• January 19, 2018

    There’s a 40-Year-Old Law Making Your Electricity Bills Higher Than They Need to Be…and it’s Time to Update it

    Heath Knakmuhs

Bell bottoms, vinyl records, and black and white televisions were all common back in the 1970s.  While there was nothing wrong with these commonplace items back then, they each are viewed as a bit out of step with today’s styles and modern technologies. 

The same disconnect can occur with 40-year-old energy policy.  Except instead of making your legs look funny, sounding scratchy to your ears, or depriving you of today’s high-definition television experience, the outdated design of a specific energy policy is costing you cold, hard cash.

The culprit is called PURPA-- the “Public Utility Regulatory Policies Act of 1978.” 

In the early 1970’s about 1 in every 5 homes was powered by burning crude oil.  The Arab oil embargo in 1973 led to long gasoline lines, but also electricity price spikes and reliability issues.  Congress ultimately passed a host of bills in response to the embargo to make American more energy secure.  PURPA was one of them, intended to diversify our electricity mix away from imported oil.

In short, PURPA forces electric utility companies to buy electricity from smaller generation facilities, which forty years ago had difficulty finding and delivering to buyers their excess energy.  As such, these generation developers can force utilities to buy their power, often times at rates that are higher than could be obtained for the same amount of power from a more economical resource.  These purchases must happen even if the electric utility already has all the power they need to serve customers

In the forty years since PURPA became law, not only has the nation’s energy mix changed (and become much cleaner), but wholesale electricity markets have developed and flourished, with open-access transmission policies providing power producers with both the avenues and opportunities to sell the electricity to a large pool of prospective buyers.  Times have changed, and PURPA needs to change too.

Thankfully, legislators in Washington are aware of PURPA’s current disconnect with reality – and its adverse impact on your pocketbook.  To correct some of PURPA’s most outdated policies, Michigan Congressman Tim Walberg introduced the PURPA Modernization Act of 2017 or the “PURPA Reform Act.” 

Today, the House Energy and Commerce Subcommittee on Energy held a hearing to evaluate the merits of the PURPA Reform Act.  This hearing represents a critical step in bringing PURPA up to date.

The PURPA Reform Act proposes to curtail the games currently played by sophisticated developers who split up larger projects (often geographically dispersible solar or wind-power projects) into “PURPA-sized” projects sited just over one mile from each other.  By doing this, larger developers force utilities to buy the electric output of new power projects that are, in reality, far larger than those originally intended to be covered by PURPA.  Moreover, the prices for this electricity can be 30-50% higher than the going market rate for the same electricity.

Further, the PURPA Reform Act would also tailor the size of PURPA-covered projects to those that might still need assistance accessing organized wholesale markets, consistent with the original intent of PURPA.  In addition, the PURPA Reform Act would provide state utility commissioners with the authority to suspend PURPA’s mandatory power purchase obligation when those commissioners determine that the additional power is either unnecessary or has the ability to be procured in a competitive market environment. 

State utility commissioners are tasked with keeping your electric rates as low as practicable.  The forty-year-old PURPA stands in the way of that goal.  This must be why they support the types of reforms proposed by the PURPA Reform Act. 

PURPA serves the legitimate purpose of helping to diversify our electricity grid, often times with emission-free solar and wind power.  However, large developers are now utilizing PURPA’s shortcomings to justify the development of power projects that would not otherwise be competitive in today’s competitive power markets.  The PURPA Reform Act proposes to level the playing field and protect customers from unnecessarily subsidizing a small subset of expensive generation resources. 

We look forward to following the PURPA Reform Act’s journey to update PURPA to reflect today’s energy reality.