Case Overview, PURPA Reform

 

           When the government began to regulate electricity in the early 20th century there was a strong consensus that it was a "natural monopoly." The logic was that contrary to normal markets, competition among electric utilities was wasteful. There was no reason for companies to build competing plants and transmission systems, both of which engender hostility from communities envisioned as sites for such facilities. Moreover, there is no real difference in the quality of electricity. Electricity from one power plant will do just as good a job turning on the lights in your house as electricity from another plant. Consequently, each geographic area had a single electricity provider and the government regulated what could be charged so that the one provider could not use its monopoly status to overcharge customers.

           Since a serious movement toward deregulation began in the 1970s, a number of industries have been subjected to less government supervision and exposed more to the traditional market risks of supply and demand. Deregulation of electricity has gained momentum in recent years, though scandals at Enron and market manipulation by electricity traders have slowed movement toward complete deregulation.

           The Bush administration's primary approach to energy has to been to try to enhance and create incentives for more energy production. The administration's omnibus energy bill worked its way slowly through the legislative process during the 107th Congress. This was a controversial bill and different energy industries were affected in different ways. One issue that arose was repeal of the Public Utilities Regulatory Provisions Act or PURPA. PURPA was passed in 1978 and one of its primary goals was to enhance energy efficiency by ensuring that excess electricity generated by manufacturing plants could be sold to electric utilities for distribution to other users. Manufacturers who are heavily energy users will typically produce their own electricity through a process of "co-generation." For example, they may take natural gas and produce from it the steam they need to drive machinery; at the same time they may generate as byproducts heat for the plant as well as electricity. If they have more electricity than can be used at the plant at one time, PURPA requires that electric utilities buy it and put it out on the nation's electricity grid so that it is not wasted.

           Electric utilities have not been fond of PURPA. As one industry critic put it, "power companies have always hated PURPA because they don't like the government telling them how they have to do business with customers." The electric utility industry also claims that it has been forced to pay too much for the "co-gen" electricity they purchase and, as a result, consumers have had to pay too much because the cost gets passed on to them. Finally, the industry argued that the market was being deregulated and co-gen plants could sell their excess electricity to the highest bidder.

           The Senate bill coming out of committee repealed PURPA but there was no assurance that utilities would have to continue to buy electricity from manufacturers. Trade associations representing manufacturers who are heavy energy users, such as the American Chemistry Council and the American Forest and Paper Association, lobbied legislators from states where those industries had plants. These trade groups were concerned because as one lobbyist put it, repealing PURPA "didn't do anything about creating competition in the electricity markets." Without complete deregulation and without PURPA, it is still possible for manufacturers to find that no utility wants its electricity. An amendment favoring the manufacturers' position was passed on the floor of the Senate. The House bill had no comparable provision so it was up to the conference committee to hammer out a position on the issue. It wasn't clear that the larger bill could get through the Congress, though, and in the end no energy bill passed the 107th Congress.