The California Public Utilities Commission (CPUC) has directed the state's electric and gas utilities to implement a two-year pilot allowing applicants such as residential real estate developers...
Recently I had the opportunity to testify before the Subcommittee on Energy Production and Regulation of the U.S. Senate Energy and Natural Resources Committee on legislation that would repeal the Public Utility Regulatory Policies Act (PURPA). During the course of the hearing, Sen. Bennett Johnston (D-LA) made a comment that framed perfectly the
federal-state tensions currently affecting energy regulatory policy in America.
Sen. Johnston was reflecting on state implementation of PURPA when he said (and I'm paraphrasing), "What do we (federal policymakers) do about California, where their decisions have driven up energy costs and electric consumers are paying more than they should?"
I happen to agree with Sen. Johnston that we should repeal PURPA. However, I am not quite as convinced that we need to concern ourselves in a global, systematic sense with what individual states are doing.
As a front-line regulator, and an elected official myself, I am very aware of the political pressure to keep energy costs down. I suspect I have taken more calls from constituents angry over a 60-cent-per-month increase in their gas bills than the entire U.S. Senate has received over the generally inefficient and costly PURPA legislation. Federal policymakers ought to concern themselves with removing distortions from the marketplace and giving individual states greater latitude to develop energy regulatory policies that reflect each one's individual needs and biases.
As an example of market distortions, one need only look at Oklahoma's experience with PURPA. Since PURPA was enacted, we have had three cogeneration contracts approved in Oklahoma (em two in 1985. One was with a cogenerator that provides steam to a carbon dioxide plant near Poteau, OK. Another was with a
cogenerator that provides steam to the Bridgestone-Firestone tire plant in Oklahoma City.
The avoided costs of these two cogeneration contracts have left Oklahoma ratepayers paying 7.5 percent more than they should for the electricity. These avoided costs were set artificially high as a result of the now-repealed Fuel Use Act, which banned the use of natural gas as a baseload fuel for electric utilities, but allowed cogenerators the additional fuel choice.
As enacted, PURPA does not require a cogeneration facility to produce a specified minimum level of thermal energy, such as steam or other non-electric cogenerated power, to be designated as a qualifying facility (QF). The statute leaves minimum levels to administrative discretion. The current regulations on file at the Federal Energy Regulatory Commission (FERC) require only 5 percent steam or useful thermal output for industrial purposes. The Poteau cogeneration facility has a steamload of 20 to 25 percent, and the Oklahoma City cogeneration facility has a steamload of 5 to 7 percent. The FERC's low thermal standard has had the effect of reversing the original objectives of PURPA. It encouraged and mandated cogeneration facilities designed, not to produce thermal energy tailored to meet the needs of an industrial user, but as electric power plants that take advantage of PURPA to avoid regulation, secure a guaranteed purchaser, and avoid competition. In the name of efficiency, it produces inefficient, high-cost power. These low-steam-output cogenerators produce power at