed a petition asking FERC to initiate an enforcement action against the New Mexico Commission “for its failure to implement PURPA consistent with federal law and the Commission’s regulations.”

Great Divide explained that they are “developers of two wind energy generating projects, Great Divide Wind Farm 2 and Great Divide Wind Farm 3 (the ‘Projects’), approximately 16 miles northeast of Lordsburg, Grant County, New Mexico. Each Project is a qualifying small power production facility (‘QF’) under Section 3(17)(C) of the Federal Power Act (‘FPA’) and [18 C.F.R. §§292.204 and 292.304] The Projects will interconnect with and have committed to sell all of their electric output to El Paso Electric Company [(El Paso)], with construction commencing in 2019 and commercial operation in 2020.”

According to Great Divide, FERC has prescribed rules that impose obligations on electric utilities to establish long-term, fixed-price purchase arrangements, thereby enabling sponsors to develop and finance QFs. The rules “give QFs the option to enter into a contract or other ‘legally enforceable obligation’ requiring the utility to purchase its output at an established rate for a specified term. The Commission has recognized that a QF’s right to a legally enforceable obligation at a specified rate attaches when the QF commits itself to sell its output and that this early attachment is necessary to finance projects under development. Further, the Commission has rejected any attempts to impose pre-conditions on the ability of a QF to exercise its Commission-granted right to a legally enforceable obligation because such barriers would thwart PURPA’s mandate and the development of renewable energy projects.”

Great Divide alleged that, on Nov. 7, 2018, the New Mexico Commission ruled that a legally enforceable obligation for El Paso to purchase electric power generated by Great Divide cannot be created until the Projects are constructed and ready to interconnect to the El Paso system. “Since the Projects are currently under development and are not scheduled to interconnect with [El Paso] or to achieve commercial operation until 2020, the effect of the [New Mexico Commission’s] ruling is to deny the Petitioners the right to the legally enforceable obligation needed to provide the certainty required to obtain the financing required to construct the Projects so that they are able to interconnect and commence power sales.”

Great Divide argued that the New Mexico Commission failed to implement PURPA section 210(a) in accordance with the requirements of PURPA Section 210(f) and FERC’s regulations, and that, “in violation of PURPA, it is thwarting the development of these otherwise viable renewable energy Projects. Petitioners therefore request, pursuant to Section 210(h)(2) of PURPA, that the Commission initiate an enforcement action against the [New Mexico Commission] to require it to implement the Commission’s PURPA regulations. In addition, Petitioners request that the Commission direct the [New Mexico Commission] to either adopt the Petitioners’ proposed methodology for calculating avoided cost rates calculated at the time the obligation is incurred or to develop a methodology of its own, in accordance with the Commission’s regulations.”

Protests and Comments

FERC issued notice of the petition on Dec. 7, 2018.

On Dec. 26, 2018, the New Mexico Commission filed a protest arguing that there are no legitimate grounds for enforcement action against the New Mexico Commission, and requesting that FERC “issue a notice of intent not to act and provide substantive guidance in the form of a declaratory order in the event this matter is further litigated in federal court.”

The New Mexico Commission explained that its Rule 570 requires that a QF be interconnected before a utility’s purchase obligation arises, and asserted that the rule “is entirely consistent with … PURPA.” The New Mexico Commission said its final order dismissing Great Divide’s complaint against El Paso included its interpretation of Rule 570. “In interpreting its own Rule 570, the [New Mexico Commission’s] Final Order held that [El Paso] does not have a legally enforceable obligation to purchase the output of the Great Divide Wind Farms 2 and 3 unless and until the QF is ready to interconnect to [El Paso’s] system.” The New Mexico Commission asserted that “FERC has ruled that it is up to the States to determine when a legally enforceable obligation is created.”

The New Mexico Commission emphasized that “the Final Order was a limited decision applying to two litigants, Great Divide and [El Paso], and only ruled that the complaint filed by Great Divide against [El Paso] failed due to lack of probable cause of a violation of law and also only dismissed the Complaint without prejudice. The Final Order does not preclude future actions from being filed with the [New Mexico Commission] by Great Divide at the time it is ready to interconnect and it believes [El Paso] is not acting lawfully.”

Finally, the New Mexico Commission noted that Great Divide failed to exhaust its remedies by failing to timely appeal the Final Order’s interpretation of New Mexico law to the New Mexico Supreme Court.

On Dec. 27, 2018, the Edison Electric Institute (EEI) filed comments urging FERC to deny Great Divide’s petition because the New Mexico Commission’s action was “a valid exercise of state authority under PURPA.” In the alternative, EEI asked FERC to stay the petition until the issues are addressed through a generic proceeding.

El Paso also filed a protest on Dec. 27, 2018. According to El Paso, FERC should reject Great Divide’s petition because FERC “has granted state regulatory authorities ‘great latitude’ in setting specific parameters for legally enforceable obligations, including the date on which a legally enforceable obligation arises. [The New Mexico Commission’s] Rule [570] falls within the scope of the discretion granted to the [New Mexico Commission], as this Commission implicitly found less than two years ago when it declined to initiate an enforcement action against the [New Mexico Commission] in a case involving the very same rule.” In addition, El Paso argued that FERC should reject the petition because “Great Divide has never actually made a formal ‘commitment’ under PURPA to provide energy to [El Paso] from a QF project.”

In its Dec. 27, 2018 protest, Xcel Energy Services Inc. (Xcel) referred to the same 2017 FERC order noted by El Paso (Western Water and Power Production Limited LLC, Notice of Intent Not to Act, 158 FERC ¶61,015 (2017) [Docket Nos. EL17-17-000 and QF11-516-001]). FERC “rejected an identical challenge by Western Water and Power Production Limited, LLC to the same [New Mexico Commission] rule, and nothing has changed since that time to justify a different result in this case.” For the reasons outlined in El Paso’s protest and EEI’s comments, Xcel “requests that the Commission deny Great Divide’s petition for enforcement.”

