House subcommittee panelists take turns pounding PURPA punching bag

Published on September 07, 2017 by Kim Riley


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A pro-reform-heavy panel pounded varying aspects of the Public Utilities Regulatory Policies Act of 1978 (PURPA), which became a veritable punching bag they hope will be reshaped to better support America’s renewable power wave.

PURPA took its hits during a Sept. 6 U.S. House of Representatives Energy and Commerce Committee energy subcommittee oversight hearing, third in a series of hearings in which members are considering whether revisions to the law are necessary or appropriate.

In doing so, the House energy subcommittee heard arguments for and against making reforms. Generally, the utilities contend that the PURPA provision requiring utilities to purchase energy from qualifying facilities (QFs) — which receive special rates and regulatory treatment under PURPA — is outdated and should be modified or repealed. Meanwhile, QFs argue that PURPA’s must-purchase provision is necessary to support the development of renewable energy in certain parts of the country where such development has been slow to occur. QFs include small power production facilities of 80 megawatts (MW) or less fueled namely by solar, wind or other renewables.

“PURPA represents an energy policy from another time and is inconsistent with the realities of today,” testified Frank Prager, vice president of policy and federal affairs at Xcel Energy Inc., a public utility holding company serving 3.5 million electric customers and 2 million natural gas consumers in parts of eight western and Midwestern states through four utilities.

Xcel Energy is committed to renewable energy, Prager testified, provides wind and solar energy and has plans to add more MWs of each to its energy portfolio as part of a company-wide plan to reduce its carbon footprint. In fact recently, Xcel Energy CEO Ben Fowke said that the right public policy, coupled with continued advancements in renewable technology, could help Xcel reduce carbon dioxide emissions at least 60 percent by 2030.

“This remarkable achievement rests on our company’s commitment to renewable energy,” not because of PURPA, said Prager, who instead credited state pro-renewable development policies.

“PURPA threatens to impose higher costs on our customers, disrupt our electricity planning and operations and impede state energy policies,” he said, calling it ironic since it’s happening just as the renewable energy marketplace booms.

“In light of its inconsistency with today’s electricity marketplace, it is time for Congress to take action to address PURPA’s misplaced incentives,” Prager testified.

Such congressional action appears forthcoming. Although no federal bill proposing PURPA reforms currently exists, Energy Subcommittee Chairman Fred Upton, R-Mich., said he’s drafting one that would modernize the law’s provisions beyond the only changes that have been made to it via the Energy Policy Act of 2005.

FERC takes some jabs
Subcommittee panelists also didn’t miss their chance to take jabs at the Federal Energy Regulatory Commission (FERC) for the rules it has written to implement PURPA, such as FERC’s one-mile rule.
Panelists testified that QF developers and foreign-financed owners, for example, are developing large wind farms that exceed the 20 MW threshold. Then they intentionally disaggregate the large projects into individual or smaller groupings of wind turbines and locate them greater than one mile apart from each other, circumventing the 20 MW cap established by FERC as authorized by PURPA — gaming the one-mile rule, panelists testified.

Terry Kouba, vice president of Iowa operations for Alliant Energy, a Midwest electric and natural gas provider to roughly 1.4 million customers across Iowa and Wisconsin, cited three recent examples in which he said this “gaming of the system” through disaggregation has occurred in Iowa.

For example, a 30 MW wind farm in central Iowa was disaggregated into 10 limited liability companies (LLCs), each LLC owning a single 3 MW wind turbine. All 10 LLCs are under common ownership, but the wind turbines are sited in small groupings that are greater than one mile apart from each other, Kouba said. And under PURPA’s current regulations, Alliant Energy is required to purchase energy at avoided cost rates from each of these turbines, which in this example was above market price, he said.

“In none of the examples is Alliant Energy able to challenge the presumption that these QFs are separate because of the safe harbor provided by FERC’s one-mile rule, which is irrebuttable,” Kouba added.

Kristine Raper, commissioner with the Idaho Public Utilities Commission, also testified that it has been Idaho’s experience that when a state’s discretionary decisions are challenged by the QF at FERC, “the state is admonished that its actions are not consistent with PURPA and FERC regulations.”

