Abstract
The Public Utility Regulatory Policies Act (PURPA) (P.L. 95-617) was passed to encourage electricity conservation through a variety of regulatory and rate reforms. Information is provided on the controversy surrounding the avoided cost standard established under PURPA. Promulgated by the Federal Energy Regulatory Committee (FERC) in February 1980, the avoided cost standard sets a minimum rate for utilities purchasing power from a qualified facility (QF) at the utilities full avoided cost. Recent court cases have challenged this standard and FERC is currently appealing to the Supreme Court. The impact of these court cases may have little effect on the actual rates set by state Public Utility Commissions (PUCs), which can require rates higher than the minimums established by FERC, since many PUCs appear in favor of requiring full avoided costs. The arguments for and against requiring utilities to pay full avoided costs come down to balancing between incentives for QFs on the one hand and fairness to utilities and their non-QF customers on the other.
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