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Public Utilities Regulatory Policies Act of 1978 (PURPA)
Practical Law Glossary Item 7-520-9883 (Approx. 3 pages)
Glossary
Public Utilities Regulatory Policies Act of 1978 (PURPA)
A federal law enacted in response to the oil embargo and gas crises of the 1970s to, among other things, encourage and promote electricity conservation, sensible rates for electricity consumers, and the diversification of domestic energy resources (16 U.S.C. §§ 2601 to 2645). It:
- Created qualifying facilities (QF) and independent power producers to enable developers to build smaller-scale plants that use alternative and renewable energy resources such as wind, biomass, and geothermal energy.
- Required utilities to buy power from other non-utility producers if the cost of doing so was less than the utility's avoided cost rate to the consumer. Historically, utilities bought power from small power producers at rates below the producers' generation costs and which were often too low to keep these producers in business. This situation was worse for producers that owned renewable energy plants that typically produced energy at a higher cost.
- Required utilities to sell back-up electricity to small energy producers. These producers, especially those that use an intermittent resource such as wind and solar, often need to purchase supplemental electricity to run their facilities or to enable them to meet their obligations under their power purchase agreements if their plants are not producing the energy they need.
PURPA was the first meaningful step in the deregulation of the US electricity industry. Prior to PURPA, most utilities owned and operated all the facilities required for the generation, transmission, and distribution of electricity and generally obtained all the electricity they needed to service their customers from their own facilities. After PURPA, utilities were forced to buy electricity from non-utility owned power plants which contributed to their development and decreased the utilities' monopoly of the generation side of the electricity industry.
Certain provisions of PURPA were amended by the Energy Policy Act of 2005 which, among other things:
- Required utilities to make available upon request net metering and time-based smart metering services, including credits for consumers with large loads who enter into agreements with the utilities that reduce their planned capacity obligations.
- Amended the avoided cost requirements to provide that no utility will be required to buy electricity from a QF if certain conditions, as determined by the Federal Energy Regulatory Commission are met.