PURPA: still generating electricity, but with a few worms in the mix

You have to wonder about a law where some of the basic concepts are still being hammered out in court more than 30 years later.

The Public Utility Regulatory Policies Act was landmark legislation when it was signed into law by Jimmy Carter in 1978. It opened the door to competition in the electric power industry and ushered in about 71 GW of non-utility generation, about 7% of the total US capacity of about 1,000 GW.

PURPA, as it is commonly called, was so successful that it spurred subsequent legislation that ultimately resulted in the creation of competitive wholesale markets. Its history then was amended in 2005 that changed one of the key concepts of PURPA, the must-buy provision that required utilities to buy power from non-utility generators, known as qualifying facilities, or QFs, under PURPA.

In short, PURPA was so successful that it just about put itself out of business.

Under the Energy Policy Act of 2005, PURPA’s must-buy provision does not apply if a QF has access to a competitive wholesale market. About two-thirds of the electricity generated in the US moves through competitive wholesale markets, leaving just a handful of regions where QFs are still viable.

But despite a 30-plus-year history of implementation, the QFs that are still trying to sell power under PURPA face an uphill legal battle. Utilities are still battling QFs in court and at regulatory commissions in Oregon, Idaho, Massachusetts and Texas over the rates and terms that they use to pay QFs. Those battles involve the definition of avoided costs — the formula, or at least concept, that PURPA instituted for QF payments–and even whether a contract or obligation — known in the PURPA world as a legally enforceable obligation, or LEO — exists.

“PURPA is still alive and kicking, but it is still a battle,” Peter Richardson, a managing member with Richardson & O’Leary, who represented developers in some of those cases, recently told Platts. 

It is not as if those battles haven’t been fought before. They began almost as soon as PURPA became law. And scores of lawyers have devoted their careers to fighting those battles on behalf of QFs. But once PURPA got rolling, it created an entire industry.

But PURPA seems to have left behind the industry it was designed to encourage. In addition to renewable resources such as wind and solar power, PURPA was designed to encourage cogeneration, the simultaneous production of steam for heat or industrial processes and electricity. Without cogeneration, steam is produced but not electricity, or electricity is produced but much of the steam ends up wasted.

As the industry developed under PURPA it spawned “PURPA machines,” cogeneration QFs that became larger and larger until they challenged utility plants.

The standards that allowed PURPA machines to flourish were tightened  under EPAct 2005. Now, “the industrial process has to have a legitimate purpose; you can’t just distill water and dump it in the canal,” as Richardson noted.

But the cogeneration industry — or combined heat and power industry, as it’s now called — still feels left out. PURPA “imperfectly broke barriers to CHP,” Tom Casten, chairman of Recycled Energy Development and a developer of cogeneration plants since the late 1970s, said in a separate Platts story. 

Backers are now looking for new legislation to encourage CHP, and welcomed a recent executive order signed by President Obama that calls for a doubling of CHP by 2020.

Jessica Bridges, executive director of the US Clean Heat and Power Association, compared these new efforts to “taking another bite at the PURPA apple… without opening up the PURPA can of worms.”

In addition to the executive order, those efforts include several measures being worked on in Congress aimed at bolstering CHP or, one might say, PURPA redux.

Legislation now being prepared by Senator Jeanne Shaheen, a New Hampshire Democrat, for possible introduction next year would tackle financial barriers to CHP. And just before recessing until November, the Senate approved H.R. 4850, which included an amendment by Shaheen and Republican Rob Portman of Ohio calling for a Department of Energy study on how to reduce barriers to the deployment of industrial energy efficiency.

Legislation by Senator Christopher Coons, a Delaware Democrat, to allow CHP developers to enter master limited partnerships may also be considered later this year. A tax-extenders package to be taken up during the post-election session will include language from the Senate Finance Committee to make tax credits for combined heat and power more accessible. And in the House of Representatives, H.R. 4017 would set a national CHP goal of 170 GW by 2020.

Possibly Congress will learn from PURPA’s 30-plus-year history this time around. The process might also benefit this time by the fact that at least one utility appears to be on board rather than adversarial. As Platts reporter Cathy Cash pointed out in a recent Platts article, Duke Energy has been part of the negotiations on CHP legislation now being crafted.

But whether  Congress can re-invent PURPA without opening up a can of worms–or creating a new can of worms — may depend less on legislative skills than on political gridlock.

Before the CHP industry gets its hopes up, it should consider the comments of John Haysbert, Duke’s director of federal governmental affairs. “We would go to the office of Republicans and Democrats, and they just did not want to work together,” Haysbert said. “They agreed that what we were trying to do made sense, and their states could benefit. But for some reason or another… it was just hard to get folks to sign on as cosponsors.”

For now, the industry, and all the lawyers that serve it, will have to remain content with PURPA, worms and all.

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  1. Carolyn Elefant at October 24, 2012 10:13 am

    For more detailed information on PURPA, you can review this report published last year:
    http://lawofficesofcarolynelefant.com/wp-content/uploads/2012/04/Elefant_Reviving_PURPA_Avoided_Costs_2011.pdf

     

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