• FERC Decides Large Qualifying Facility Does Not have Nondiscriminatory Access to Markets
  • April 15, 2010
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On March 18, 2010, FERC found New York State Electric and Gas Corp. (“NYSEG) and Rochester Gas and Electric Corp. (“RG&E”) must continue to buy excess output from a cogeneration facility owned and operated by Cornell University (“Cornell”).  As such, FERC’s ruling marked the first time that FERC has determined that a large qualifying facility (“QF”) does not have nondiscriminatory access to markets, in the wake of legislative changes included in the Energy Policy Act of 2005.

    In October of 2006, FERC, through Order No. 688, revised its regulations on a utility’s obligation to purchase energy produced from QFs.  Specifically, Section 210(m) of the Public Utility Regulatory Policies Act of 1978 (“PURPA”) stated that if FERC determined that the QF had nondiscriminatory access to markets, an electric utility would not have to enter into new purchase obligations or contracts to buy electricity from the QF.  Order No. 688 also established a rebuttable presumption for the New York Independent System Operator (“NYISO”) and other markets that QFs with over 20 MW of net capacity had nondiscriminatory access to those markets.  Based on this presumption, NYSEG and RG&E asked FERC on December 18, 2009, to terminate their obligation to purchase electricity and capacity from large QFs.

    Cornell, the owner and operator of a self-certified QF facility located in Ithaca, New York, protested the filing.  Cornell explained that its electrical output, which is dependent on weather conditions, is highly variable and unpredictable on a daily basis.  Cornell stated that it is impracticable for it to sell excess energy on a consistent basis into the NYISO day-ahead or real-time market because the NYISO Market Services Tariff imposes penalties on generators with variable loads for under-generation.  As such, Cornell claimed that the operational characteristics of its QF facility prevent it from participating in the NYISO wholesale electric market.

    In siding with Cornell, FERC noted that the utilties did not disagree with Cornell on the variability of the facility’s output or Cornell’s claim that it would be penalized for that variability in the NYISO’s market.  FERC also rejected NYSEG and RG&E’s arguments that Cornell should change the operation of its QF, which would effectively force Cornell to give up its status as a QF, in order to have access to NYISO markets.  Finally, FERC disagreed with NYSEG and RG&E’s assertion that a ruling in favor of Cornell will create a generic ruling that variable weather or variable output warrants a denial of relief.  Instead, FERC noted that its decision was only based on the specific facts and circumstances of Cornell’s QF and NYISO’s market.