Rethinking PURPA

U.S. energy policy is full of irony and contradictions. It’s the unfortunate byproduct of evolving markets, diverse attitudes and a mishmash of regulatory agencies with contrasting priorities.  

This dichotomy is nowhere more plainly evident than in a nearly 40-year-old federal law that is badly outdated and in need of reform to reflect the realities of the modern power generation market.  

While U.S. power producers struggle to make ends meet amid flat or declining demand for electricity, they are being forced to buy power they just don’t need at above-market prices, thanks to a law Congress passed in response to the 1970s oil crisis. Critics of the Public Utility Regulatory Policies Act (PURPA) of 1978 claim PURPA is obsolete and should be repealed or amended.

PURPA requires electric utilities to purchase renewable power from independent power producers (IPPs) as long as the cost does not exceed the cost of power produced by the utility. The law’s purpose: Encourage greater energy independence at a time when the U.S. used petroleum to generate more than 16 percent of the nation’s electricity.

Much has changed since then. Today, the nation’s dependence on petroleum for power generation is down to 1 percent.

Although PURPA has helped foster the development of independent generation and efforts to achieve new state standards for renewable power, it did not anticipate today’s tremendous growth and lower cost of renewable power. As a result, 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.

Consider this: The world added 138,000 MW of renewable capacity in 2016, up 9 percent from 2015. But the cost of adding that capacity was 23 percent lower than 2015. The world added significantly more renewable capacity last year, but it cost much less to install. PURPA does not allow utilities to take advantage of this trend.

At a recent conference in Alaska, Philip Moeller, a senior vice president of the Edison Electric Institute and former commissioner of the Federal Energy Regulatory Commission, called PURPA “a relic of another era,” adding the U.S. power sector has achieved the diversity envisioned by the act, RTO Insider reported.

“We have flat to declining load growth in electricity, something that was unfathomable for decades…,” Moeller said.

To combat the limitations created by PURPA, Duke Energy is backing legislation in North Carolina that would establish a competitive bidding process for developers of independent solar projects. The bill’s proponents say the legislation would keep electricity costs affordable and reliable for residents and businesses in the state.

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.  

There have been several efforts to reform the way PURPA is implemented, but calls for reforming the act are gaining new traction, thanks to a Republican-controlled Congress and the election of President Donald Trump. Also, it is sure to be a big topic of discussion at POWER-GEN International 2017, Dec. 5-7, in Las Vegas, Nevada.

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