From Natural Gas Intel:
R Street Institute director Travis Kavulla told the panel that the nation’s electricity markets needed reform, and that “there are places where congressional intervention, whether through legislation or oversight, would be useful.” Chief among them would be changes to the Public Utility Regulatory Policies Act of 1978 (PURPA), a law that he said “has not aged especially well in light of all the changes we have seen in the electricity market…
“The fundamental problem of PURPA is not the requirement that utilities purchase energy from independent developers, provided it is as or more affordable than if the utility built a project itself,” Kavulla said. “Instead, the problem is the fact that the administrative price forecasting on which PURPA’s implementation relies is a suboptimal way to engage in what economists call ‘price discovery.'”
According to Kavulla, PURPA’s requirement that utilities buy energy and capacity from suppliers, aka qualified facilities (QF), at a nondiscriminatory rate is flawed because it is nearly impossible to predict the cost of energy in the future and can lead to litigation.
Kavulla encouraged FERC to adopt a proposal by the National Association of Regulatory Utility Commissioners to waive PURPA’s mandatory purchase obligations “for those states that have competitive frameworks for the procurement of energy and capacity.
The move would allow the Federal Energy Regulatory Commission “to establish regulations that ensure that the state frameworks are genuinely competitive and open to QF technologies. And it would allow states to avoid the sure-to-be-wrong rigmarole of decreeing prices through regulatory forecasts.”
Kavulla also took aim at states and the federal government granting subsidies to resources “that would not otherwise be economical to enter the market.” He said some states are adopting policies to keep uneconomic sources of electricity running, using nuclear subsidiesin Illinois, New York and New Jersey as examples.
“Policymakers are subsidizing certain resources to enter the market and policymakers are also subsidizing other resources to prevent them from leaving,” Kavulla said. “Moreover, while these policy interventions were at one point relatively limited in nature, they have grown in number and in scale over the last few years…
“The inevitable result of these subsidy policies is that consumers, in one form or another, are paying for power plants that they do not need.”