FERC Reaffirms MISO’s Treatment of QFs in Entergy’s Service Territory

On September 22, FERC denied a request to rehear an April 21, 2016 order involving a complaint from the Occidental Chemical Corporation (“Occidental”) against the Midwest Independent Transmission System Operator, Inc.  (“MISO”).  In so doing, FERC reaffirmed its April 21 Order and further explained its previous finding that MISO’s treatment of qualifying facilities (“QFs”) within the Entergy service territory neither violates the Public Utility Regulatory Policies Act of 1978 (“PURPA”) nor the Federal Power Act (“FPA”).

FERC began its order with an explanation of MISO’s congestion-induced curtailment procedures and the “Behind the Meter” and “Hybrid” market integration options for QFs within the MISO footprint.  As FERC explained, “Behind the Meter” QFs are able to provide their full output to a receiving MISO utility (Entergy, this case)—an option that functionally results in that QF being considered part of that utility’s assets for MISO modeling purposes.  QFs exercising the “Hybrid” option, in contrast, deliver their energy to MISO’s real-time market and recover avoided costs through various strategies including financial schedules, which can be submitted up to six days after the operating day and that must be accepted by Entergy so long as they meet certain criteria and result in the avoided cost rate approved by the Louisiana Public Service Commission (“LPSC”).  “Hybrid” QFs that need to continue generating despite congestion-induced curtailment events (due to the QF’s generation process, for example) can reflect this in their market offers by equalizing their economic minimum and maximum bids or designating their resource as “Must Run.” As FERC noted, MISO expects QFs to be paid the same under either option for real-time unscheduled energy, but they are restricted from utilizing both options simultaneously and switching between them than once per quarter.

Occidental’s request for rehearing raised three main challenges to MISO’s QF treatment and to FERC’s own analysis of those policies in its April 21 Order.  First, Occidental claimed that the Commission failed to discuss whether MISO’s integration plan unduly discriminates against “Behind the Meter” QFs by requiring them to essentially abandon their PURPA rights upon joining MISO’s markets as “Hybrid” QFs.  Occidental furthermore argued that “Hybrid” QFs entering into financial schedules were restricted from selling as-available energy due to the financial penalties imposed whenever a seller fails to meet a schedule’s volume and set points requirements.  Second, Occidental claimed that FERC’s April 21 order improperly relied on an LPSC order that allegedly violates PURPA and that is currently the subject of a recent federal district court challenge.  Third, Occidental argued that FERC’s April 21 order allows MISO to impose unlawful obligations on QFs to maintain their curtailment priority and otherwise requires QFs to commit to sales in a manner that “eviscerates” their right to make unscheduled, as available sales.

FERC rejected each of these challenges in its September 22 order, and noted throughout where Occidental had failed to either support its arguments or otherwise counter the Commission’s previous April 21 order.  With regard to the first challenge, the Commission explained that QFs joining MISO’s markets under the “Hybrid” option maintained their PURPA rights because “[n]othing in the MISO QF Integration Plan directly severs an existing, grandfathered PURPA agreement,” and that, in either event, the termination of Entergy’s PURPA purchase obligation was based on the finding that QFs larger than 20 MW have non-discriminatory access to MISO markets.  The Commission also rejected Occidental’s characterization of the financial scheduling requirements imposed on “Hybrid” QFs by noting that QFs are not required by MISO to enter into “fixed” schedules or otherwise commit to binding decisions ahead of the operation day.

With regard to Occidental’s second challenge, FERC noted that whether the LPSC order in question violates PURPA was irrelevant to the question of whether MISO’s own QF policies are themselves lawful.  The Commission stated that it had declined Occidental’s earlier request to initiate an enforcement action against LPSC, and that as a result, the challenged LPSC avoided cost rate remains in effect pending the outcome of the ongoing district court challenge.

Lastly, FERC summarily rejected Occidental’s third assertion that MISO imposes unlawful obligations to maintain curtailment rights or other obligations that “eviscerate” fundamental QF rights.  The Commission referred to its explanation of MISO’s integration plan and reiterated its conclusion that it imposes reasonable curtailment protocols and otherwise “allows QFs to make unscheduled, as-available sales at avoided cost rates consistent with PURPA and the Commission’s regulations implementing PURPA.”

A more detailed version of this post first appeared on the Troutman Sanders’ Washington Energy Report.

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