[Congressional Record Volume 141, Number 180 (Tuesday, November 14, 1995)]
[Extensions of Remarks]
[Pages E2176-E2177]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              PURPA: COSTING CONSUMERS BILLIONS OF DOLLARS

                                 ______


                        HON. GERALD B.H. SOLOMON

                              of new york

                    in the house of representatives

                       Tuesday, November 14, 1995

  Mr. SOLOMON. Mr. Speaker, I would like to draw your attention to 
another Federal regulation which has outworn its welcome, the Public 
Utility Regulatory Policies Act [PURPA]. Born in the energy crisis of 
the 1970's, PURPA was designed to encourage renewable energy sources 
which would provide power more efficiently. We clearly have made great 
strides in producing energy in our country and a great many small, 
independent power producers have introduced us to alternative forms of 
power generation. These producers play a central role in fueling the 
wholesale power market. However, like many Government mandates, PURPA 
has created a backlash which runs counter to its original goals of less 
costly, more efficient power generation, and allows a loophole whereby 
producers that burn primarily fossil fuels qualify as independent 
wholesale generators. But even worse, Mr. Speaker, PURPA has become 
downright harmful to American taxpayers, consumers, laborers and 
business.
  Allow me to submit for the Record an article which recently appeared 
in one of New York's capital region papers, the Schenectady Gazette. 
While focusing primarily on a case in my home State of New York, the 
message of the author, Charles Conine, holds true throughout many 
regions of the country.

                     [From the Schenectady Gazette]

             Federal Rule keeps N.Y.'s Electric Rates High

                         (By Charles T. Conine)

       Niagara Mohawk last week proposed opening its service 
     territory to full competition. This may be the first of many 
     such actions by utilities to stop the financial bleeding 
     caused by the Public Utilities Regulatory Policies Act 
     (PURPA), a little-known boondoggle from the 1970s that costs 
     consumers tens of billions, deprives the government of 
     billions in taxes, wastes resources and eliminates skilled 
     industrial jobs.
       If the House of Representatives is looking for a regulation 
     to reform, it should consider this one. Ending PURPA would 
     find support from Republicans, Democrats, organized labor and 
     consumers.
       PURPA was adopted during the oil shortage of 1978 to 
     promote renewable, domestic energy sources and increase 
     energy efficiency. But instead of small, independent projects 
     fueled with renewable energy, PURPA has spawned hundreds of 
     unnecessary electric-generating plants, most of which burn 
     fossil fuels.
       PURPA developers can force public utilities to buy their 
     electricity at a premium, regardless of whether the power is 
     needed. PURPA developers also pay less in taxes than 
     utilities do. The combination can be economically devastating 
     for a state. New York, California, Pennsylvania and Maine 
     have been hardest hit, but Colorado, North Carolina, Oklahoma 
     and New Jersey also have their share of ``PURPA machines,'' 
     as these projects are called.


                             unneeded power

       Let me tell you what PURPA has done to consumers and 
     workers in upstate New York. This year, Niagara Mohawk has 
     been forced to buy $1 billion of unneeded electricity from 
     independent power producers, $400 million more than it would 
     have cost the utility to generate the same electricity. In 
     other words, business and residential customers will pay $400 
     million more this year for PURPA electricity, a figure that 
     will continue to rise.
       And because NiMo does not need the additional electricity, 
     it has been forced to shut down power plants and eliminate 
     the jobs of 2,000 electrical workers. Our union has worked 
     closely with management to make changes in work practices and 
     work flexibility, but the situation keeps getting worse.
       These are prime industrial jobs that support many service 
     jobs in the community--teachers, insurance agents, merchants, 
     restaurant workers. The higher cost of electric power also 
     puts other industrial jobs at risk and stifles growth. The 
     only business that's growing in upstate New York is the 
     moving business.
       The loss of tax revenue also hurts. For example, the Nine 
     Mile Point nuclear plant pays $52 million a year in local 
     property taxes. Nearby is a independent power plant of 
     equivalent size that burns natural gas, owned by Sithe 
     Energies USA, a subsidiary controlled by Campagnie Generale 
     des Euax 

[[Page E 2177]]
     of France. The huge Sithe plant pays less than $1 million in local 
     property taxes. Incredible as it sounds, we are giving tax 
     breaks to foreign investors so they can overcharge American 
     consumers and hurt our industrial competitiveness.
       A utility's long-term marginal cost to build and operate a 
     gas-fired power plant is currently 2.5 cents per kilowatt 
     hour, yet the PURPA contract price for most New York state 
     projects is 6 cents per kilowatt hour, with contract 
     lifetimes as long as 25 years. The flat 6-cent rate was 
     canceled in 1992, but all existing and planned projects were 
     ``grandfathered'' at this absurdly high price.
       After 17 years of abuse, Congress has taken a few timid 
     steps to close the door on new PURPA projects, but lawmakers 
     and regulators have been extremely reluctant to revisit 
     existing PURPA rates, on the dubious legal theory that a 
     forced sale constitutes a ``contract'' between a utility and 
     a PURPA developer. By this logic, so does a mugging. The only 
     difference is scale. American consumers will pay $37 billion 
     more than the current market price for PURPA electricity over 
     the next five years.
       What can Congress do at this point? A solution needs to 
     focus on the most abusive provisions of PURPA, those that 
     permit large-scale, fossil-fueled PURPA projects, as long as 
     a little bit of industrial steam is produced on the side. 
     Small, renewable energy projects represent only 20 percent of 
     PURPA capacity.
       A solution also needs to focus on consumers--commercial, 
     residential and industrial--not on the investors and 
     financiers who backed PURPA projects, or on the ``sanctity of 
     contracts.'' Investors were well aware of the risks inherent 
     in an artificial market created by government regulation.
       One solution would be to make these projects compete in the 
     wholesale electricity market, as new independent power plants 
     already do. Since the National Energy Policy Act of 1992, the 
     wholesale electricity market has been open to all comers. 
     One-quarter to one-third of the electricity generated in the 
     United States today moves on the competitive wholesale 
     market. Electricity has a market price. This free-market 
     solution would protect non-abusive PURPA projects while 
     offering a fair price to the financially abusive.
       Republican Sen. Don Nickles of Oklahoma has opened the 
     debate with a bill in the Energy and Natural Resources 
     Committee that would end new projects but preserve existing 
     rates. This is too timid. Unless these financial boondoggles 
     are ended, several utilities will be in Chapter 11 before 
     this Congress ends.
       If the House leadership is serious about getting costly and 
     ineffective regulations off the books, PURPA offers an 
     opportunity to bring together business, labor, and consumers 
     in a $37 billion reform.

                          ____________________