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November 18, 2014

FERC Slaps Muni Hydro For QF Violations, then Gives it a Pass

In Beaver Falls Municipal Authority, 149 FERC ¶ 61,108 (November 7, 2014), FERC was called on to decide whether a muni hydro owner should be excused for a seven year delay in complying with QF filing requirements. An adverse decision could have invalidated its QF contract and exposed it to onerous refunds. FERC resolved the issue by holding the non-compliance inexcusable while nonetheless granting relief that may preserve the contract.

Beaver Falls, a Pennsylvania municipal authority, entered into a PURPA contract with Duquesne Light Company in 1985 to sell the output of its 4.995 MW hydro facility at a flat rate of $0.06 per kWh. The contract had no end date but was subject to becoming void if Beaver Falls lost its QF status. As part of industry restructuring, Duquesne transferred the rights to the power to Orion Power Midwest in 1999 in return for Orion’s agreeing to assume its payment obligations to Beaver Falls. Through a series of mergers and acquisitions, NRG acceded to Orion’s rights and obligations in 2012.

In 2006, FERC issued Order 671, which implemented the Energy Policy Act of 2005 by establishing filing requirements for QF status. Beaver Falls made no QF filing at that time, later claiming that it had not been aware of the issuance of Order 671.

In August 2013, Duquesne filed a base rate case with the Pennsylvania PUC. On October 28, 2013, NRG sent a letter to Duquesne requesting a copy of Beaver Falls’ QF certification and announced its intent to cease purchases under the Beaver Falls contract effective December 1, 2013 unless it received the certification by November 29. Beaver Falls filed for self-certification on November 22, 2013, and its certification took effect that day in accordance with FERC regulations.

Meanwhile, NRG undertook a collateral attack on the Beaver Falls contract by filing a complaint in Duquesne’s rate case on October 31, 2013 arguing that the tariff under which the contract rate had been established may be an impermissible form of rate discrimination in favor of certain customer generators.

In June 2014, facing the risk that its PURPA contract might be deemed void due to its lack of QF certification between 2006, when the Order 671 filing requirements went into effect, and November 2013, when it finally obtained certification, Beaver Falls petitioned the FERC for a retroactive waiver of its QF filing requirements for the period of its noncompliance. It contended that it was unsophisticated in power industry matters, and only became aware of the certification requirement when the issue arose in the Duquesne rate case. NRG protested, arguing that Beaver Falls’ delinquency was inexcusable and that Commission precedent did not support the waiver.

In its November 2014 decision, FERC denied Beaver Falls’ request for a waiver, agreeing with NRG that the muni’s delinquency was inexcusable and that precedents relied on by Beaver Falls were inapplicable. The Commission relied on the facts that Beaver Falls had filed hundreds of documents in FERC hydro proceedings since 1984 and participated actively Duquesne’s state rate case, thus negating its claim that it was inexperienced in power industry matters. The Commission also noted that Beaver Falls should have been aware of the QF filing requirements since they were published in the Federal Register in 2006 and codified in the Code of Federal Regulations each year since then. “Seven and a half years’ failure to comply with the filing requirement for QF status is simply too long,” it concluded.

Having found no substance in Beaver Falls’ waiver request, the Commission made several other rulings that could well protect Beaver Falls from the harm it sought to avoid, i.e., the voiding of its contract.

First, the Commission granted Beaver Falls a “partial waiver so that the Beaver Falls’ generating facility will be treated as a QF for the period that [it] operated out of compliance with the Commission’s [QF filing requirement],” on the ground that this relief was consistent with FERC action in other cases.

Second, it stated that while the partial waiver did not apply to exemptions from Sections 205 and 206 of the Federal Power Act, any refunds the Commission might otherwise order for selling power without complying with Section 205 were beyond the Commission’s authority in this case because of Beaver Falls’ status as a municipal authority.

Last, the Commission rejected a request by NRG to condition any waiver on Beaver Falls’ agreeing to make refunds as if Section 205 were applicable, stating simply that “we do not believe that Beaver Falls’ failure to timely self-certify its Facility as a QF warrants compelling Beaver Falls to submit to Commission jurisdiction under the FPA when it is otherwise exempt (even assuming that we have the authority to do so).” (footnote omitted)

Whether FERC’s Order leaves NRG with any recourse against Beaver Falls under contract law or in state proceedings is uncertain. In any event, the Order sends a mixed message: while the Commission does not lightly tolerate non-compliance with filing requirements, parties may face an uphill battle in enlisting FERC’s help in obtaining relief from contracts with non-complying counterparties.

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