The U.S. natural gas industry has urged Congress not to repeal part of a federal law that requires electric utilities to buy power from cogeneration projects and small power producers.
Sen. Don Nickles (R-Okla.) has filed a bill to repeal Section 210 of the 1978 Public Utility Regulatory Policies Act (Purpa) that requires such purchases. Nickles told a Senate energy committee hearing he is changing his bill to apply only to future power purchase contracts.
Nickles said Section 210 repeal is warranted because the electrical power industry has seen increased competition in recent years, and the Federal Energy Regulatory Commission has moved to market-based rates for new power generation.
The senator said, "I do not believe that mandating the purchase of a product increases competition."
James Niehaus, Oxy USA president, testified for the Natural Gas Supply Association. He said repeal of Section 210 would raise questions about the validity of contracts between independent power producers (IPPs) and utilities. That would lead to "years of costly, prolonged litigation" and the potential loss of as much as 5% of the natural gas market.
The American Gas Association also raised the contract question. It pointed out that gas fuels 59% of all cogeneration capacity and more than 75% of IPPs' cogeneration capacity.
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Edison Electric Institute noted the avoided cost rule" in Section 210 requires utilities to pay qualifying facilities what it would have cost the utility to generate the power.
It said regulators required utilities to sign long term contracts with IPPs based on estimates of avoided costs. But fuel prices have dropped since the deals were made in the early 1980s, making the contracts uneconomic.
Edison said, "Some utilities rely on qualifying facilities for as much as 40% of their power supply. In many states, qualifying facilities now account for more than 50% of new generation installed in recent years.
"But the cost of that power far exceeds its value to consumers. The Edison Electric Institute estimates that payments to qualifying facilities in excess of market value are on the order of $38 billion over the next 10 years."
The National Independent Power Producers said Section 210 should not be repealed until competition takes firm root in the power industry.
Elizabeth Moler, FERC chairman, agreed: "Repealing Section 210 is premature, given the market power over transmission that utilities have today. While competition clearly is coming to the electric industry, full competition is not yet here.
"At a minimum, those who control the nation's transmission grid must provide comparable open access before we can have competitive wholesale power markets."
Moler said the economic assumptions underlying Purpa have changed dramatically since the law was passed.
"Competitive pressures in the industry have increased faster than any of us could have imagined. New gas fired facilities can now be built in many regions of the country for 3-5c/kw-hr.
"Gas fired generating capacity is undercutting virtually all other new sources, even as the economics of other sources, including renewables, improve,"
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