In 1978, over 40 years ago, Congress passed comprehensive legislation designed to diversify electric generation away from fossil fuels and incentivize greater use of clean, renewable energy sources.
The Public Utility Regulatory Policies Act of 1978 (known as PURPA) was enacted under President Jimmy Carter during the national oil crisis to increase energy produced in the United States, specifically from cogeneration and renewables facilities.
Four decades later, the challenges of climate change have never been greater and we must be committed to increasing utilization of low-carbon technologies. The added challenge we face is balancing that goal with ensuring the cost of energy remains affordable for everyone.
According to Harvard’s Institute of Politics, Americans across the political spectrum believe income inequality is a growing and major problem.
With energy costs disproportionately impacting those who can least afford it, it is important any policy adopted to mitigate climate change also be economically viable and not harm vulnerable parts of our population. The problem with PURPA is when enacted, affordability was not a factor it considered.
In fact, given the state of the technologies of the times, it was structured to provide higher costs to promote its goals which would otherwise not be attainable. Although this is no longer the case, the Act maintains antiquated methods of determining the cost power providers have to pay for electricity produced by generators covered by the Act. While the goals of PURPA are still popular in many sectors, it is causing costly, unintended consequences that must be addressed.
Since the enactment of PURPA, we have seen a dramatic surge in the amount of clean energy and, fortunately, we have also seen the costs of renewable energy sources decrease significantly.
Yet ratepayers have not been able to benefit from these significantly lower costs of clean energy because of how PURPA is structured. The International Renewable Energy Agency (IRENA) published a 2017 report that found the price of solar PV modules fell by almost 75% between 2010 and 2017, while wind turbine prices dropped by half over the same period. Due to how rates are determined under PURPA, utilities are required to pay several times more than would otherwise be available in the open market.
Because of the methodology required to determine rates and the fact that PURPA contracts are long term (lasting up to 20 years), it cannot account for, or take advantage of, rapidly declining technology costs. It is clear that PURPA is not keeping up with the innovation and lower costs we are seeing in the market.
Consumers are paying unnecessarily high, decades-old prices for renewable resources, and are denied the ability to take advantage of lower prices. Added to the costs to the ratepayers is that PURPA also has mandatory purchase obligations that force electric companies to purchase energy they do not need.
PURPA requires electric utilities to buy power from a list of approved generators called “qualifying facilities,” which must be small and have a primary energy source that is renewable.
These unintended consequences are not what the drafters had in mind when PURPA became law, and we should not let PURPA remain stuck in the past. New requirements need to be added regarding the size of the qualifying facilities, the type of energy produced, the amount of energy needed, the duration of the contracts, and ensuring the rates reflect market pricing.
Failure to reform and enact comprehensive PURPA reform will leave consumers vulnerable to higher prices and states virtually powerless to address any distortions in the market. These reforms should affirm our commitment to the clean-energy revolution and reducing economic disparities. We must advance commonsense, comprehensive reform of PURPA, so all customers can purchase the cleanest energy at the lowest price available.
Steven Transeth is the principal partner of Transeth & Associates, PLLC, a law firm providing legal and consulting services on energy and utility issues.