Public Utility Regulatory Policies Act Research Articles

Role of Government Institutions in National Energy Policy1

As readers of this column are aware, the Federal Energy Regulatory Commission (FERC), is an independent agency organized within the US Department of Energy (DOE) and critically important in articulating and implementing federal energy policy. FERC provides the leadership necessary in establishing wholesale power market rules and supporting private sector investment in infrastructure development, and in market valuation and pricing of assets in energy markets. The impetus introducing competition in electricity markets began in 1978 with enactment of the Public Utility Regulatory Policies Act (PURPA). PURPA required that vertically integrated utilities—owning generation, transmission and distribution—purchase power from generators/producers that could produce electricity at a cost that was less than the utility's avoided cost (the cost at which the utility itself could have generated electricity). PURPA provided the opportunity for competition in generation where non‐utility independent power producers could build, operate, and compete with existing utility power generation.

Published Gas Price Indices Causing Concerns

The past year was unusual due to major efforts to reform renewable energy and environmental policy laws that will affect the cost and environmental effects of renewable energy and natural gas facilities. Both the Federal Energy Regulatory Commission (FERC) and the President's Council on Environmental Quality started to reform the 40‐year‐old Public Utility Regulatory Policies Act (PURPA) and the 50‐year‐old National Environmental Policy Act of 1969 (NEPA), respectively. Both laws have had a good run; however, today's electricity and natural gas markets—as well as viewpoints regarding the use of fossil fuels, renewable energy, and climate change—are very different from what they were when Congress passed both bills. The reforms may take away the competitive advantages long enjoyed by new renewable energy projects that receive state subsidies, lower the cost of payments to wind and solar power by electric utilities, and roll back a growing trend calling for the effects of federal actions on climate change. All the while, electric battery storage is beginning to establish a beachhead in wholesale electricity markets, which could accelerate the clean energy transition and have significant implications for the renewable natural gas, hydrogen, and carbon capture and storage technologies initiatives being proposed by the oil and gas industry.

PURPA Reform Implications for Utilities and Climate Change

At a recent EUCI conference on Public Utility Regulatory Policies Act (PURPA) reform in Denver, Colorado, it was clear among speakers and participants that technology and market circumstances have changed significantly since PURPA's enactment in 1978. The changes in many parts of the country, the West Coast, East Coast, and part of the central United States, have been so profound that many of the states, utilities, and representatives in Congress are advocating for PURPA reform or abolishment. Considering the impact PURPA has had in helping diversify the fuel mix in electric generation and the penetration of grid‐edge and utility‐scale renewable energy, PURPA has been a resounding success, although not without some challenges along the way.

PURPA Reform Should Reflect Today's Energy‐Industry Realities

Several attempts are being made to modify the Public Utility Regulatory Policies Act (PURPA) of 1978, recognizing the significant changes in energy markets since its enactment.

Economic models for cogeneration facilities and host utilities under the right to sell provision

In the Public Utilities Regulatory Policies Act (PURPA) in the USA, to promote cogeneration, there exists a key provision for qualifying facilities to sell the cogenerated electric power to host utilities at a pre-determined price. In this paper, we investigate the economic implications and consequences of this “right to sell” provision. First, under PURPA, we show how the interaction between a cogeneration facility and an electric utility can be modeled as a Stackelberg game, and derive the equilibrium generation quantities, prices, as well as the corresponding profits and total surplus. We next construct a benchmark model under a deregulated environment. By comparing and contrasting these two models, we obtain various results of managerial insights, economic implications, and policy ramifications. For example, under the right to sell provision, we identify the conditions for a qualifying facility's arbitrage to occur. Also, relative to the deregulated benchmark model, we show how the government's right to sell provision may lead to inferior economic performance.

