OPINION:
The Public Utility Regulatory Policies Act, which became law in 1978 in the middle of the energy crisis mentality that consumed the nation, was presented as an attempt to promote energy independence and diversify the electricity sector.
Unfortunately, it is now routinely a program that benefits solar energy developers at the expense of utility customers, particularly in states where vertically integrated utilities are tightly regulated to protect ratepayers from excessive costs.
I mention this because some members of Congress are thinking about revisiting the act.
The problem they are trying to solve is that the Public Utility Regulatory Policies Act forces utilities to buy power from every “qualifying facility,” typically solar farms under 80 megawatts, at rates determined by the states (usually the state’s best estimate of “avoided cost”). The bad news for ratepayers is that these rates don’t account for transmission congestion, grid integration costs or the need for backup generation to balance intermittent solar energy.
Moreover, the utility is required to buy this power whether it’s needed or not, potentially displacing more efficient and dispatchable generation that may serve customers more reliably and, when all costs are considered, more affordably. Solar projects often don’t align with the grid’s needs, and they consume transmission capacity, increasing transmission congestion and reducing system flexibility.
Consequently, utilities must invest in additional reserves and transmission upgrades, which add to the costs customers ultimately pay. In short, utilities must take on the power they don’t necessarily need at prices that rarely reflect the full system costs. Consumers, as always, wind up paying the bill.
Sometimes, after solar projects secure contracts under the Public Utility Regulatory Policies Act at discounted rates, their owners sell the resulting renewable energy credits to companies that have been careless enough to commit to net zero goals (think Amazon or Google). Companies pay top dollar for these credits to meet their sustainability goals, not because they need the power but because they want to greenwash their operations.
Meanwhile, utility customers — families, schools, hospitals, small businesses — are stuck with the bill for higher system costs. They don’t even get to keep and trade (or retire) the renewable credits.
While solar developers make money off the difference between the Public Utility Regulatory Policies Act’s mandatory purchase rate and the premium they get from selling renewable energy credits, utilities are left doing the best they can with a broken economic model. Instead of making rational, long-term investments focused on the best mix of energy resources for their customers, they must accept power they may not need at a cost their customers would rather not pay for electricity that might not be the most cost-effective or reliable.
Additionally, utilities must invest in backup power sources to compensate for the variability of mandated solar generation. Grid reliability costs typically increase as qualifying facilities use transmission capacity instead of allocating it to dispatchable, competitively procured energy.
Ratepayers pay for all this, one way or another.
The Public Utility Regulatory Policies Act was designed when utilities hesitated to invest in alternative energy. Now, utilities routinely procure renewables through state-regulated planning processes and competitive auctions. It is difficult to justify a federal mandate forcing utilities to buy power in an inefficient and costly way.
Given Congress’ partisan configuration, repealing the Public Utility Regulatory Policies Act is unlikely. Consequently, significant reform of the act is essential. The mandatory purchase obligation should be terminated for utilities that are already subject to state planning and competitive procurement. The contracts should reflect the full cost of integration, not just a narrow “avoided cost” calculation that ignores real-world effects.
Without these changes, the Public Utility Regulatory Policies Act will continue to function as a subsidy for solar developers, paid for by families and small businesses.
• Michael McKenna is a contributing editor at The Washington Times.
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