Some experts say PURPA needs an overhaul to fit the times
WASHINGTON – Energy policy makers across the nation are asking if the federal Public Utility Regulatory Policy Act of 1978, commonly known as PURPA, still has a role in shaping the electric industry.
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The law has loomed large over electric companies for four decades, requiring companies to buy power from small independent producers. Today, with the emergence of wholesale market competition and the proliferation of wind and solar power, however, there is a growing sense that it is time for a change.
“There is a better way than PURPA to implement renewables into the system,” said Kendal Bowman, vice president of Regulatory Affairs and Policy at Duke Energy in North Carolina. “And I do believe we are at a point in time where we need to do something different.”
Bowman said change can occur at the state level, not just at the Federal Energy Regulatory Commission or in Congress. As North Carolina’s experience shows, states have considerable discretion in how they implement the law.
Bowman served on a panel of experts that discussed the topic this week at the National Association of Regulatory Utility Commissioners’ Winter Policy Summit in Washington D.C.
PURPA was enacted when the nation was still reeling from the Middle East oil embargo of 1973. Producers halted deliveries of oil to the United States, driving up prices, creating long lines at the pump and giving the nation a sense that it was at the mercy of others.
President Jimmy Carter signed PURPA into law in an effort to increase energy conservation, reduce U.S. dependence on foreign oil and spur the development of alternative energy sources.
The law requires a utility to buy electricity from small independent generators at a price that is less than or equal to the cost for the utility to provide it – what’s known as the utility’s “avoided cost.” So customers pay no more than they would if the utility had produced the power.
Since then, however, the landscape has changed. Competitive wholesale power markets have emerged. And the U.S. government has relieved utilities of the mandatory purchase obligation as long as they participate in a competitive market where generators and transmission customers have open access to the regional transmission system.
In addition, an abundance of domestically produced natural gas has kept down the price of power. Wind and solar power have grown, along with energy efficiency, helping to keep growth in the demand for electricity generally flat.
Rep. Tim Walberg (R-MI) has introduced legislation that would weaken PURPA by allowing utilities to avoid the mandatory purchase obligation if they can show they don’t need generation capacity.
“To the degree that PURPA was enacted at a time when renewable technologies were not the norm, that norm has changed profoundly,” said Montana Public Service Commissioner Travis Kavulla. “Obviously, competition has made great strides since 1978 as well.”
Kavulla said that PURPA doesn’t provide for true competition where buyers pursue the lowest prices, but that it allows for long-term contracts set at “administratively determined rates.”
“It is ironic that in the context of a trendy, happening industry like renewables that we’re stuck debating whether or not they should rely on such an arcane crutch like PURPA,” he said.
Todd Glass, a solar industry lawyer with Wilson Sonsini Goodrich & Rosati, defended PURPA, saying it is the foundation of wholesale electric competition in the United States. It was the law that created the independent power producer and most supports innovation and related technologies, all to the benefit of ratepayers.
Glass said that during the 1970s, there was a lack of diversity in electric generation in terms of fuel, ownership, location and size.
“Utilities didn’t want to buy power from small independent generators,” he said. “They refused to in many cases. Utilities preferred their own, centrally planned, centrally controlled process of acquiring generation.”
