NARUC Calls on FERC to Revamp PURPA

Regulators are calling for reform of one of the biggest drivers behind the rapid development of utility-scale solar in the U.S.

The Public Utility Regulatory Policies Act (PURPA) is badly outdated and should be revamped to reflect the “modern realities” of the power generation market, John Betkoski III, president of the National Association of Regulatory Utility Commissioners (NARUC), said in a Dec. 18 letter to the Federal Energy Regulatory Commission.

Betkoski said much has changed since 1978, the year the law was enacted, including the rise of robust wholesale electricity markets, scores of state laws encouraging the growth of renewable power, the creation of regulations giving independent generators access to transmission, and the widespread adoption of competitive methods for selecting new power projects.

PURPA’s critics say the 40-year-old law forces U.S. power producers to buy power they just don’t need at above-market prices. As power providers struggle to make ends meet amid flat or declining demand for electricity, calls for PURPA’s repeal or reform have gotten louder.

“Many states incur significant transaction costs administering PURPA pursuant to the law’s arcane, twentieth-century mandates,” Betkoski wrote.

PURPA requires electric utilities to purchase renewable power from independent power producers as long as the cost does not exceed the cost of power produced by the utility. It was designed to encourage greater energy independence at a time when the U.S. was using petroleum to generate 16 percent of the nation’s electricity. Today, the nation’s dependence on petroleum for power generation is down to 1 percent.

We agree with NARUC’s call to reform PURPA. The 1978 law did not anticipate today’s tremendous growth and lower cost of renewable power. Some utilities are forced to acquire more than half of their load under long-term, overpriced contracts from IPPs. In North Carolina, more than 90 percent of the state’s large-scale solar projects were facilitated by PURPA. What’s more, these long-term “mandatory purchase” agreements have overwhelmed some utilities to the point of jeopardizing reliability.

PURPA should be revisited and reassessed due to vastly different circumstances caused by this renewable revolution. State and federal regulators have a responsibility to consider the rapid growth of intermittent renewable power and the subsequent impact on utilities and their customers.

Utilities argue these contracts should be subject to regular price adjustments, instead of forcing them to enter long-term contracts at locked-in rates. The cost of renewable power is steadily falling and utilities should be allowed to take advantage of those lower prices.

In 2005, Congress provided utilities some relief by reducing the size of eligible power projects to 20 MW or less. However, developers are getting around the revised law by building a series of 20-MW projects a mile apart. Utilities contend they are gaming the system and skirting the intent of the law.

NARUC’s Betkoski suggested three PURPA reforms in his letter to FERC:

1.      Adopt regulations that move away from the use of administratively determined avoided costs to their measurement through competitive solicitations or market clearing prices. This could be done by expanding the administrative regulations at 18 CFR 292.309 to include other places where qualifying facilities (QFs) have competitive access to the market or at 18 CFR 292.304 to include other ways to determine avoided costs, such as through a utility's competitive solicitation process.

2.      Lower or eliminate the 20-MW threshold for the rebuttable presumption that QFs with a capacity at or below that size do not have nondiscriminatory access to the market. In keeping with the goal that FERC should better align PURPA implementation with modern realities, this threshold should be lowered to whatever the minimum capacity requirement is for a resource to participate in an RTO/ISO.

 3.      Address the disaggregation problem by making changes to the one-mile rule and other related reforms. There are many well-documented incidents where projects have forgone economies of scale to qualify themselves as individual QFs and evade other regulations.

 As always, if you have questions, criticisms, praise, ideas or suggestions, you can contact me at russellr@pennwell.com.