Public Utility Regulatory Policies Act

The Public Utility Regulatory Policies Act (PURPA, ) is a United States Act passed as part of the National Energy Act. It was meant to promote energy conservation (reduce demand) and promote greater use of domestic energy and renewable energy (increase supply). The law was created in response to the 1973 energy crisis, and one year in advance of a second energy crisis.

Upon entering the White House, President Jimmy Carter made energy policy a top priority. The law started the energy industry on the road to restructuring.

Law

PURPA was originally passed with the intention of conserving electric energy, increasing efficiency in facilities and resources used by utility companies, making retail rates for electric consumers more fair, speeding up the creation of hydroelectric energy production at small dams, and conserving natural gas.

Ending promotional rate structure

Utilities offered customers a "rate structure" that decreased the cost per kWh price of electricity with increasing usage, with subsequent increments costing less per unit. PURPA eliminated promotional rate structures except when they could be justified by the cost structure of utility companies.

A small power production facility is an electric generation facility that produces 80 MW or less and that uses renewable sources (such as hydro, wind or solar) as its primary energy source. A cogeneration facility is an electric generation facility that creates electricity in a very efficient way, meaning that the facility produces both electricity and “another form of useful thermal energy (such as heat or steam) in a way that is more efficient than the separate production of both forms of energy.”

Renewable energy

PURPA provided favorable terms to companies that produced electricity from renewable (non-fossil-fuel) resources.

Implementation

Although a Federal law, PURPA's implementation was left to the individual states, because needs varied; a variety of regulatory regimes developed in states where renewable power resources were needed, available for development, or the generated power could be transmitted. Little was done in many states where such resources were unavailable, where the demand growth was slower or previously accommodated in planning.

Legacy

PURPA is becoming less important, as many of the contracts made under it during the 1980s are expiring. Another reason for PURPA's reduced significance is that electric deregulation and open access to electricity transportation by utilities has created a vast market for the purchase of energy and State regulatory agencies have therefore stopped forcing utilities to give contracts to developers of non-utility power projects. However, it is still an important piece of legislation promoting renewable energy because it exempts the developers of such projects from numerous State and Federal regulatory regimes.

This free market approach presented investment opportunity and government encouragement for more development of environment-friendly, renewable energy projects and technologies; the law created a market in which non-utility Independent Power Producers developed, and some energy market players failed.

Critics of PURPA cited that power producers signed multi-year cost of electricity contracts at a time when energy prices were high. When oil prices went down, utilities had to honor the rates of those contracts, leading to high power prices.

PURPA was the only existing federal law that requires competition in the utility industry and the only law that encourages renewables, if it is cost competitive with conventional polluting resources,

See related energy policy contained in 42 USC Chapter 134 – Energy Policy.

In October 2018, the National Association of Regulatory Utility Commissioners (NARUC) made suggestions in a report that FERC should modernize PURPA for the energy sector. NARUC's paper "proposes that FERC exempt from PURPA’s mandatory purchase obligation those utilities which are subject to state competitive solicitation requirements and other best practices that ensure all technologies access to the market."

2019 FERC notice of proposed rulemaking

In September 2019, the Federal Energy Regulatory Commission (FERC) announced its intention to update certain provisions of the PURPA law, in a process known as a “notice of proposed rulemaking” (NOPR). One of the original intentions of PURPA was to try to break the U.S.'s dependence on fossil fuels during the 1970s energy crisis. To accomplish that, PURPA encouraged creation of small power production facilities called “qualifying facilities” (QFs). QFs produce power from sources other than fossil fuels, or they make power using a combination of fossil fuels with renewable energy sources.

In the NOPR, FERC asserted that today the country has a high supply of “relatively inexpensive” natural gas due to technological advances and the discovery of new gas reserves. Therefore, FERC wrote, there is no longer the same need now as there was in 1978 to address natural gas shortages. When PURPA was originally passed in the late 1970s, many utility companies were “vertically integrated” and did not want to buy power from third-party independent generators. However, today the system and market is much different: the market has open-access transmission and there is a wholesale market that allows utilities to buy power from independent generators at competitive market prices. Today, most energy production based on renewable resources does not require reliance on PURPA.

In September 2019, during a FERC hearing, its Chairman Neil Chatterjee voiced his support for making changes to PURPA in light of “tremendous technological advances in renewables” since passage of PURPA in 1978. One idea for updating PURPA is to give more flexibility to individual states to use more competitive prices when setting QF rates.

References

External links

FERC Notice of Proposed Rulemaking (168 FERC ¶ 61,184). Docket Nos. RM19-15-000 and AD16-16-000. September 19, 2019.
PURPA at U.S. Code
PURPA at Union of Concerned Scientists

Law