Energy Fairness Executive Director submitted the following comments to the Federal Energy Regulation Commission (FERC) in support of FERC’s proposed reforms to the Public Utilities Regulatory Policy Act (PURPA). The proposed reforms would update and improve a “Disco-Era” law making renewable energy more affordable and reliable.
December 3, 2019
RE: Federal Energy Regulatory Commission’s “Qualifying Facility Rates and Requirements; Implementation Issues Under the Public Utility Regulatory Policies Act of 1978” 84 Federal Register 53246 (October 4, 2019) [Docket Nos. RM19-15-000 and AD16-16-000]
To Whom It May Concern,
I am writing to you today to strongly urge the Federal Energy Regulatory Commission (FERC) to finalize its proposed reforms to the Public Utility Regulatory Policies Act (PURPA). The law is outdated, having changed little in the over-forty years since its creation. Despite transformational changes in the energy market, PURPA remains stuck in the “disco-era”, when it became law. . It has failed to keep pace with the industry it regulates, and as a result, consumers are suffering under the burden of inflated prices for renewable energy.
Energy Fairness, founded more than a decade ago, is a non-partisan, fact-based organization with a goal of having an honest conversation with consumers and policymakers regarding what it takes to maintain an affordable and reliable supply of energy in America. PURPA in its current form is not part of that conversation and must be reformed.
According to a recent study from Louisiana State University’s Center for Energy Studies, PURPA is a substantial drain on the energy market. The decades-old legislation requires that renewable energy is both generated and purchased from “qualifying facilities” (QFs). The study examined the high cost that PURPA’s mandated QFs impose on electricity consumers. Unsurprisingly, PURPA’s wholesale power purchasing requirements have been extremely expensive, costing ratepayers an estimated $108 billion just over the last decade.
However, this figure alone doesn’t quite capture PURPA’s problems. The Act’s hefty price tag could be justified if it were leading to the production of cheap, renewable energy that actually saved the U.S. over $108 billion per decade. But that’s not what is happening. In fact, evidence clearly shows that PURPA is causing consumers to pay more than they otherwise would for renewable energy on the open market.
A November 2019 study from Concentric Energy Advisors found as much. According to the study, “QF contract rates do not reflect the price change observed in competitive markets.” Essentially, the QFs mandated by PURPA are massively overcharging for their renewable energy. In analyzing a sample of 708 QF contracts, the study’s authors found that those contracts exceeded the going market rate by as much as $10.79/MWh. Had PURPA’s QF mandates not existed, the energy industry, and hence consumers who pay the bills, would have saved approximately $1.87 billion dollars from 2013 to 2019. That is, without a doubt, a scathing indictment of PURPA.
Under PURPA, consumers are vastly overpaying. From an economic perspective, it makes perfect sense why. Since the law mandates that consumers purchase renewable energy from certain QFs, there is little reason for those facilities to price their energy competitively. By assuring that these QFs have a market for their renewable energy, PURPA is also allowing those businesses to shift their costs onto their consumers. As a result, energy costs rise for everyday Americans, while QFs are overcharging their patrons without consequence.
Clearly, PURPA is contributing to a broken system. To fix the market for renewable energy, the first and most important step is for FERC to reform PURPA.