Going into a June 29 Federal Energy Regulatory Commission technical conference on the Public Utility Regulatory Policies Act of 1978 (PURPA), U.S. Sen. Maria Cantwell, D-Wash, the Ranking Democrat on the Senate Energy and Natural Resources Committee, issued a statement saying FERC must not do anything to discourage PURPA projects.
The commission heard frompanelists addressing issues like: the statute’s requirement that utilities purchase power from qualifying small renewable energy generators and cogeneration facilities; and what a purchasing utility must pay for the power.
“It is critical that FERC continues to ensure that these small generators are not shut out of the market,” Sen. Cantwell said in her June 28 statement. “I’ll be interested to see what FERC does with the feedback it receives and will be following closely whatever next steps the commission takes.”
In February, Sen. Cantwell, Rep. Frank Pallone, D-N.J., and Rep. Bobby Rush, D-Ill., wrote to FERC Chairman Norman Bay regarding the technical conference, noting that PURPA remains an important federal backstop for renewable energy investment, especially given the often tenuous nature of state electricity policies. The three Democrats warned against narrowing the scope of PURPA further than Congress already did in the 2005 energy bill. The letter also provided a suggested list of topics for discussion at the technical conference, addressing issues important both to small renewable electric generators and cogeneration facilities.
There is an increased amount of attention lately to PURPA, with some utilities, like PacifiCorp, saying they are being flooded with PURPA projects, especially small solar facilities. Some parties also say the avoided cost calculations the states and utilities use to determine power rates to be paid to project developers are not an accurate reflection of the real world of currently low power market prices.
For example, Kendal Bowman, Vice President Regulatory Affairs and Policy for Duke Energy (NYSE: DUK) said in prepared remarks filed ahead of the technical conference that Congress intended PURPA to be implemented based on an actual need for energy and new capacity. Furthermore, in Order No. 69, the commission said that determining avoided cost rates required taking into account “the relationship of energy or capacity from a qualifying facility to the purchasing electric utility’s need for such energy or capacity.”
Bowman added: “Unfortunately these principles and the needs-based application of PURPA have been lost or forgotten by many in the industry. With the passage of time, the implementation of PURPA seems to have morphed into a development tool for qualifying facilities with an unconditional mandatory purchase obligation on utilities – without regard to actual needs. The implementation of PURPA should return to its founding principles of energy conservation, resource efficiency, just rates for customers, and improving – not impairing – system reliability.”
Bowman said that specifically:
- QFs should be incorporated into utility generation portfolios based on actual needs – not unconditional purchases.
- The obligation to incorporate QFs into the system should arise after the utility has identified and committed itself to a need for energy or capacity.
- Like all other generators, QFs should also contribute to system reliability and parallel operations with utilities.
- Rates should be established through bona fide offers in a non-discriminatory process.
The California Cogeneration Council, an ad hoc organization representing operating combined heat and power (CHP) facilities, said in its prepared testimony that it wanted into this technical conference to explain the “devastating impact” that the elimination of the remaining mandatory purchase obligation under PURPA would have on current operations and potential CHP development. “Simply put, based upon the California experience, elimination of the mandatory purchase obligation under PURPA basically will render meaningless PURPA’s policies and goals to encourage CHP development and operation and will undermine the significant contributions that this valuable distributed generation resource can provide as the nation modernizes its electric grid,” the council said.
Todd Glass, testifying on behalf of the Solar Energy Industries Association (SEIA), said in prepared testimony: “The Commission should have no doubt about the continuing importance of the Public Utility Regulatory Policies Act of 1978 (PURPA) to the solar industry in the United States. Some argue that PURPA is an anachronism, that independent power generation has matured to the point that PURPA is now obsolete. PURPA’s fundamental purpose of ensuring that independent generation owners can compete with incumbent utilities – which are natural monopolies that may not have an incentive to lower costs and benefit consumers – remains as necessary today as it was in 1978. PURPA’s mandates have fostered the surge in independent renewable generation that is the vanguard of America’s clean energy future, and these mandates remain the foundation of competitive electric markets in the United States.
“As a starting point, SEIA calls attention to the often-repeated assertion that PURPA compels utilities to purchase ‘high cost’ or ‘overpriced’ energy. This is false; by definition, the avoided cost-based pricing of PURPA contracts can be no higher than the cost the utility would otherwise pay. This misconception dates from a prior era, before current technological innovations and efficiencies drove down solar power prices such that the market price for solar power purchase agreements (PPAs) is now competitive with other forms of new generation. Indeed, the plummeting installed cost of solar systems has created an environment where solar-based energy generation is cost competitive with fossil fuel-based avoided cost calculations.
“PURPA and the Qualifying Facilities (QFs) it supports offer something that incumbent utilities are otherwise often immune to: mandatory competition. Independent developers are motivated to take advantage of the opportunities that PURPA creates and drive further innovation and cost reduction; their efforts in turn push utilities to modernize and lower costs. The belief that PURPA facilitates purchases of uneconomic generation is false, and the truth of the economics illuminates the continuing tension between PURPA-backed independent power and utility business models. The Commission should focus its review of PURPA on ensuring that competition and innovation can continue and that incumbent utilities are not impeding these breakthroughs with anti-competitive conduct. The Commission should also use its enforcement authority to safeguard PURPA’s implementation by both utilities and state commissions.”