The Public Utility Regulatory Policies Act (PURPA, Pub. L. 95–617, 92 Stat. 3117, enacted November 9, 1978) is a United States Act passed as part of the National Energy Act. It was meant to promote energy conservation (reduce demand) and promote greater use of domestic energy and renewable energy (increase supply). The law was created in response to the 1973 energy crisis, and one year in advance of a second energy crisis. Upon entering the White House, President Jimmy Carter made energy policy a top priority. The law started the energy industry on the road to restructuring.
Law PURPA was originally passed with the intention of conserving electric energy, increasing efficiency in facilities and resources used by utility companies, making retail rates for electric consumers more fair, speeding up the creation of hydroelectric energy production at small dams, and conserving natural gas. The main vehicle that the PURPA law used to try and accomplish these goals was by creating a new class of electric generating facilities called “qualifying facilities” (QFs). PURPA gave QFs special rate and regulatory treatment. The Public Utility Regulatory Policies Act of 1978 (PURPA) encouraged:
creating a market for power from non-utility power producers increased efficiency by making use of cogeneration ending promotional rate structures encouraging the development of hydroelectric power the conservation of electric energy and natural gas
Non-utility power producers Energy companies were classified as natural monopolies, and for this reason, most were established with vertically integrated structures (that is, they undertook all the functions of generating, transmitting, and distributing electricity to the customer). Utilities became protected as regulated monopolies because it was thought that a company could produce power more efficiently and economically as one company than as several. PURPA started the industry on the road to restructuring and is one of the first laws that began the deregulation of energy companies. The provision which enabled non-utility generators ("NUGs") to produce power for use by customers attached to a utility's grid broke the previous monopoly in the generation function.
Ending promotional rate structure Utilities offered customers a "rate structure" that decreased the cost per kWh price of electricity with increasing usage, with subsequent increments costing less per unit. PURPA eliminated promotional rate structures except when they could be justified by the cost structure of utility companies.
Cogeneration One provision of PURPA is the requirement for increased use of energy cogeneration. The law forced electric utilities to buy power from other more efficient producers, such as cogeneration plants, if that cost was less than the utility's own "avoided cost" rate to the consumer; the avoided cost rate was the additional costs that the electric utility would incur if it generated the required power itself, or if available, could purchase its demand requirements from another source. At the time generally, where demand was growing, this "avoided cost" was considered to be the construction and fossil fuel costs incurred in the operation of another thermal power plant. As an effect, the number of cogeneration plants, which produce electric power and steam, increased. These plants are encouraged by the law, on the basis that they harness thermal energy (in the form of usable steam) that would be otherwise wasted if electricity alone was produced. PURPA also became the basic legislation that enabled renewable energy providers to gain a toehold in the market, particularly in California, where state authorities were more aggressive in their interpretation of the statute. The portion of the act dealing with cogeneration and small power production appears in US code in Title 16 – Conservation, Chapter 12 – Federal Regulation and Development of Power, Subchapter II – Regulation of Electric Utility Companies Engaged in Interstate Commerce, Sec 824a-3 – Cogeneration and Small Power Production. This led to the establishment of a new class of generating facilities, which would receive special rate and regulatory treatment. Generating facilities in this group are known as qualifying facilities (QFs), and fall into two categories: qualifying small power production facilities and qualifying cogeneration facilities. A small power production facility is an electric generation facility that produces 80 MW or less and that uses renewable sources (such as hydro, wind or solar) as its primary energy source. A cogeneration facility is an electric generation facility that creates electricity in a very efficient way, meaning that the facility produces both electricity and “another form of useful thermal energy (such as heat or steam) in a way that is more efficient than the separate production of both forms of energy.”
Renewable energy PURPA provided favorable terms to companies that produced electricity from renewable (non-fossil-fuel) resources. California increased wind on the grid from 10 MW in 1981 to 1700 MW in the early 1990s.
Implementation Although a Federal law, PURPA's implementation was left to the individual states, because needs varied; a variety of regulatory regimes developed in states where renewable power resources were needed, available for development, or the generated power could be transmitted. Little was done in many states where such resources were unavailable, where the demand growth was slower or previously accommodated in planning.
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