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PURPA: At Odds With the New Industry?

Fortnightly Magazine - June 15 1995

In Connecticut Light & Power, the FERC had ruled that states may not impose rates that exceed avoided cost for QF sales at wholesale. It also ruled that the finding would apply only to the dispute at issue, not to preexisting contracts where the issue could have been raised but was not.

A March decision offers further proof that PURPA is alive and well. At issue was an Illinois statute that required a utility to buy power from solid-waste energy plants at the utility's retail rate, but included a monthly offsetting tax credit to the utility.

The FERC found that a state may provide tax credits, or even direct cash subsidies, without violating PURPA. By providing a tax credit to the purchasing utility, the Illinois legislature in effect had capped the rate at avoided costs, while providing additional taxpayer-funded benefits to a category of QFs, the FERC explained (Docket No. EL95-27-000).

Nevertheless, PURPA backlash continues at the federal level. In particular, Sen. Don Nickles (R-OK), chair of the Subcommittee on Energy, Energy Efficiency, and Competitiveness, has introduced a bill

to repeal the mandatory power purchases required under PURPA section 210. The legislation would remove the requirement that utilities purchase power from nonutility generators (NUGs) at avoided costs. "PURPA is costing consumers billions of dollars in higher electricity bills," Nickles contends. "The essence of competition is allowing choice, not mandating what must be purchased."

A moving force behind the legislation is a new utility coalition, the "PURPA Reform Group," whose members include Allegheny Power System, Atlantic Electric Co., Boston Edison, Central Maine Power, Consolidated Edison of New York, General Public Utilities, New York State Electric & Gas Corp., Niagara Mohawk Power Corp., Northeast Utilities, and San Diego Gas & Electric Co. The Edison Electric Institute (EEI) also applauds the bill. According to EEI president Thomas R. Kuhn, PURPA contracts in net present terms are $38 billion above current market prices because avoided costs are rarely set properly.

The Electric Generation Association (EGA), however, disagrees with the Nickles bill. According to EGA president B. Jeanine Hull, also vice president and general counsel of LG&E Power Inc., repealing the mandatory purchase provision would remove the only check on utility market power. Hull also points out that the independent power industry is contract-based: "Any consideration of repealing or reforming PURPA must include affirmative language which states that existing contracts, commitments, and obligations must be honored or bilaterally renegotiated." Hull does not stand alone either. Over two dozen environmental, public interest, and renewable energy groups have formed a national coalition to oppose investor-owned utility efforts to repeal or weaken PURPA. The coalition has written to Congress, asking them to oppose such efforts in the absence of a law that will ensure a fully competitive wholesale market for electricity.

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