[BETA] Fortnightly

On June 6 the Energy Production and Regulation Subcommittee of the Senate Energy and Natural Resources Committee, chaired by Sen. Don Nickles (R-OK), held a hearing on legislation S. 708, The Electric Utility Ratepayer Act, which would repeal section 210 of the Public Utility Regulatory Policies Act (PURPA), which mandates purchases from qualifying facilities (QFs) at avoided-cost rates. Nickles said he introduced the bill because he believes "PURPA's purchase mandate is not in the best interest of consumers." Noting concern over the status of existing contracts, Nickles said he will modify the bill to make repeal of section 210 apply prospectively to contracts entered into after April 7.

Federal Energy Regulatory Commission (FERC) chair Elizabeth A. Moler admitted the increasing difficulty of reconciling PURPA's avoided-cost requirements with efforts to encourage the use of higher-priced renewable sources of energy, but contended that repealing section 210 would be premature in light of utility market power over transmission. Moler argued that repeal should not take place until the transmission grid is opened to all wholesale buyers and sellers of electricity.

Moler said that although the FERC will not tear up QF contracts retroactively, it will not validate state PURPA programs that create uneconomic QF contracts, exacerbating the stranded-cost problem. In the event that PURPA is repealed, Moler called for the grandfathering of past QF contracts, including the rates on which the contracts were based. Pointing out that S. 708 states that nothing in the Act "abrogates" any existing contract, Moler said the meaning of "abrogate" should be clarified.

Susan F. Tierney, Department of Energy (DOE) assistant secretary for policy, said that while DOE believes changes are needed in how PURPA is administered, it opposes PURPA repeal. She cited renewable resource development as a critical national energy policy objective as well as lack of effective competition in many wholesale markets. Any effort to modify PURPA, Tierney noted, must take place within the larger debate over the future of the electric industry. DOE asked that the Subcommittee not alter PURPA until certain activities have proceeded, such as the FERC's March 29 rulemaking on open-access transmission and stranded costs.

Albert J. Budney, Jr., president of Niagara Mohawk Power Corp., continued his company's well-known campaign against the mandatory purchase requirements. He said the main reason Niagara Mohawk championed PURPA repeal was the "dramatic" retail rate hikes caused largely by PURPA subsidies to QFs. According to Budney, Niagara Mohawk paid over $300 million above its avoided costs for QF power in 1994 alone, and is projected to pay an additional $400 million in 1995 (see chart).

But Joseph P. Kearney, president and CEO of U.S. Generating Co., representing the National Independent Energy Producers (NIEP) and the Electric Generation Association (EGA), said that passage of

S. 708 in isolation would not further competitive momentum. He urged the Subcommittee instead to favor an approach that updates the current provisions in both PURPA and EPAct to include competitive safeguards that otherwise would be lost. Kearney pointed to a May 1995 survey conducted for EGA by Boston Pacific Co., Inc., which found only a