Optimizing the Cost-Effectiveness of an Industrial Natural Gas Cogeneration Facility in a Regulated Electric Utility Environment

Abstract

Since Congress enacted the Public Utility Regulatory Policies Act (PURPA) in 1978, the electric utility industry has experienced many significant changes — legal, structural and technical. For purposes of this discussion, one of the more important changes that resulted was the installation of substantial electric generating capacity via “cogeneration” at industrial facilities nationwide. PURPA defined, and created by law, entities known as “qualifying facilities” or “QFs”, and established a framework in which they were allowed to compete with utilities in both the wholesale electric market (by sales for resale) and retail electric markets (by self-generation). The Energy Policy Act of 1992 (EPAct92) took PURPA one step further, allow additional entities — such as Exempt Wholesale Generators (EWG), marketers and brokers — to participate in the wholesale electric markets, forever changing the once monopolistic structure of the electric industry. Importantly, from a legal, structural and technical standpoint, QFs continue to enjoy advantages over other generators - both utility and non-utility. The legal and structural framework continue to favor QFs and technically, the equipment available for cogeneration facilities is significantly more efficient, reliable and environmentally friendly than in the past. Cogeneration can be a very cost-effective option for large energy users, providing in many instances the only alternative to purchasing electricity from the monopoly utility. Paper published with permission.