PURPA Still Relevant with Sunset of Tax Credits

              When the Federal Energy Regulatory Commission (“FERC”) adopted Order No. 872 in 2020, industry stakeholders questioned whether developers of merchant power plants still needed the benefit of the Public Utility Regulatory Policies Act of 1978 (“PURPA”).   Indeed, tax credits in the form of investment and production tax credits had facilitated the installation of wind and solar resources since the early 1990s.   

              With the passage of the One Big Beautiful Bill earlier this summer, Congress has  accelerated the phase out of tax credits placing pressure on developers.   Although projects under development can still qualify for traditional tax credit treatment if they commence construction and are placed in service within certain timeframes, Congress has now accelerated the end of the tax benefits that renewable energy projects have increasingly relied upon since the early 2000s.  

              Re-enter PURPA

              For developers seeking to move forward with wind and solar projects with the phase out of tax credits, PURPA can still provide leverage in particular circumstances.   First, PURPA ensures market access for small power producers which meet the requirements for a qualifying facility (“QF”).  In many regions of the U.S., the obligation to purchase provides a foundation for discussions with potential utility off takers.   In certain markets seeing capacity constraints, the must purchase obligation may afford the financial support for project development that tax credits may have previously provided.  In this context, the calculation of the “avoided cost” will provide the baseline for discussions.

              Because PURPA is administered state by state and by non-jurisdictional utilities, avoided cost rates and methodologies will vary.  In 2020, FERC adopted Order 872, which established new methods of calculating avoided costs that can inform the discussions between developer and off taker.  Furthermore, as FERC has noted previously, PURPA allows for developers and off-taker utilities to negotiate agreements with terms and conditions which may be more favorable to developers than those mandated by PURPA. 

              The business outcomes of power plant development which are guided by PURPA require a nuanced understanding of PURPA, as well as the state framework for implementing PURPA.   The attorneys at Davison Van Cleve have significant experience advising utility off takers and developers on the intricacies of PURPA.  As business needs may require, reach out to Brad Van Cleve bvc@dvclaw.com or David Fitzgerald daf@dvclaw.com for support on implementing policies and designing transactions that comply with PURPA.