PURPA Title II & CHP
PURPA Title II supports the economic viability of the following steam-driven industrial sectors: Agricultural Products, Building Materials, Chemicals, Food Processing, Glass, Mining, Oil & Natural Gas, Paper & Forest Products, Pharmaceuticals, Rubber, Steel, and Textiles.
There are on-going attempts by utilities and some state regulators to promulgate the following “reforms” to PURPA implementation:
- A variety of utility policies are directed at discouraging manufacturers from developing renewable energy resources as part of their portfolio of energy management tools and with an eye on compliance with the Clean Power Plan.
- There is continued hostility to the development of new CHP facilities that are essential for the economic operation of steam-driven industrial processes. This reflects longstanding utility bias against the best interests of its customers—the utility’s core business is recovering the revenue requirement by any means.
- There are continued attempts to depart from cost of service for regulated services that are needed by manufacturers. Most of these services may not be under the purview of FERC, but nondiscriminatory buyback rates and rates for supplementary, backup and maintenance power are FERC’s responsibility under the law. There is pattern of misconduct that cuts across jurisdictional lines.
- Outside of ISOs and RTOs there are growing attempts to not account for full avoided costs. For example, utilities with known capacity deficits are attempting to eliminate capacity costs.
- There are inconsistencies between a utility’s “need” for QF capacity and its own long-term needs as documented in its IRP. Part of the problem is “rate base or buy problem” that is endemic to regulation.
- There are attempts to shorten the contract terms for certain new or renewing QFs to two or three years from 15 to 20 years. Projects cannot get financed without some degree of long-term PPA pricing certainty. Commitment to a resource for 20 to 40 years is common in this industry.
- There are attempts to broaden the scope of 210(m) beyond the intent of the law. For example, there are efforts to eliminate the presumption that QFs under 20 MWs do not have nondiscriminatory access to markets.
ELCON Position & Recommendations
PURPA works and FERC and Congress should resist changes that amount to the repeal of the act. ELCON’s concern is that attempts to correct rent-seeking behavior associated with avoided costs may result in other “reforms” imposing collateral damage to the huge existing fleet of industrial QFs with a proven track-record as highly efficient, reliable and clean energy resources. There is currently about 50 GW of combined heat and power (CHP) or cogeneration in the US. About 78% of that is industrial QFs. Industrial cogeneration is a technology that is embedded in an industrial process. It is part of the load. It is unfortunate (and somewhat ironic) that CHP is measured on the basis of capacity (MWs)–the byproduct–and not BTUs of steam, which is the main product.
Since the law’s enactment in 1978, PURPA Title II has faced unrelenting opposition from utilities. Two Supreme Court challenges reaffirmed QF rights under PURPA: FERC v. Mississippi, 456 U.S. 742, 1982 (on constitutionality of section 210) and API v. AEP, 461 U.S. 402, 1983 (FERC acted reasonably in setting purchase rates at full avoided costs). A DC Circuit challenge also had to affirm the definition of “qualifying facility” in Gulf States v. FERC. 922 F.2d 873, 1991.
The Mandatory Purchase Obligation, where applicable, and Supplementary, Backup and Maintenance Power Services at just and reasonable rates are even more important today than when PURPA was enacted in 1978. Industrial QFs are impossible without these essential services.
If the claims that QFs are locking in buyback rates that exceed avoided costs and that the capacity from these resources are not otherwise needed are true, then it reflects a failure of state regulators to properly implement PURPA, not a failure of PURPA. As FERC has explained, “in order to maximize the incentives for QFs, the Commission sets the price for purchases from QFs, absent negotiations, at the statutory ceiling. Thus, the avoided cost rate is neither more nor less than the price the utility would have paid for comparable power from other sources, including other wholesale sources.” The entitlement of QFs under PURPA and the FERC regulations to payment of rates based upon the utility’s “full avoided cost” and not a lesser rate (unless the QF and utility mutually agree) was upheld by the United States Supreme Court in American Paper Institute (461 U.S. 402).
States can obviously do a better job with avoided cost calculations — this is not rocket science. Estimating avoided costs is no more challenging that setting customer rates—if not easier. PURPA and the FERC regulations already prohibit states from using avoided costs as a policy tool to discourage economically viable resources (with rates that are below avoided costs) or to encourage uneconomic resources (with rates that exceed avoided costs). It is time to enforce, not change, PURPA and the FERC regulations.
Finally, ELCON members are increasingly diversifying their deployment of Distributed Energy Resources that are Qualifying Small Power Producers at capacity ratings below 20 MWs. These resources typically use biomass, waste and/or renewable energy and should qualify for Order 688’s rebuttable presumption that it does not have nondiscriminatory access to wholesale markets and is eligible to require the electric utility to purchase its electric energy.
There is a compelling need for the Commission to rationalize its policies and regulations implementing PURPA to conform to the Clean Power Plan and the fundamental economics of power generation on both sides of the meter.