Part B - Non Utility Generator Operation From PURPA (1978) To The Present

The Public Utilities Regulatory Policies Act became law as part of a package of energy legislation enacted by the federal government in 1978. PURPA, as the law is known, along with companion legislation changed the NUG electrical sales situation.

PURPA had as one major purpose, the conservation of energy. Cogeneration was a favored generation methodology under this law because it is energy efficient. Unfortunately, neither PURPA nor its companion legislation made any distinction between the efficiency of different generation processes or cogeneration processes producing the same split of electricity and steam. (e.g. boiler / steam turbine operation vs. combustion turbine operation, see Appendix A, "Prime Movers").

PURPA required the electric utilities to buy power from NUGs meeting certain criteria. NUGs meeting those criteria were designated as "qualified facilities" (QFs). Cogeneration as a favored generation methodology, then, became a major criterion for obtaining QF status. As a result, most Louisiana NUGs receiving qualified facility (QF) status under the 1978 law were existing industrial cogenerators. New QFs coming on line after PURPA were also industrial cogenerators.

PURPA has opened the door to external sales by QF NUGs, but not completely. Louisiana's large base of cogenerating industrial NUGs continues to operate on substantially the same basis after PURPA as before, consuming most of the electricity they produced. Reasons for this include limitations on potential consumers of NUG electricity, a complete lack of NUG access to transmission, low prices available from electric utilities to NUGs in Louisiana, and difficulties in operating standalone (no associated steam host or consumer) cogeneration facilities.

Problem - A Single Buyer (Monopsony) of NUG Electricity

First, under PURPA, sales of electricity are limited to one customer - the electric utility in whose service area the QF is located. Third party or ultimate consumer sales by NUGs are not made possible under this law.

Problem - No NUG Access to Transmission

Even if third party sales could be made by NUGs, delivery of the electricity is not possible. First, there are regulatory difficulties. In Louisiana, were a NUG to deliver electricity to a third party - even across a mutual fence line with that third party, that NUG would become a regulated utility under state law. This legal burden has not been acceptable to the NUGs since their primary product is not electricity. In Louisiana, this legal situation produces some unusual results. Adjacent plants are allowed to move energy in the form of steam across their mutual fence to one another, but are not allowed to move energy in the form of electricity.

Further, transmission of electric power by a NUG over utility lines (wheeling) to any party other than the serving utility, on either a wholesale or retail basis, was and is either legally or operationally impossible in Louisiana. The electric utilities control transmission and are not legally required to transport NUG electricity.

Also precluded under Louisiana regulations are cases of "self wheeling" - transmission of electricity by a company from one of its own facilities to another of its own facilities, nearby, but non-contiguous. Electric utility lines cannot be used for reasons given in the paragraph above. In addition, the potential "self wheeling" company is likely to find it impossible to procure right-of-way (create a single site) to build its own transmission lines. In virtually every case, all possible pathways for transmission between non-contiguous sites would require crossing electric utility right-of-way. Historically, the utilities would not voluntarily allow this crossing and cannot be forced to do so. NUGs lack the power of eminent domain (ability to force sale of private property based on public need).

Problem - Low Prices Paid for NUG Electricity in Louisiana

Low sales to electric utilities by Louisiana QFs were and still are caused by the low price which the utilities offered for such power. PURPA requires that mandated purchases of QF power by the electric utilities be priced at the utility's avoided cost at the time of the sale. That cost is the incremental cost to the utility during that period of time to internally produce one more unit of electricity.

Since the advent of PURPA, Louisiana electric utilities have had a surplus of generating capacity. No new electric utility units are planned in the near future. This means that electric utility avoided cost in Louisiana has no capital component. That component represents the cost of needed new generation capacity which can be avoided by the utility by purchasing power from a QF. For Louisiana QFs, then price received for electric power is the incremental fuel cost to the utility during each hour of the QF sale to the utility.

Problem - Difficulties of Standalone NUG Operations

A final limitation mitigating against standalone NUG facilities in Louisiana has been the de facto necessity for such facilities to be cogenerators. For a standalone cogenerating NUG, the coproduction of both electricity and steam implies the need to successfully sell both steam and electricity. Accomplishing sales of both is administratively difficult and, if nothing else, is crippled by transport limits on high quality steam. Only one NUG cogeneration operation in Louisiana, Nelson Industrial Steam Company (NISCO), operates as a standalone facility, selling almost all of its electricity and steam production outside of NISCO plant limits. Operation of this facility is however, a special case. NISCO is jointly owned by Gulf States Utilities (GSU) and three industrial partners.

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This page updated June 18, 2008