Thermodynamic and thermoeconomic analyses of a trigeneration (TRIGEN) system with a gas–diesel engine: Part II – An application

The paper is Part 2 of the study on the thermodynamic and thermoeconomic analyses of trigeneration system with a gas–diesel engine. In Part 1, thermodynamic and thermoeconomic methodologies for such a comprehensive analysis were provided, while this paper applies the developed methodology to an actual TRIGEN system with a rated output of 6.5 MW gas–diesel engine installed in the Eskisehir Industry Estate Zone, Turkey. Energy and exergy efficiencies, equivalent electrical efficiency, the Public Utility Regulatory Policies Act (PURPA) efficiency, fuel energy saving ratio, fuel exergy saving ratio and other thermodynamic performance parameters are determined for the TRIGEN system. The efficiencies of energy, exergy, PURPA and equivalent electrical efficiency of the entire system are found to be 58.97%, 36.13%, 45.7% and 48.53%, respectively. For the whole system and its components, exergetic cost allocations and various exergoeconomic performance parameters are calculated using the exergoeconomic analysis based on specific exergy costing method (SPECO). The specific unit exergetic cost of the net electrical power, heat energy in the Factory Heating Center (FHC) heating, heat energy in the Painting Factory Heating (PFH) and chilled water in the absorption chiller (ACh) produced by the TRIGEN system are obtained to be 45.94 US$/GJ, 29.98 US$/GJ, 42.42 US$/GJ and 167.52 US$/GJ, respectively.

Cogeneration and electric power industry restructuring

In 1978, Congress passed the Public Utilities Regulatory Policies Act (PURPA) in response to the energy crisis of the early 1970s. One of the unintended results of PURPA has been to show that electric generation was not a natural monopoly and could be opened to competition. Both the theoretical and empirical determinants of cogeneration and how they may be affected by future electric power industry restructuring are important for future industrial generation decisions. This paper explores these determinants and identifies differences between industrial cogenerators which sell power back into the electricity grid (commercial generators) and those which keep all of their electricity generation for internal purposes (self generators). The empirical results indicate that increases in industrial firm technical capabilities tends to increase their probabilities of both commercial and self generating. In addition, the models indicate that increases in retail electricity prices and industrial output increases industrial generation probabilities. The ability to switch fuels enhances industrial generation probabilities, as does a decrease in the price of natural gas. The results also imply that under electric restructuring a number of industrial generators may find that they face a stranded cost problem much like the one faced by their electric utility counterparts.

Open Transmission Accesss

Congress has been stunned by the speed of change in the electric power industry since the enactment of the 1992 Energy Policy Act (EPAct), and the electric utility industry is well on the road toward the development of competitive bulk power markets that will more efficiently and effectively serve the needs of the nation`s electric customers. Former Congressman Phil Sharp indicated to EEI, ``Congress did not anticipate the speed at which change would occur or be accepted.`` Edison Electric Institute`s (EEI) position is that the goal of the industry should be efficient competition. This is competition on a level playing field without public power subsidies, the Public Utility Holding Company Act (PUHCA) or the Public Utility Regulatory Policies Act (PURPA) obligations. It means competition at the marginal cost of delivering electric energy.

An assessment of desalination technology for the Rosarito Repowering Project

An assessment of desalination technology was conducted with a view to determining the most feasible option for a seawater desalination plant as a thermal host for the proposed Rosarito Repowering Project in Baja California, Mexico. Plants based on low temperature multiple effect distillation (LTMED), reverse osmosis (RO) and a hybrid LTMED/RO system were evaluated. All three options were shown to satisfy the requirements of the U.S. Public Utility Regulatory Policies Act (PURPA) for a qualifying cogeneration facility. Subject to limitations on the accuracy of the estimate (−5/+20%), the lowest water cost was obtained with reverse osmosis. In addition, certain site-specific considerations such as power plant dispatchability and constraints on the expansion of the existing seawater intake system tended to favor the RO option.

