Reviving PURPA: Fair Prices for Clean Energy

Guest Blog | October 25, 2011 | Press Releases

Knoxville, Tenn. (October 25, 2011) – The Federal Energy Regulatory Commission (FERC) needs to build on its recent decisions to encourage the development of alternative power technologies, says a new report titled, “Reviving PURPA’s Purpose.” The report was authored by attorney and federal energy policy expert Carolyn Elefant and commissioned by the Southern Alliance for Clean Energy.

While the past decade has seen a burst in state energy policy leadership, FERC is responsible for guaranteeing nationwide access to the electric grid: entrepreneurs and established businesses who want to develop renewable energy resources depend on PURPA to sell their product in many areas of the country.“Reviving PURPA’s Purpose” calls on FERC to clarify and reform the byzantine state patchwork that often sets unreasonably low prices for electricity from renewables and cogeneration. The report also says FERC’s leadership is needed to bring clarity to the use of “avoided costs” as a metric for measuring the system benefits of energy efficiency.

In October 2010, a FERC decision brought this topic to the front burner, offering states more flexibility in how to use “avoided costs” to calculate the rates that many utilities must offer to small renewable energy and cogeneration facilities. (Cogeneration most often occurs at industrial facilities, where both heat and power are generated using the same equipment.) Using FERC’s California Public Utilities Commission decision as a starting point, Elefant recommends that FERC reaffirm and expand upon states’ ability to set resource-specific avoided cost rates under the Public Utility Regulatory Policies Act (PURPA) and consider other factors such as avoided environmental costs.

Because of the inability of independent power producers to sell their efficient and clean electricity into monopoly-controlled markets, Congress in 1978 enacted PURPA to have utilities purchase energy and capacity from qualifying facilities (QFs) at the utilities’ incremental, or avoided costs. Regarded as a successful policy tool for renewable energy and cogeneration growth, particularly in states like California, New York and Maine, PURPA’s impact faltered in the 1990s because of utility opposition and increased competition in wholesale markets.

“The need for alternative-energy power markets remains,” said Carolyn Elefant. “PURPA survives, and its influence should increase in the coming decade, in part because of higher power costs and FERC’s California Public Utilities Commission decision that endorses resource-specific avoided cost rates and greater financial support to clean and efficient power.”

“Reviving PURPA’s Purpose” provides a comprehensive review, the first in more than a decade, of the different ways by which state regulators calculate avoided cost rates for QFs under PURPA. Based on this review, the report found many alternative-energy developers are unable to capitalize on PURPA’s benefits in light of the complex and difficult nature of avoided cost ratemaking at the state level. Further complicating the problem, in some states like Florida, utilities are vested with broad latitude in determining the data inputs for avoided cost calculations, which creates inconsistency and puts even more downward pressure on avoided cost rates.

This report concludes PURPA can still serve as an important policy tool for development of renewables and cogeneration (sometimes referred to as combined heat and power or CHP). However, states need additional guidance on which avoided cost methodologies are most favorable to small power producers as well as an understanding of the range of options – such as resource-specific avoided cost rates and ability to account for avoided environmental costs – available to them in setting avoided cost rates. Therefore, this report recommends FERC, as the agency responsible for developing the regulations that states must follow in calculating avoided cost rates, conduct a series of technical conferences on PURPA and, based on input from stakeholders, issue a policy statement to provide additional guidance to states on their options. # # # Southern Alliance for Clean Energy is a nonprofit organization that promotes responsible energy choices that create global warming solutions and ensure clean, safe, and healthy communities throughout the Southeast.