FERC’s proposed PURPA rulemaking gains wide-ranging national support
A diverse array of labor, consumer and business organizations support a proposed rulemaking from the Federal Energy Regulatory Commission (FERC) to modernize the Public Utility Regulatory Policies Act (PURPA) of 1978.
FERC last month issued a notice of proposed rulemaking (NOPR) to update specific rules and regulations for implementing PURPA. The NOPR was published in the Federal Register on Oct. 4 and comments are due on Dec. 3.
“This much-needed, long-overdue proposal would bring energy regulation in line with reality,” said David Williams, president of the nonprofit, non-partisan Taxpayers Protection Alliance (TPA). “The rules currently in place significantly increase costs for customers, who are forced to pay above-market rates due to rules designed for another era.”
FERC’s existing PURPA regulations also aren’t beneficial for utilities.
“They have been used to require utilities to purchase more power than they actually need at above-market costs,” said Heath Knakmuhs, vice president and policy counsel for the Global Energy Institute at the U.S. Chamber of Commerce. So, not only will reforming PURPA regulations save consumers money, the changes will “provide for the cost-effective and fair integration of renewable energy resources into our grid,” Knakmuhs said.
PURPA was enacted in 1978 as part of a legislative package intended to reduce the country’s dependence on fossil fuels. The plan was to incentivize the development of qualifying facilities (QFs), which are small power production facilities — typically renewable generation resources that largely do not rely on fossil fuels — or cogeneration facilities that make more efficient use of fossil fuels.
Today, however, a large swath of the industry and FERC members agree that the energy landscape has changed considerably since the commission first implemented its PURPA regulations in 1980.
“For one thing, advances in technology and the discovery of significant new natural gas reserves have resulted in plentiful supplies of relatively inexpensive natural gas,” writes FERC in the NOPR. “As a result, there no longer is the same need to provide incentives to address shortages of natural gas.”
Additionally, FERC pointed out that the electric industry back then used to be made up principally of vertically integrated utilities that were reluctant to purchase power from independent generators.
“Today the electric industry provides open access transmission and there are vibrant wholesale electric markets in much of the country where independent generators can sell their power at competitive prices,” according to the NOPR. “These markets have supported the addition of significant amounts of new independently owned generation resources, including renewable resources.”
In addition, there are several federal and state programs that provide incentives for the development of alternative resources, such as renewable resources.
“Consequently,” according to FERC, “the majority of renewable resources in operation today do not rely on PURPA.”
In fact, according to Lonnie Stephenson, president of the International Brotherhood of Electrical Workers (IBEW), renewables “now account for more than 17 percent of U.S. electrical generation, and they keep growing as costs continue to decline.”
“This makes modernizing PURPA to meet the demands of our changing energy system more vital than ever,” Stephenson said.
PURPA’s current rules also have created some unintended consequences, according to IBEW’s Stephenson, who said that “developers have figured out ways to game the existing system in order to crowd out less expensive renewable projects, which hurts workers and customers alike.”
And state regulators have been concerned for years about PURPA provisions that require utilities to purchase power from independent generators, as well as whether the requirements are being abused by the QFs, and subsequently have led to higher electricity costs for end-users, says the Consumer Energy Alliance (CEA), a national non-partisan, non-profit association.
“Over the past several years, there has been an increasing call from many regulators asking FERC to initiate reforms to remove the opportunities for these types of abuses,” CEA said in a statement released last month by spokesman Bryson Hull.
FERC says in the NOPR that its proposed changes constitute a package of reforms that it thinks will continue to encourage QFs while also addressing such concerns.
For instance, FERC proposes to grant states the flexibility to require that energy rates, but not capacity rates, in QF power sales contracts and other legally enforceable obligations (LEO) vary in accordance with changes in the purchasing electric utility’s as-available avoided costs at the time the energy is delivered, according to the NOPR.
“Under this proposal, if a state exercises this flexibility, a QF would no longer have the ability to elect to have its energy rate be fixed for the term of the contract or LEO,” says FERC.
Among other proposed changes, the commission also proposes granting states additional flexibility to allow QFs to have a fixed energy rate, but to provide that such state-authorized fixed energy rate can be based on projected energy prices during the term of a QF’s contract based on the anticipated dates of delivery.
And FERC proposes to grant states the flexibility to set “as-available” QF energy rates for both QFs selling to electric utilities located in organized electric markets at the locational marginal price, and for QFs selling to electric utilities located outside of organized electric markets.
The CEA also thinks that any FERC changes in its PURPA regulations also should focus on energy consumers.
“In an era where electricity markets are shifting and evolving on a continual basis, it is essential that federal and state regulations ensure adequate affordable and reliable electricity for both residential and commercial end-users,” according to CEA’s statement. “We continue to support the increased deployment of independent generators, robust distributed generation growth, and the ability of consumers to offset their energy use to lower their power bills.”
IBEW’s Stephenson also pointed out that the move to update how PURPA is implemented will introduce more competition into renewable power projects, slash prices for energy consumers, and encourage more opportunities for IBEW members to modernize the energy grid.
“It’s a win for workers, consumers and the environment, and we commend it,” he said.
The Latino Coalition (TLC), a non-partisan advocacy organization representing Hispanic businesses and consumers, is also on board with the commission’s proposed PURPA rulemaking.
“The NOPR represents a wise effort by the FERC to streamline implementation of an antiquated regime,” said TLC Chairman Hector Barreto. “These changes will better address consumer concerns and market changes in the energy landscape, especially for the Latino community.”
Barreto also said that TLC “agrees with the notion that electric companies should not be burdened by unnecessary regulatory hurdles that drive up costs for consumers.”
