13 Sep 2017

Congress may gut the federal law requiring utilities to buy power from qualifying solar, wind and other alternative energy projects. Is that a big deal for California?

Not really—if looking through a California-only lens.

When viewing the issue from a Western perspective, however, significantly weakening or eliminating the must buy provisions of the federal Public Utilities Regulatory Policies Act of 1978 becomes a bigger deal.

This law was instrumental in opening the market dominated by monopoly utilities to small independent renewable projects and cogeneration facilities of all sizes in and outside California forty years ago. But, PURPA hasn’t functioned in the Golden State for the last five years.

States implement the law to fit their markets.

For qualifying renewable energy facilities up to 20 MW, the federal law creating competition was replaced with the Golden State’s renewable energy mandate. The federal law stopped providing protection to in-state cogeneration, which has no MW cap under PURPA, starting in late 2011.

The federal act was enacted by Congress during President Jimmy Carter’s Administration to diversify the nation’s power industry when the country was vulnerable to embargoes on oil, which then served as a primary fuel for power plants. PURPA’s requirement that utilities enter into long-term deals with independent energy projects at or below their so-called “avoided cost” aimed to promote efficient and clean generation and energy independence.

PURPA, although controversial since the get go, was a huge contributor to the launch of California’s alternative energy industry.

The California Public Utilities Commission required investor-owned utilities to sign long-term contracts with qualifying projects. By the early 1990s, California led the nation in the amount of non-utility generation, representing about 85 percent of the West’s capacity from qualifying facilities, according to the Energy Commission.

By the end of 1992, PURPA qualifying resources totaled 9,936 MW in California, of which 8,211 MW were “considered dependable capacity for resource planning,” according to the California Energy Commission’s 1992 Electricity Report. The dependable capacity included 5,565 MW of combined heat and power, 1,065 MW of biomass, 780 MW of geothermal, 371 MW of solar, 298 MW of wind, and 132 MW of hydropower. Pacific Gas & Electric and Southern California Edison planned to buy “almost 49,000 GWh from qualifying facility sources during 1992,” added the report.

The federal law allows a suspension of the act if there is a sufficiently competitive market that negates the need for the law’s protection. California’s Renewable Portfolio Standard, along with a grid operator that ensures qualifying facilities “can be interconnected in a non-discriminatory manner,” provide that competition, said Jan Smutny-Jones, Independent Energy Producers chief executive officer.

PURPA-qualifying renewable projects 20 MW and smaller are governed by the CPUC’s renewable auction mechanism. Alternative projects less the 3 MW are governed by the Commission’s feed-in tariff program, known as the Renewable Market Adjusting Tariff (ReMAT).

PURPA protection for cogeneration in California larger than 20 MW was eliminated under the October 2011 Qualifying Facilities settlement. Nothing has replaced PURPA procurement of cogeneration plants, causing that industry to shrink in the state.

Given California’s momentum towards a grid regionalization, the possibility that Congress might gut PURPA’s must buy mandate takes on added significance.

Legislation amended last minute to allow a western expansion of the California Independent System Operator failed mid week. But,  a regionalized grid likely is inevitable.

Whittling away PURPA would advance the fortunes of the biggest energy player outside California, Warren Buffet’s Berkshire Hathaway Energy. Its utility holdings include NV Energy and PacifiCorp, which was instrumental in launching the Energy Imbalance Market with California’s grid operator.

Berkshire utilities have been working to weaken PURPA’s competitive protections.

Pushing back are independent energy producers and solar advocates, who don’t want to lose their share of the market.

A western trading market would expand the number of buyers, lessening utilities clout.  But, said Robert Kahn, Northwest and Intermountain Power Producers Coalition executive director, “We are still dealing with monopsony power” outside California. Coalition members represent 5,000 MW of alternative energy in Idaho, Oregon and Washington, which could be imported to California.

PURPA, in spite of its problems, is the only statute that requires competition, Kahn noted.

If PacifiCorp and their utility allies succeed in creating a toothless federal law, the Golden State could be at the mercy of the Berkshire monopoly in an enlarged grid. That would thwart PURPA’s purpose.

Elizabeth McCarthy

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