Planning model for small power producing facilities based on the Gaussian distribution function

As a result of a law passed by the US Congress called the Public Utility Regulatory Policies Act (PURPA), small power producing facilities gained considerable flexibility compared with utilities. This paper presents an optimization technique for the planning of a small power producing facility when it operates in parallel with a local utility. The model formulation is based on the analytical production costing model. It determines the on-site generation capacity, the contractual amount of power purchased from the utility, the number of generating units in the on-site generation facility, and the optimal scheduling of the small power producing facility subject to spot prices and reliability constraints.

Cogeneration desalination with reverse osmosis: A means of augmenting water supplies in Southern California

The importance of feed water temperature enhancement for sea water reverse osmosis plants located in “cool sea water” areas, such as on the West Coast of North America, is discussed and the cost savings due to preheating of the feed are evaluated. Computer software is used for modelling combined cycles incorporating thermal and reverse osmosis desalination plants, and for calculating water costs. The cost economics of sea water reverse osmosis with preheated feed is discussed for dual-purpose cogeneration plants located in Southern California with nominal plant capacities of 600 MW/100 mgd, 400 MW/75 mgd and 200 MW/35 mgd. It is shown that the proposed process arrangements satisfy the requirements of the Unites States Public Utility Regulatory Policies Act (PURPA) for a qualifying cogeneration facility, and result in substantial reductions in the cost of sea water reverse osmosis.

A spot price based control mechanism for electric utility systems with small power producing facilities

A spot price determination procedure is presented in the context of a small power producing facility (SPPF) control mechanism for utilities under the provisions of the Public Utility Regulatory Policies Act (PURPA). Under the stipulations of PURPA, local utilities must offer to purchase all available excess electric energy at fair market prices from SPPFs which meet the legislative requirements. For a given set of spot prices, and SPPF may optimize its operational schedule in order to minimize its operational costs. Conversely, the utility may establish spot prices which will induce SPPF schedules that reduce its own generation costs. In particular, the utility may offer incentive purchasing spot prices that encourage additional SPPF generation during specific time intervals while respecting regulatory and contractual requirements. The proposed spot price determination procedure utilizes an SPPF comprehensive model, which includes the major electrical and thermal operations of a cogeneration facility. >

Cogeneration after PURPA: Energy Conservation and Industry Structure

COGENERATION is the process of generating electricity as a by-product of the manufacture of another good, such as paper or steel. By-product electricity can be used by its producers and/or sold to another party. In its original form, state utility regulation made it difficult for nonutilities to sell by-product electricity outside their firm. Under the typical state public utilities act, any sale of power to another party subjects the firm to price and profit regulation, even if the power sale is small and unrelated to the firm's primary line of business. Also, the Public Utility Holding Company Act (PUHCA) prohibits nonutility ownership of utility properties.' In 1978 Congress passed the Public Utility Regulatory Policies Act (PURPA).2 This act exempts cogenerators from state regulation and

On the Economics of Cogeneration: Pricing and Efficiency in Government Owned Utilities

Cogeneration has been gaining increasing importance in the provision of electric power. When a utility purchases electricity produced by independent cogenerators and resells it to consumers, the question of whether or not a certain payment schedule of purchased power is just and reasonable becomes an immediate concern to each party concerned--the utility, cogenerators and possibly regulatory agencies.The U.S. regulatory agencies generally have endorsed avoided cost pricing since the passage of the Public Utility Regulatory Policies Act (PURPA) in 1978, the rule requiring that the utility pay avoided costs--the difference between total costs incurred by the utility before and after cogenerators' production. In Korea, on the other hand, a different rule has been implemented in pricing hydroelectric power purchased by the Korea Electric Power Corporation (KEPCO), Korea's only electric utility company from Korea Water Resources Corporation, a multi-reservoir dam corporation. The latter is currently paid based on actual costs incurred by its individual hydroelectric plants.

