How to make consumers overpay for electricity by billions of dollars

New research from the Edison Electric Institute by Emma Nicholson and Michael Kagan of Concentric Energy Advisors shows that electricity consumers are getting overcharged by billions of dollars for solar and wind power from PURPA qualifying facilities (QFs) as compared with competitive market rates for solar and wind power. This study uses proprietary data from utilities to compare solar to solar and wind to wind.

Utilities are required by PURPA (the Public Utility Regulatory Policies Act of 1978) to buy any and all power generated by qualifying solar and wind facilities in their areas, without any regard to whether the utility has need of the power at the moment. This law makes electricity utilities buy overpriced electricity they don’t need, and those costs are passed directly to the consumer.

These graphs from the report show how the “avoided-cost” rates awarded the PURPA QFs generally far outstrip the competitive market rates won by other facilities providing energy from the same source (solar or wind):


Source: Emma Nicholson and Michael Kagan, “An Empirical Analysis of Avoided Cost Rates for Solar and Wind QFs Under PURPA,” Edison Electric Institute, November 2019

They conclude: “Accounting for the full term of the solar and wind QF contracts raises the total overpayment estimate to between $2.7 billion and $3.9 billion, respectively.”

But look again: you can also see a decline in costs to provide solar and wind power over time. This should be good news for consumers, but there’s a catch. Look back at those higher QF rates and realize another thing: where those contract rates are fixed, and the contracts last for several years, consumers will continue to be forced to pay those super high rates even as the actual cost of generating the electricity has been falling.

North Carolinians are really stuck because we have:

  • the highest rates in the Southeast for QFs
  • the longest contracts in the Southeast for QFs (it’s now 10 years, but it was 15)
  • yes, they’re fixed rates
  • 60 percent of the nation’s QFs (the first three bullet points go a long way toward explaining this one; the North Carolina Utilities Commission might as well be flying a banner saying “PLEASE GAME OUR SYSTEM”)

Let’s not forget that Gov. Cooper “improperly used the influence and authority of his Office” to pressure Duke Energy into contracting with 240 solar companies under the older, higher-rate, 15-year contracts. Those companies otherwise would have been subject to competitive bidding. Instead, we’ll be overpaying them more and more through the year 2033.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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