Answer

Great Divide filed an answer to the protests and comments on Jan. 11, 2019, asserting that the arguments made by the New Mexico Commission, and repeated by the other participants, are without merit.

According to Great Divide, the New Mexico Commission “incorrectly implies that Petitioners seek a ruling from the Commission that a [QF] need only make an empty commitment to a utility to provide energy at some future date to bind that utility to a legally enforceable obligation. However, the Petitioners simply summarize, cite, and quote the Commission’s holdings that a) ‘to protect the rights of a QF, once a QF makes itself available to sell to a utility, a legally enforceable obligation may exist prior to the formation of a contract,’ and b) when a QF commits itself ‘ “to sell to an electric utility, [it] also commits the electric utility to buy from the QF; these commitments result either in contracts or in non-contractual, but binding, legally enforceable obligations.” ’ To be sure, a state commission can require that the commitment to sell be from a project that satisfied reasonable indicia that it is likely to be completed, but that is a universe away from the [New Mexico Commission’s] requirement that a facility must be first constructed and fully ready to interconnect to the grid before a legally enforceable obligation is imposed.”

Great Divide also asserted that the New Mexico Commission’s construction/interconnection requirement is neither a proper demonstration of QF viability nor an appropriate exercise of its discretion. “A state commission’s authority to impose viability standards does not extend to the unreasonable and unworkable requirement that the QF owner must first complete construction of a facility and make it ready for interconnection before a legally enforceable obligation is imposed. … [S]tate commissions only have discretion to act in a manner that is reasonably designed to implement, and give effect, to PURPA and its related rules.” The New Mexico Commission’s Final Order “falls outside the latitude extended to state commissions in their implementation of the Commission’s PURPA rules.”

In addition, Great Divide criticized the argument that FERC’s determination in 2017 not to issue a declaratory order in response to Western Water and Power Production Limited LLC’s petition can be taken as an affirmation of the New Mexico Commission’s Rule 570. A FERC order declining to file suit “does not fix the rights of any party and is of no legal consequence. This is particularly so when, as here, if the Commission declines to enforce PURPA, Section 210(h) preserves the ability of the petitioner to bring an enforcement action against the state public utility commission in federal district court in New Mexico.”

Great Divide denied that it is required to appeal the New Mexico Commission’s Final Order to the New Mexico Supreme Court prior to filing its petition for enforcement with FERC. “Where, as here, a state commission has failed to carry out its obligation to implement the rules prescribed by the Commission under Sections 210(a)-(e) of PURPA, there is no limitation on a petitioner’s right to initiate an enforcement action with the Commission, or after first petitioning the Commission, to thereafter bring an action in the appropriate United States district court to require the state commission to comply with PURPA and the Commission’s rules thereunder.”

Decision and Declaration

On Feb. 4, 2019, FERC gave notice that it declines to initiate an enforcement action pursuant to section 210(h)(2)(A) of PURPA on behalf of Great Divide. “Great Divide thus may bring its own enforcement action against the New Mexico Commission in the appropriate United States district court.”

In addition, FERC elected to issue a declaratory order “regarding the effect and import of a Notice of Intent Not to Act, in the circumstances where the Commission issues only a Notice of Intent Not to Act without the addition of a declaratory order.” FERC noted that these circumstances “are the circumstances presented by the January 2017 Notice of Intent Not to Act [on Western Water and Power Production Limited LLC’s petition], which the New Mexico Commission cited in its Great Divide Final Order.”

FERC explained that section 210(h)(2)(B) “requires an electric utility, qualifying cogenerator, or qualifying small power producer to first petition the Commission to enforce the requirements of PURPA before that petitioner may itself bring an action in the appropriate United States district court against the state regulatory authority or non-regulated electric utility. If, in response to a petition for enforcement, the Commission issues a Notice of Intent Not to Act without an associated declaratory order, this issuance merely notifies the petitioner that the Commission does not itself intend to undertake an enforcement action, i.e., file a complaint in district court, and that the petitioner may proceed on its own to bring an action in district court.”

According to FERC, its Notices of Intent Not to Act, when unaccompanied by an associated declaratory order, cannot be read to mean that FERC has accepted or agreed with, or rejected or disagreed with, any argument made by any party, or with any substantive determination by a state regulatory authority or unregulated electric utility described in the petition for enforcement. “The Commission’s silence is not evidence of a Commission determination on the merits of the parties’ arguments. That is, the Commission has not ruled on the issues, and such issues may not be considered as having been so decided as to constitute precedents. In sum, a Notice of Intent Not to Act, without an associated declaratory order, does not mean anything other than what it says — that the Commission declines to initiate an enforcement action under PURPA in response to the petition for enforcement.”

Thus, “the New Mexico Commission should not rely on the January 2017 Notice of Intent Not to Act as a ruling that the New Mexico Commission has correctly interpreted or applied the Commission’s regulations, or that the New Mexico Commission’s actions complained of here are consistent with (or, alternatively, are inconsistent with) this Commission’s regulations.”

For More Information

See ¶207-05: Petitions for summaries of declaratory orders issued by the Commission.

Great Divide Wind Farm 2 LLC and Great Divide Wind Farm 3 LLC, Notice of Intent Not to Act and Declaratory Order, 166 FERC ¶61,090 (2019) [Docket Nos. EL19-25-000, QF18-1748-001 and QF18-1749-001].

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