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The Public Utility Regulatory Policies Act may find a new reason for being

By Peter Maloney

October 16 - Bring up the Public Utility Regulatory Policies Act, and many people probably think that 1978 law, like the “qualifying facility” sector it created, has lost most of its relevance.

Indeed, its provenance has shrunk to a handful of markets, and in many of those places it is an uphill battle. But there still are QFs out there, and some say the law may be finding new purpose.

A revival of the Public Utility Regulatory Policies Act could depend on the outcome of cases being argued in Idaho and Texas, where wind power QFs, the most common type of PURPA facilities in recent years, are wrestling with utilities over what role the law should play in a world changed by competitive power markets, low natural gas prices and slack demand.

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Even as old-time QF mechanisms continue to fade, a number of attorneys in the field say PURPA still could provide the legal framework for incentivizing efficient and smaller power sources at the wholesale level.

The shape of the QF industry has shifted hugely since the Carter-era law first cracked open the door to competition in the power industry by creating a kind of power plant that would be exempt from traditional utility regulation. These plants would be more efficient — cogeneration uses both the steam and the electricity that a plant produces — and would use alternative sources of energy. Cogeneration plants could be any size; other kinds of QFs, "small power producers," had to be under 80 MW, for the most part.

To encourage them, the law gave them special advantages.

Not only were QFs exempt from some requirements of the Federal Power Act and the Public Utility Holding Company Act (relief that is immaterial now that PUHCA has been drastically defanged), they got a must-buy provision that allowed them to "put" the power they generated to utilities at the cost a utility would avoid by not building its own power plant. QF certifications and regulations were made the job of the Federal Energy Regulatory Commission, but PURPA left it to individual states to determine utilities' avoided-cost rates.

Countless battles were fought at the state level over avoided costs, a dynamic that changed with passage of the Energy Policy Act of 2005. Section 210(m) gave utilities an exemption from the must-buy provision if FERC ruled that a QF larger than 20 MW had access to a wholesale competitive market.

In the wake of EPAct '05, avoided costs in many jurisdictions became less important. These days, "you don't hear a lot about QFs for two reasons: they negotiate a better price, so they don't take advantage of PURPA, or there are 210(m) exemptions," Donna Attanasio, a partner at White & Case, said.

To date, FERC has issued 24 orders granting exemptions under Section 210(m). The exemptions cover 36 individual utilities and two electric cooperatives, Wolverine Power Supply and Old Dominion Electric Cooperative. Otter Tail Power has an exemption request pending at FERC right now.

The ending of the must-buy provision had a dramatic effect on the amount of new QF capacity installed. From a high of 4,759 MW in 2002, new QF installations fell to 545 MW in 2006, then rose, but have remained below 1,500 MW every year since then.

QF capacity additions by year

But the number of QF�facility filings�has been on the rise since hitting a nadir of 19 in 2005, and have zigzagged up, hitting 91 so far this year — not far under the historic high�of 115 in 1989.

QF filings by year

According to Bentek Energy, a unit of Platts, as of 2011, there were 860 cogeneration QFs with an aggregate capacity of 55,231 MW, and 1,190 small power producer QFs totaling 15,788 MW. They make up about 1.5% of the total US capacity of around 1 million MW.

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