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PURPA: Reform or Repeal?

Fortnightly Magazine - June 1 1995

B. Jeanine Hull

President, Electric Generation Association

Vice President & General Counsel, LG&E Power Inc.

PURPA is not the issue; competition is. PURPA has introduced competition by demonstrating that the generation of electricity is not a natural monopoly. PURPA's faith in competition has proven itself in the form of lower-priced electricity for ratepayers. PURPA has also promoted fuel diversity by creating incentives for utilities to consider renewable fuel options for portions of their capacity needs.

I strongly disagree with the notion that we have already reached a world of perfect competition, and thus no longer need PURPA. Competition is neither perfect nor inevitable. Policymakers must continue to aggressively pursue a competitive agenda. Repealing the mandatory purchase provision of PURPA is to step away from competition, because it removes an effective check on a utility's market power.

If steps are taken to create a fully competitive generation market, then EGA would not be opposed to considering the repeal of PURPA. At a minimum, such steps must include requiring nondiscrimination in the purchase of power, and reforming federal and state laws to permit all generators to compete for new opportunities to provide service.

The independent power industry is contract-based. Any consideration of repealing or reforming PURPA must include affirmative language stating that existing contracts, commitments, and obligations must be honored or bilaterally renegotiated.

I do not believe PURPA repeal is likely this year. However, I do believe Congress will hold hearings on the issue as part of the larger set of challenges involved in introducing competition to the electricity industry. PURPA cannot be considered in a legislative vacuum. Related federal issues (em such as the Public Utility Holding Company Act and changes to the Energy Policy Act (em must also be considered. States also have a major role to play in deciding how competition will work in their state and region. Their concerns must be actively considered in any federal debate over how to advance the competitive agenda in Congress.

In that vein, we cannot afford a "PURPA-lite" approach that assumes Congress has only to eliminate the mandatory purchase provision of PURPA and the states will do the rest. This is a flawed notion. A recent EGA survey of state regulatory officials showed that the majority of states do not expect to require unbundling, competitive bidding, or wholesale wheeling in the next five years. With no PURPA, limited competitive bidding for new generation needs, and little progress on unbundling, where is the pressure or mechanism for competition going to come from?

Merely focusing on the narrow issue of PURPA, instead of the broader challenges of making competition work, gives short shrift to an interrelated and complex, but important and manageable, issue. Consumers and industry participants deserve better.

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