US cogeneration policy in transition

The Public Utility Regulatory Policies Act (PURPA) set the institutional and economic framework for the encouragement of cogeneration as a means of conserving energy. After 10 years of experience with PURPA, utilities and cogenerators have leveled many criticism aagainst cogeneration policy. Some of these criticisms stem from states', utilities', and cogenerators' learning about cogeneration policy. But much of the criticism results from misunderstanding that benefits of cogeneration should accrue to society as a whole, not just cogenerators or utilities. Cogeneration policy is basically sound, although improvements are needed regarding price signals and institution building.

Avoided-cost pricing of electricity from waste-to-energy plants The regulatory economics of a negative cost fuel

This paper examines the role of the 1978 federal Public Utilities Regulatory Policies Act (PURPA) in shaping the economic feasibility and regional distribution of waste-to-energy plants (WEPs) in the USA. PURPA marked a watershed in US energy policy by mandating private utilities to purchase electricity produced by small generators. This mandate, together with wide-spread exhaustion of municipal solid waste landfills, enhances the attractiveness of WEPs as both an energy source and a waste management option. PURPA rules and rates vary widely both across and within states according to the allowance of generating capacity credits, as well as a utility's fuel mix, excess capacity, and load growth. In general, environmental imperatives and high avoided-costs of alternative power production options have led developers principally to Northeast and Southern locations. In the next decade, county and municipal governments pressed by landfill exhaustion will likely be forced to settle for high disposal, or tipping, fees to offset stable or declining fuel and capacity credits. Developers, in turn, will be drawn to areas where PURPA rules and rates will most insulate WEPs from conventional fuel price swings that have undermined the revenue projections of many recent projects.

Deregulation and the power struggle (electricity supply industry)

A description is given of a wave of proposals from the US Federal Energy Regulatory Commission (FERC), which are expected to add momentum to the ongoing deregulation of the electric utility industry. The regulations are intended to address some of the difficulties posed by the Public Utility Regulatory Policies Act (PURPA). The developments in the electric utilities industry since PURPA, the anticipated impacts of the new regulations, and the industry's reactions are examined.< <ETX xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">&gt;</ETX>

Optimum electric utility spot price determinations for small power producing facilities operating under PURPA provisions

An algorithm is presented that allows a local utility to determine a set of spot prices that satisfy all regulatory and contractual restrictions while optimizing the revenues generated from a particular small power-producing facility. This is done under the constraint that the small power-producing facility is independently optimizing its own schedule while taking full advantage of the Public Utilities Regulatory Policies Act (PURPA) provisions. The proposed method fully addresses the delicate problem of potential multiplicity of optimum scheduling solutions. This is done using modified optimum spot prices, where the desired accuracy of the final spot prices can be explicitly taken into account. An example is provided to help illustrate the concepts described.< <ETX xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">&gt;</ETX>

Commercial Arrangements for Co-Generation in the UK and USA

This paper examines the impact of the Public Utilities Regulatory Policies Act (PURPA) in the United States and the Energy Act 1983 in the United Kingdom on the nature of the purchase tariffs for co-generators and combined heat and power (CHP) plant, and considers the reasons why the prospects for investment by private generators might be enhanced in the United States.

Optimization Topics Related to Small Power Producing Facilities Operating under Energy Spot Pricing Policies

Small Power Producing Facilities will become more and more common as the various provisions of the Public Utility Regulatory Policies Act (PURPA) are taken advantage of by utility and customers. These facilities incorporate several features which allow the user to increase his operational flexibilty with respect to the local utility. These facilities can be: local generation, local dependent generation, local energy storage facility, and shiftable load schedule. The only true control the utility has over the actual operation of such facilities is through the judicious selection of the energy prices proposed to such users both for the sale and purchase of energy. It is likely that most utilities will react to this novel user-utility relationship by implementing time-varying energy prices to better reflect their own production costs. These time varying energy prices are often referred to as Spot Prices and are rather commonly used in Europe. A key issue is then the simulation of the various SPPF loads under various spot pricing policies and as they would be seen from the utility's point of view. The purpose of the paper is to describe a general and flexible model for a large variety of SPPFs and to demonstrate its use on a number of operations planning and plant design problems.