Political heat appears to be increasing under an electric policy issue that has been simmering for several years. The issue is changes to the 1978 Public Utilities Regulatory Policies Act (PURPA). Those who want significant changes to the venerable law describe it as “reform.” Opponents more often call it “gutting” the law.
PURPA is arguably the most important electricity legislation of the past 40 years. It established legally the once-heretical notion that generating electricity was not a natural monopoly and entirely the purview of massive, vertically-integrated generation, transmission, and distribution utilities.
Out of PURPA, and its mandate that conventional electric utilities buy electricity generated by small power suppliers outside their ownership and control, set the stage for the entire evolution of the modern electricity industry that we have today. PURPA begat the rise of competing sources of electricity and led to the Energy Policy Act of 1992 that opened markets to large non-utility generators. That led to the eventual breakup and restructuring of electric monopolies into separate generating and distribution companies. It set the stage for the competitive wholesale electric markets that now characterize more than half of the electricity industry in the U.S., undermining conventional state-focused electric utility regulation that had held sway for more than nearly 100 years.
But the law has always been controversial and recently many in the industry, including investor-owned and public power systems and state utility regulators have argued that time has passed by much of PURPA and it is time for reform. That has raised the hackles of supporters of the law, particularly purveyors and supporters of solar photovoltaic non-utility generation. Those who want to make major changes in PURPA, citing industry developments since its inception, have been raising the issue of change for several years, without gaining much traction. That may be changing.
This week, Neil Chatterjee, a member of the Federal Energy Regulatory Commission, pointed to restructuring the law as a priority for the commission. Speaking at a House Energy and Commerce Committee energy subcommittee, Chatterjee said, “While significant changes to the implementation of PURPA will require congressional action, I believe the commission should continue to review its regulations to determine whether changes could be beneficial. Specifically, I support reviewing our existing regulations to ensure that they ulfill PURPA’s mandate to encourage the development of renewable and cogeneration resources while protecting customers and preserving competition.”
Chatterjee has been pushing PURPA changes since President Trump named him to the commission, and Kevin McIntyre, the chairman, has seemed to agree. Changing the law, or at least its regulatory implementation, has broad support among the traditional utility industry. The Edison Electric Institute, the American Public Power Association, the National Rural Electric Cooperative Association, and the National Association of Regulatory Utility Commissioners have all endorsed significant changes to PURPA.
A December letter from NARUC to FERC lays out the basic case for those who want to change PURPA, seeking major changes to the implementation of the act:
* Move “away from the use of administratively determined avoided costs” to more market-based prices to determine what will be paid to generators under PURPA.
* Lower “or eliminate the 20 MW threshold” for determining PURPA coverage.
* Eliminate the “one-mile rule.” This requires generating project developers to include other facilities located at the same site, defined as within one-mile of each other, which the advocates for change say can result in building multiple facilities just outside of a mile to generate more PURPA purchase obligations.
At the end of November last year, Rep. Tim Walberg (R-Mich.) introduced a bill, H.R. 4476, the “PURPA Modernization Act of 2017,” that would accomplish those goals. The bill had five Republican co-sponsors and was referred to the Energy and Commerce Committee’s energy subcommittee. The subcommittee held a hearing on the bill in January but has taken no further action. Walberg and cosponsors Kevin Cramer of North Dakota and Larry Bucshon of Indiana are members of the energy subcommittee. Cosponsor Susan Brooks of Indiana is a member of the full committee but not the subcommittee.
Among the most threatened by the alleged PURPA “reforms” are solar energy producers, who view the move as, in the words of pv magazine, an attempt to “gut” the law. The magazine quotes renewable energy policy consultant Ben Inskeep, “The so-called PURPA ‘modernization’ act, H.R. 4476, appears to be a big step backwards for solar and other renewable energy projects.” He said the legislation would make it “harder for independent renewable energy developers to compete on a level playing field with powerful electric utilities.”
Karl Rábago, executive director of the Pace Energy and Climate Center, testified at the subcommittee’s January hearing. He said the Walberg legislation “is about putting the monopoly utility ‘fox’ in charge of their small, privately owned production competitor’s ‘henhouse.’”
Rábago told The Quad Report last week, “Utilities want to kill must-buy so they can build renewable energy themselves, not just oppose it as in the past. But they still want to build it at their own more expensive prices.” He added, “FERC used to have allegiance to markets, now increasingly looking like an instrument of party politics. Maybe they are just making the case that legislation is not needed – that they can sort things out. I hope.”
An analysis of the Wallberg legislation by the D.C. law firm of Akin Gump in December concluded:
“The reforms in the Act likely would (i) reduce the number of renewable energy projects eligible for small power production QF status, (ii) limit the number of projects deemed to have nondiscriminatory access to markets, (iii) restrict the availability of the mandatory purchase benefits set forth in PURPA, (iv) increase regulatory uncertainty and costs for project developers, and (v) slow the development of small renewable energy projects in many markets.”
— Kennedy Maize