District Energy - 2010 Third Quarter

Because Cornell’s facility serves steam load, which is highly sensitive to the variable weather conditions in central New York State, the amount of electricity available for sales to the market is both variable and unpredictable, leaving Cornell vulnerable to penalties imposed by NYISO for over- or under-generation. To demonstrate that it does not have nondiscriminatory access to NYISO markets, Cornell highlighted the fact that these NYISO penalties are waived for other intermittent resources.

Given the high variability in the need for its thermal output and given how NYISO’s markets operate, Cornell does not effectively have nondiscriminatory access to NYISO’s markets.

NYSEG answered Cornell’s protest. Although it recognized the variable nature of the QF’s operations, NYSEG argued that Cornell failed to quantify that variability. NYSEG also refuted the unique operating conditions of Cornell’s facility, arguing that Cornell’s steam generation did not necessarily dictate its available electric output.

In the end, FERC sided with Cornell. FERC noted that a mere showing that electric output was dependent on variable weather conditions would not have sufficed. Rather, in upholding NYSEG’s obligation to purchase from Cornell, FERC focused on the highly variable demands of Cornell’s steam load and the resulting unpredictable electric output available for sale into NYISO markets. That fact, coupled with the discriminatory nature of the NYISO penalties for under-generation, satisfied FERC that Cornell lacked nondiscriminatory access to the NYISO markets.

What This Decision Means
for IDEA Members

This case is significant because it
shows FERC’s willingness to consider the
variable nature of steam load in the con-
text of PURPA purchase obligations. The
key in these cases is being able to show

how a particular wholesale market operates in a manner that does not accommodate district energy systems.

Cornell’s successful challenge provides a road map for other IDEA members that may be facing similar termination threats. That said, it is not always easy to predict how a regulatory agency like FERC is going to rule. Only two years ago, FERC denied a QF challenge that was similarly based on the variable nature of a QF’s available output due to the needs of its thermal host. 3 In that case, FERC cited a lack of detail and actual data of past experiences – information that it did not seem to require from Cornell. This shows the fact-specific nature of these cases. FERC examines QF challenges on a case-by-case basis. Nevertheless, by examining both past victories and failures, IDEA members can increase their chance of success in challenging a utility’s termination request.

Utilities are required to notify all
QFs in their region when they file a ter-
mination application. If you receive such
notification and believe the continuation
of a mandatory purchase requirement is
beneficial, the Cornell case offers the fol-
lowing lessons in preparing a challenge:
• Show up. Cornell’s efforts demonstrate
that it is possible to ward off termina-
tion of PURPA’s mandatory purchase
obligation. But that can only happen if
you participate in the process. Cornell
was the only QF to file a protest against
NYSEG’s application, and it is the only
QF from which NYSEG is still required to
purchase energy. FERC granted NYSEG’s
termination request for all other QFs in
the NYSEG service territory.

• Know your market. These challenges
turn on whether the QF has nondis-
criminatory access to wholesale markets.
Whether due to transmission constraints,
scheduling issues or your own operational
limitations, your challenge to a termina-
tion application must identify the specific
obstacles that prevent you from reaching
the market. This means explaining your
own operations in the context of your
particular RTO’s market rules and identify-
ing the impact of any market failures.

Elizabeth Teuwen is an energy lawyer with Jennings Strouss & Salmon PLC in Washington, D.C. Her practice focuses on the electric and natural gas sectors of the energy industry. She represents municipal utilities, rural cooperatives and end users before the Federal Energy Regulatory Commission and advises clients on electric industry restructuring, renewable energy development, power supply arrangements and transmission issues. Teuwen can be reached at eteuwen@jsslaw.com.