PURPA: What Lies Ahead for Consumers?

Yesterday’s House Energy Subcommittee hearing on the Public Utilities Regulatory Policy Act of 1978 (PURPA) provided enough sparks to warrant further coverage in our second blog this week. Will those sparks start a fire of activity at FERC, in Congress, or in state legislatures preparing for 2018 sessions?

Decades ago, renewable energy was an infant industry. The nation was stunned by the Arab oil embargo and envisioned running out of commonly-used generation and transportation fuels. In the late 1970s, Congress reacted with several sweeping statutes, including PURPA, that still impact today’s energy industry and consumers.

PURPA attempted to ensure that renewable energy, from smaller generators deemed “qualifying facilities (QFs)” could reach the market. The heart of PURPA is Section 210, which requires utilities to buy output from QFs. In the early years, cogeneration benefited, with other renewable sources coming on as technology matured. Over the last 39 years, states and the Federal Energy Regulatory Commission (FERC) have interpreted PURPA 210 requirements in many and varied manners, resulting in some positives (more renewable energy) but also negatives (higher prices for consumers).

PURPA was last revised in the 2005 Energy Policy Act, but after hearing another decade-plus of concerns about its forcing too-costly sources of renewable generation onto the grid, lawmakers agreed to, as full Committee Chairman Greg Walden (R-OR) said, “look at it with fresh eyes and … determine whether its provisions are working effectively.” Last year, PURPA reform was the subject of a FERC technical conference (although FERC took no formal action after the conference). Yesterday’s hearing allowed both sides to make their best case again.

Xcel Energy, which has a significant renewable portfolio, asked lawmakers point-blank to revisit PURPA and remove Section 210. Xcel cited examples of QF developers manipulating project sizes to force their way into preferential treatment under Section 210, and instances of paying above-market costs for renewable energy. An Idaho public service commissioner relayed difficulties in exercising state discretion, especially when negotiating with FERC, to determine whether particular QF projects create a net benefit for consumers when assessed for impacts on cost and reliability.

Other voices, including representatives of the Solar Energy Industries Association, asked for strengthening of PURPA’s mandatory purchase provisions. SEIA’s witness offered that even as “renewable technologies are emerging as cost-competitive alternatives to traditional generation sources, PURPA is more important than ever.” He also highlighted that renewable projects rely on PURPA, because it “provides key exemptions from specified regulations that would hinder the ability of a project to obtain financing. PURPA’s mandatory purchase obligation is a vital backstop that financing parties require as a necessary condition of their investments.”

While this may sound like an esoteric D.C. policy battle, PURPA has impacted customer bills and the evolving generation mix for quite some time, a trend which has only increased with the growth of private (rooftop or ground-mount) solar installations. Many of the examples cited at the hearing rang true, especially considering research PACE conducted earlier this year.

PACE’s recent report “Net Metering: Costs, Customers, and a Smarter Way Forward” assessed PURPA’s impact on retail net metering for private solar installations. It drew a line between PURPA’s requirement that “utilities pay solar owners a capped rate for electricity equal to the avoided cost of power generation” and the result that “regulators nationwide interpreted this mandate on their own terms and calculated avoided cost in a way that made sense to them.”

Unfortunately, in too many states, this means non-solar customers bear the burden of overly-rich compensation for private solar power. We also noted that FERC “muddied the waters” for state regulators several years ago, making it harder for them to stick with PURPA’s original avoided cost price cap.

A long-ago statute merits an even older quote. Confucius said “life is really simple, but we insist on making it complicated.” Clearly, regulating utilities, ensuring a diverse generation resource mix, and assessing potential new entrants to the marketplace is complex. However, it should be easy to focus law and regulation on what really concerns consumers: costs and reliability. If sparks from yesterday’s hearing take fire, policymakers at all levels should keep it simple as they assess whether this 1970s policy makes sense for consumers in 2017 and beyond.