On December 15, 2016, the Federal Energy Regulatory Commission (FERC) issued a declaratory order finding that the Montana Public Service Commission’s (Montana Commission) legally enforceable obligation standard is inconsistent with the Public Utility Regulatory Policies Act (PURPA) and FERC’s PURPA regulations. FERC rejected the Montana Commission’s requirement that that a qualifying facility (QF) complete a facilities study or an interconnection agreement as a predicate for a legally enforceable obligation is contrary to PURPA.
FERC’s regulations require that a utility purchase any energy and capacity made available by a QF. The QF can sell the power on an “as available” basis, through a contract, or pursuant to a “legally enforceable obligation.” The concept of a legally enforceable obligation (or LEO) is unique, but essentially it allows the QF to sell power to a utility under certain circumstances when the QF has been unable to finalize a written contract with the utility. Specifically, FERC has used the concept of a legally enforceable obligation to prevent a utility from refusing to enter into a contract with the qualifying facility.
The Montana Commission concluded that to establish a legally enforceable obligation, a QF must tender to the utility both an executed power purchase agreement and an executed interconnection agreement. FERC had previously concluded that a QF was not required to provide the utility with an executed contract to form a legally enforceable obligation. FERC concluded that requiring a QF to tender an executed interconnection agreement is also inconsistent with PURPA and its regulations, because it allows the utility to control whether and when a legally enforceable obligation exists. For example, a utility could delay the transmission studies or by delaying the completion of the interconnection agreement.
As it usually does, FERC decided not to directly enforce the order by suing the Montana Commission. Instead, the harmed QFs can now take action in Federal court, assuming the Montana Commission does not decide to reform its policies to be consistent with FERC’s order.
Disclaimer
These materials are intended to as informational and are not to be considered legal advice or legal opinion, nor do they create a lawyer-client relationship. Information included about previous case results does not assure a similar future result.
