Could A 40-Year-Old Law Let More Customers “Exit” The Grid?

Originally published on ilsr.org.

As state regulators restricted the ability of home and business owners in Nevada to receive sufficient compensation for solar on their rooftops, some large companies started looking towards other options. In 2016, at least two major Las Vegas casinos agreed to pay multi-million dollar “exit fees” to leave the service of incumbent monopoly utility NV Energy to be able to purchase electricity competitively on the open grid.

The casinos are empowered by a 2001 Nevada state law, enacted in the shadow of the Enron energy market manipulation scandal. In some states, customers have retail competition and may select from several suppliers. In other states, however, electric customers may have fewer choices. In the following map, customers in the blue states have competitive markets, and those in yellow and orange states lack a choice.

For customers in non-competitive states, there may be some new options based on an old rule.

Since 1978, the federal Public Utility Regulatory Policies Act (PURPA) has required utilities (even in monopoly states) to purchase electricity from third parties at prices competitive with their cost of electricity, or the costs they avoid by purchasing from third parties. In the past forty years, a number of states have from time to time provided “standard offer” contracts with standardized terms, contract length, and a set “avoided cost” to third party power producers. Although these producers cannot sell power directly to customers in monopoly states, it does allow larger customers (such as big corporations or even cities) to build renewable energy projects, sell the power to the utility, and keep the renewable energy credits. Keeping the credits gives the purchaser the right to say they are supplied by clean power.

Several states provide examples of how to build renewable energy through PURPA:

• In North Carolina, over 2,200 megawatts of solar projects were built (making it rank 3rd in the country), supported by state and federal incentives and an attractive “avoided cost” price from the utility. The state PURPA rules allow any renewable energy project “under 5 MW [to] receive a 15-year fixed price contract at the utility’s avoided cost.” Advocates have continued to fight for a reasonable avoided cost rate and contract length, winning a major battle in 2015.
• In Montana, an avoided cost rate of 6.6¢ per kilowatt-hour with a standard, 25-year contract led to several new solar projects (but only totaling 480 kilowatts in 2015), until the utilities successfully lobbied the Commission to allow them to negotiate prices instead. Utilities are proposing rates between 3.4 and 4.4¢ per kilowatt-hour.
• In Minnesota, community energy developers are trying to use PURPA to formalize avoided cost prices for small-scale renewable energy projects, 1 to 5 megawatts in size, that would allow for widespread development in rural areas. More information on the Minnesota proposal will be coming soon.

While a battle over avoided costs shouldn’t be taken lightly, it’s a good place to look if policies are already in place to support renewable energy development at the community scale.

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Photo credit: Aranami via Flickr (CC BY 2.0 license)