And why is that happening, Raper wondered; myriad federal court decisions, commission rulings and even FERC orders “exist that reiterate the discretion FERC affords the state in implementing PURPA,” she said.

Consequently, “states have been left with very few tools in the toolbox” to respond to increasingly sophisticated QFs that want to manipulate PURPA to their own financial advantage and to the detriment of ratepayers, said Raper.

“In a must-purchase environment, the state commissions cannot balance the requirements of PURPA with the responsibility to ensure reliable service all while doing no harm to customers if the state commissions are denied the discretion provided by the act and FERC regulations,” Raper said.

She also thinks that PURPA’s must-purchase provision “should be revisited” because it doesn’t consider a utility’s need for the energy or ability to absorb and balance it.

Additionally, Raper pointed out that while “utilities prepare detailed integrated resource plans and make investments based on perceived need, QFs step in when the market favors them and change many factors that led to the utility’s original conclusions.”

“New QF resources are not contemplated by integrated resource plans because they are not known or measurable by the utility,” she said.

Consumers carry costs
House subcommittee members also are reevaluating the objectives of PURPA and how the law has impacted consumers.

“PURPA is an outdated law that can financially harm customers and impact the reliability of the grid,” testified Alliant Energy’s Kouba, who said the company also is committed to wind power generation through existing wind farms purchase power agreements and has plans to install more wind resources up to a $1.8 billion investment.

But while states across the country competitively solicit renewable energy, utilities are still subject to PURPA’s outdated mandatory purchase obligation, he said.

“The price paid for this energy is administratively determined, and project locations are chosen for the benefit of the investor of the QF, not the customer, which has led to increased electricity costs for our Iowa customers,” who are paying a 20 percent price premium for wind energy and could pay up to $45 million in increased electric costs due to PURPA, said Kouba.

Aside from full repeal of PURPA, he suggested that Congress take steps to improve FERC implementation, mitigate negative impacts on customers and the grid, and better reflect current market conditions by modernizing the law.

Added Raper: “Just because the large-scale QF projects have found a way to avail themselves of a law that was clearly intended to benefit small power production facilities does not mean that they should be permitted to continue a practice that violates the spirit and intent of PURPA and causes harm to ratepayers.”

At the same time, allowing developers to circumvent state siting rules and pursue avoided cost pricing constructs are contrary to the best interests of utilities’ customers, who end up being the ones covering the costs by paying higher electric bills, said Prager of Xcel Energy.

Solar speaks up
Todd Glass, counsel for the Solar Energy Industries Association (SEIA), was the only one of the six panelists who said he didn’t have a problem overall with PURPA.

“We think it works,” he testified on behalf of the national trade association, which represents about 1,000 member companies that promote, manufacture, install and support the development of solar energy.
And based on more than 20 years of personal experience and knowledge gained while supporting independent power producers that compete with utilities, Glass said he “can unequivocally state that PURPA and its protections are fundamental to the ability of independent power, including the solar industry, to compete and thrive throughout the United States.”

He said that if the subcommittee’s goal is to “continue to rely on independent competitors to enter the electric market and place additional downward pressure on cost-of-service rates, PURPA’s mandatory purchase standard should be strengthened, not weakened.”

In fact, PURPA is more important now to ensure that independent generators can compete with “monopoly utilities,” Glass said, adding that many are facing a return to some of the same uncompetitive tactics the utilities and the state commissions used almost 40 years ago when the law was enacted.

“Some now argue that PURPA is an anachronism, that independent power generation has matured to the point that PURPA is now obsolete, that the country’s generation resources are sufficiently diverse, markets for wholesale energy and capacity sufficiently impose price discipline on utilities, and that we can trust the utilities to make the right decisions,” said Glass.
“These arguments are false,” he said.

The House energy subcommittee announced it will continue its “Powering America” series of hearings on electric power markets, generation, distribution, consumption and grid resiliency with another hearing set for Sept. 12: “Powering America: Defining Reliability in a Transforming Electricity Industry.”