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.
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.”
He said utilities preferred building their own infrastructure and including it in the rate base on which they earned a return. “And when they made mistakes,” he added. “They sent those costs on to their ratepayers.”
PURPA was intended to address those issues. “The goal was to protect ratepayers, to take away the risk of being too dependent on a vertically integrated utility system,” Glass said.
In states that have not restructured their electric industries and adopted competitive markets, he said, the problems persist.
“Where there is monopoly ownership of generation, transmission and distribution, the problems remain the same.”
Renewables represent only a portion of the generation mix today, he said.
“Yes, it’s an improvement. But 9 percent is all that we’ve gained in the last 40 years,” he added. “We have made strides, don’t get me wrong, in moving and diversifying. But we’re not there yet.”
“In vertically integrated states, the utilities still own or control 80 to 90 percent of all of the generation in that state,” Glass added.
Utilities still don’t want to buy from small developers, he said. And requests for proposals, which are widely seen as competitive tools in power procurement, allow utilities to set the terms they want.
“RFPs are, indeed, just a way for utilities to systematically discriminate against small developers,” Glass said.
“Where you have a monopoly system that controls the generation and dictates the terms of the purchase from everybody else, it’s not a system that allows for small competition from others,” he added. “So that is why PURPA is needed.”
Glass said PURPA may need some tweaks, but not a major rewrite.
Duke Energy’s Bowman said North Carolina was facing a glut of solar energy and has worked at the state level to address the issue.
North Carolina is second in the nation behind California in solar generation with 3,700 megawatts. And the state is No. 1 in the number of PURPA qualifying projects.
North Carolina’s implementation of PURPA was extremely generous and attracted a huge number of developers. “North Carolina was a phenomenal place to build solar,” Bowman said.
The flood of intermittent generation on the Duke system, however, was starting to cause operational and reliability problems. So Duke got together with a broad group of stakeholders to change the rules. “We said there’s got to be a better way.”
In July 2017, North Carolina adopted legislation known as House Bill 589. This allowed the solar industry to keep growing and gave Duke some tools it needed to better manage the growth.
The standard offer contract was reduced from 5 megawatts to 1 and the term went from 15 years to 10.
The North Carolina Utilities Commission reviewed the state’s approach to fuel forecasting. As a result, the state’s avoided cost rate dropped from $54 per megawatt hour, the highest in the region, down to about $38 or $39.
The law also established a competitive process for procurement of renewable energy. As a result, over a 45-month period, North Carolina utilities will obtain 2,600 megawatts of renewable energy. If there is a need for additional capacity, the procurement can be extended.
Under the prior rules, Duke could not curtail generation from a PURPA facility except in a system emergency. But the new law gives Duke operators the right to dispatch renewable units, treating them much like they would their own power plants. This helps the company avoid operational and reliability issues.
“This kind of meets the needs for all of our stakeholders,” Bowman said.
“We’re able to continue to promote renewables but we can do it in a cost effective way and hopefully not have any reliability and operational implications.”
