An Entrepreneurial Perspective:
The Endless PURPA Wars
Introduction
Utilities have waged war on the “must-buy” requirement of the Public Utilities Regulatory
Act (PURPA) since after it was enacted in 1978. The owners of state sanctioned
monopolies oppose PURPA because it brings competition to their otherwise insulated
“businesses.” In states where electric customers are allowed to choose among power
suppliers, such as most of the upper Midwest, New England, the Northeast also
California and Texas, PURPA’s must-buy provisions have been repealed or severely
restricted.
States that find PURPA onerous have a solution: they can open their electric system to
free and open competition by directing IOUs serving their citizens to join an Regional
Transmission Organization (RTO) or an Independent System Operator (ISO).
It is critical to remember that the must-buy provisions of PURPA only fully apply in
states that do not have a competitive wholesale market for electricity. Berkshire
Hathaway Energy’s proposal in Section 4231 of the Discussion Draft Accountability and
Department of Energy Perspectives on Title IV: Energy Efficiency now before Congress
and SB 1037 sponsored by Senator James Risch (R-ID) are anti-competitive
protectionist measures which come at the expense of captive ratepayers.
For example, since PURPA’s inception the cost of power of Idaho’s “Qualifying
Facilities,” which entrepreneurs have brought on line are equivalent or cheaper than the
power plants incumbent utilities convinced regulators to allow them to build. Unlike
dollars paid to the utility, dollars for PURPA projects stay in the local economy, helping
to keep lumber mills, food processing factories and irrigation districts viable.
The red herring the utilities use to denigrate PURPA is by comparing avoided cost
prices to current market rates. PURPA is not intended to reflect spot wholesale prices
for electricity. It is designed to reflect the cost utilities incur – with ratepayer dollars – to
build long-term resources. IOUs’ motivation to buff up their balance sheets should not
be allowed to “modernize PURPA” out of existence.
To learn why independent power producers and PURPA matters, click HERE.
Frequently Asked Questions
(1) Why is PURPA still necessary?
Much of the country lacks competitive wholesale electric markets (FERC-regulated
RTOs or ISOs) and investor owned utilities (IOUs) operating there, principally the
Southeast and West excepting California, are as reluctant to contract with
entrepreneurial enterprises, known as “Qualifying Facilities” (QFs), as they were when
the Act became law in 1978.
(2) Don’t competitive procurement rules alleviate the need for PURPA?
No. Competitive procurement rules don't work if the utility is allowed to bid into its own
RFP, which is common. For example, in the multiple bids PacifiCorp has offered under
Oregon's "model" competitive procurement rules over the last 10 years, PacifiCorp has
"won" all but one of the bids to build thermal and renewable resources.
(3) If market prices are cheaper than what PURPA developers have to offer, why not
buy from the market?
It would be foolish for a utility with an obligation to serve to rely solely on the market to
meet its long term needs. The short term is the time to rely on market purchases. The
long term is the time to include reliance on utility managed resources. PURPA, based
as it is on avoided costs, i.e., what it would cost the utility to build a new power plant, is
the best regulatory mechanism to hold an IOU accountable to protect ratepayers from
the risks of utility self-built resources.
(4) Isn’t PURPA swamping the market Out West, like Idaho?
No. In fact the "problem" is manufactured by the utilities. The IOUs and the regulatory
commissions, which supervise them, have all the tools needed to manage the pace of
new power plant development.
Utilities can manage PURPA development through integrated resource planning, and by
seeking regulatory review of their avoided cost rates. The commissions can, and do,
set rates at appropriate levels. If these rates are too low to justify investment, QF
developers loose interest in those states until the state commissions reset avoided cost
at levels.
There isn't a PURPA problem; there is a problem with utilities attempting to manipulate
the perception of a PURPA problem to forestall competition.
Northwest & Intermountain Power Producers Coalition
www.nippc.org
206-236-7200