By Ann de Rouffignac
HOUSTON, May 17--Federal regulators said Texas can't ignore a federal law governing electric utilities' power purchases from small power producers as the state institutes a competitive electricity market.
In a petition to the Federal Energy Regulatory Commission, the Texas Public Utility Commission asked that state utilities be relieved of the obligation under the Public Utility Regulatory Policies Act (PURPA) to buy electricity from small generators known as 'qualifying facilities.'
FERC denied the Texas PUC's request for a waiver from the law in a draft order Wednesday. The commission said the law is still applicable in Texas because it is unknown whether a competitive electricity market will exist after Texas deregulates.
The PUC argued the PURPA purchase obligation is no longer necessary and will impede the functioning of a competitive market. In a competitive environment all producers will have access to a market and price can be determined by market forces, the Texas agency said, eliminating the need for an administratively determined proxy for the market price.
But FERC said most power will be bought and sold under long-term bilateral contracts after deregulation in Texas not in an open competitive market. The only short-term market available to QFs will be imbalance energy offered as ancillary services by the independent system operator in Texas or ERCOT ISO, according to FERC.
"There is no assurance that any type of competitive market will develop," said FERC.
The imbalance energy market is very small and would be "swamped" if all QFs had to sell their power into that market, said one QF veteran insider. There are 7,500 Mw of QF capacity in Texas. Most of that is tied up in contracts with utilities or with a host industry.
"Our review of the Texas Commission's petition does not convince us that a sufficient market for QF power will exist after restructuring," according to FERC documents.
The QFs in Texas sought and received a "declaratory order" from FERC regarding utility compliance with PURPA in Texas. They also sought confirmation that any company which meets the PURPA definition of an electric utility, including a retail electric service company or generating company will have to comply with the PURPA purchase obligation after restructuring.
The purchase obligation requires a utility to purchase power from a QF provided the rate is just and reasonable to consumers. The rate cannot exceed the incremental cost to the utility of procuring alternative energy.
FERC said that the Texas commission has sufficient flexibility to adopt a more market-oriented method of determining costs consistent with PURPA and with the retail competition program.
"Other states have implemented retail competition without the necessity of waiver of the mandatory PURPA purchase obligation," FERC said.