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]]]]]]]]] CALIFORNIANS WILL PAY DEARLY FOR PURPA POWER [[[[[[[[
By George Melloan (9/8/88)
[From The Wall Street Journal, 31 March 1987, p. 37:3]
[Kindly uploaded by Freeman 10602PANC]
Pacific Gas & Electric Co. is the nation's largest electric
utility, which means it deals in big numbers. One big number it
is dealing in these days is $850 million, the amount it will be
adding to its customers' electric bills in a few years unless a
strange federal law known as PURPA is altered or reinterpreted.
PG&E Chief Executive Richard A. Clarke finds this
"outrageous," but he isn't getting much help in convincing state
and federal regulatory agencies of that. "Our allies in this
should be consumerists, but they are slow in coming around," he
says. One reason may be that both PURPA and the active segment
of the "consumerist" movement were both products of 1970s
"alternative" politics. But more about that later. PURPA stands
for Public Utility Regulatory Policies Act. It was one of five
parts of the National Energy Act of 1978, perhaps the most
mischievous and misguided piece of legislation ever passed by
Congress. All Congress needed to do to end energy shortages in
1978 was repeal price controls on crude oil, which is how the
problem was eventually solved. A one-sentence law would have
done it. Instead, Congress wrote the massive energy act that
still is on the books and still is exacting enormous hidden
costs from consumers. PURPA forces electric utilities to use
"alternative" sources of energy -- windmills, sewage gas, solar
collectors and what have you. Federal regulators supply
guidelines but direct administration was put in the hands of
state public utility commissions. The California of Jerry Brown
applied PURPA with a vengeance, the result being that Californians
now are stuck with one of the country's most expensive
interpretations of the act. Dick Clarke of PG&E explains how it
works: "PURPA requires us to buy power produced by so-called
independent power producers. We've been required to execute
contracts to buy power even if we don't need it. It's a very
expensive resource; we can't dispatch it and we can't count on it.
So we have all these contracts for something like 9,000
megawatts. Our whole system has only a 15,000-megawatt
capacity, so these contracts represent 60% of our energy capacity.
"Now so far, only 1,600 megawatts have been constructed; the rest
are just pieces of paper. But even if only 45% of the other 7,000
megawatts come on line, it will be an additional cost to our
customers of $850 million a year." Is all this power coming
from those much discussed "alternative" sources? Mr. Clarke
waves toward San Francisco Bay, the view from his office window,
and says there are indeed windmills across the bay. "We buy the
power, because we have to, and it's an expensive resource."
But you don't get 9,000 megawatts from windmills or any other
of these nonconventional resources. The "independents"
presenting PG&E with the most troublesome must-sign contracts
are not little operations gleaning free power from wind
generators, solar collectors and other alternative sources.
Rather, they are other big firms. For fuel, they use mainly oil
and gas. Were in not for PURPA and especially the interpretation of
the law by the California PUC [Public Utilities
Commission], California consumers conceivably might benefit from
what these "independents" are doing. There has been a revolution
in power generation. General Electric Co. years ago began
applying jet-engine technology to large-scale gas turbines to
generate power. As that technology has advanced, gas turbines have
become the most efficient means of generation, and especially
so in "combined-cycle" facilities where the turbine's heat is
captured to generate steam. Mr. Clarke says that a modern gas
turbine needs about half the BTUs to generate a kilowatt of power
as some of PG&E's older plants need. But the Fuel Use Act,
yet another part of the 1978 legislation, says that oil or
gas may not be used for new power-generating equipment, which
effectively precludes use of gas turbines by utilities
themselves. However, if electricity generation is a spin-off from
other uses of these fuels, such as producing steam for an
industrial process, up to 50% of that electricity can be
sold. It also is possible for an "independent" to get a
"cogeneration exemption" from the fuel-use act. "What happened,"
says Mr. Clarke, "was that the manufacturers of utility equipment
decided it was a great business. The GEs, the Babcock & Wilcoxes,
in conjunction with major oil companies, built these gas-fired and
oil-fired generators and we were forced to sign contracts with
them. The prices under the law were set by state regulatory
commissions at what is called avoided cost, which is the price
that the facility you otherwise would have had to build have cost
you. They were using projections of oil at $60 a barrel at that
time in order to determine what would be the avoided cost." The
result of that inflated cost basis has been that the
independent suppliers have struck gold in California. Mr. Clarke
says their profits, using highly efficient turbines and charging
regulator-set prices, are double or triple a utility's normal
profits. Even subsidiaries of other utilities have entered
the California market. "We've got Houston here, we've got Utah
here -- all have a cogeneration subsidiary that works outside
their service territory." Now, if PG&E customers are going to be
paying an extra $850 million a year for the greater good of GE,
Chevron, Bechtel and other giants, why aren't California
consumerists banging on the door of the California Public
Utilities Commission and the Federal Energy Regulatory Commission
[FERC] demanding a change in the interpretation of PURPA? FERC is
currently holding hearings to consider just that. The reason
seems to be that those consumerists spawned by the
alternative culture of the 1970s would find it rather
embarrassing to complain about something they had so much to do
with creating. Naderites of that era primarily focused their
attack on big business. Pacific G&E is a private corporate
giant, and hence still is regarded as the enemy. The 1978
energy act requires that public money be supplied to
"qualified" persons who go before public utility commissions
to testify against rate increases for regulated behemoths such
as PG&E. There is an irony to be found in the fact that
General Electric and other giants, using a technology developed
with the aid of defense contracts, are making a very good thing
out of legislation that originally was intended to
employ "small-is-beautiful" principles and "limits-to-growth"
moral philosophy. American corporations have proved to be far
more resilient than their critics might have imagined in the 1970s.
To the extent the corporate critics forced companies to
exercise their adaptive powers, it might be said that the critics
contributed something to technological advancement, although in
most cases not intentionally. But the legislation left on the
books is becoming more and more expensive. Absolute repeal of
the 1978 energy act would be one of the most beneficial things
Congress could do for the American economy, but given the
interests now tied up in that act, repeal sees unlikely. Dick
Clarke of PG&E would settle for some regulatory reinterpretation.
For an $850 million saving to California consumers, that doesn't
seem like much to ask.
* * *
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