August 03, 2011

Wyden Bill Gives States Latitude to Set Electricity Rates on Small-Scale Projects

Allowing States to Set Rates Will Give them the Ability to Entice Renewable Energy Projects and Incentivize Innovation

Washington, D.C. – In an effort to create incentives for investment in small-scale renewable energy projects like solar panels on the roofs of homes and businesses, U.S. Senator Ron Wyden (D-Ore.) introduced legislation to give the states the ability to determine the price that public utilities can pay to purchase the electricity these projects sell back to the grid.

“Right now, the federal government is controlling the rates that local utility companies can pay for the energy produced by anyone with solar panels on their roof or small-scale wind turbine on their land,” Wyden said. “Such a top-down approach does little for investment in individual states and can chill demand for individual or small scale renewable energy projects. In order for widespread implementation of renewable energy projects at the local level to gain traction, states need to be able to create incentives for their residents and this legislation will help them do that.”

The Public Utility Regulatory Policies Plus Act (PURPA PLUS) improves on the original PURPA act by transferring authority to set rates for small, independent power providers from the Federal Energy Regulatory Commission and giving it to individual states.  States could exercise this authority on a completely voluntary basis.  The bill caps the project size at two megawatts to only include small or individual projects.  It does not pick and choose one type of energy technology over another instead offering the same deal to many types of renewable energy sources and provides state public utility commissions another tool to promote small, renewable energy sources in their state.

Under the original PURPA legislation, sole authority to set rates on these projects lies with FERC which has said that the cost a utility company can pay for energy returned to the grid from private producers cannot exceed the cost of purchasing additional power from non-renewable sources.  This standard, known as “avoided cost,” can stifle incentive for individuals to put solar panels on their roof or investors to build a new, small scale wind farm in a community, which can’t match the cost of power from a large coal, natural gas, or nuclear plant.