The issue of the day is what to do with the Public Utility Regulatory Policies Act of 1978 (PURPA). Whether the act will be repealed or merely revised is open to debate, but the consensus is that changes are forthcoming.
Ever since the Federal Energy Regulatory Commission (FERC) issued its February order finding that the California commission had violated PURPA by requiring Southern California Edison Co. and San Diego Gas and Electric Co. to purchase power at above avoided costs, pundits have been proclaiming that the FERC intends to gut the act (Docket Nos. EL95-16-000 and EL95-19-000). At the FERC's April 12 meeting, Commissioner Donald F. Santa, Jr. criticized such predictions for creating "hysteria." Reaffirming the FERC's respect for the sanctity of contracts, Santa pointed to the Commission's decision denying New York State Electric & Gas Corp.'s (NYSEG's) petition to modify contract rates it pays for purchased power from two qualifying facilities (QFs) (Docket No. EL95-28-000). He further characterized the allegation that recent FERC orders have put existing QF contracts at risk as a "red herring."
In the NYSEG case, the utility had argued that its contracts with Lockport Energy Associates, L.P., and Saranac Power Partners, L.P., would cost its customers $2 billion more for electricity than if NYSEG generated or otherwise acquired the electricity. NYSEG said the New York Public Service Commission (PSC) had forced it to enter into the agreements despite its objections that the agreements did not adequately protect ratepayers against the risks of payments in excess of avoided costs. At the time, NYSEG proposed that tracking and reconciliation provisions be used to void payments in excess of avoided costs. Meanwhile, the PSC petitioned the FERC to reform the contract prices. The FERC held that its regulations implementing PURPA do not prohibit rates for purchases from QFs that 1) are based on estimates of a utility's avoided costs calculated at the time the obligation is incurred, and 2) subsequently differ from the utility's actual avoided costs at the time of delivery. The FERC reiterated that it will not disturb existing QF contracts that contain such purchase rates as long as the contracts were not challenged at the time they were signed and are not now the subject of an ongoing challenge to the state's avoided-cost determination. NYSEG had waited too long to make its challenge, the FERC ruled, noting that the need for certainty with regard to contracts and investment in technology justifies requiring a utility to pay a rate for purchases that would subsidize the QF at the expense of the utility's ratepayers.
On the same day, the FERC also denied rehearing of two related avoided-cost orders in Orange and Rockland Utilities, Inc., et al., Docket No. EL87-53-004, and Connecticut Light & Power Co., Docket No. EL93-55-001. The Orange and Rockland case challenged a New York state law establishing a minimum six-cent rate for QF purchases. The State of New York
subsequently repealed the rate (em except in two
circumstances (em making the case moot. The denied rehearing sought to void any contracts tied to the six-cent rate. 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.
Articles found on this page are available to Internet subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.