Proposed Bill Would Require State Public Utility Regulatory Authorities to Consider the Cost of Distributed Generation

The RFA proposes to amend Title I of PURPA, which sets forth certain ratemaking standards that state regulatory authorities (and nonregulated retail electric utilities) must consider when setting their rates, procedures that they must follow when considering these standards and classes of intervenors that may participate in proceedings to consider these standards (including ratepayers and the Department of Energy). These standards are designed to further three purposes: (i) the conservation of energy supplied by electric utilities, (ii) the optimization of the efficiency of use of facilities and resources by electric utilities, and (III) equitable rates to electric consumers.¹ Title I is procedural—it does not require that the ratemaking authority adopt any of these standards in its ratemaking policies.² The ratemaking standards that state regulatory authorities must consider under Title I include many widely adopted features of retail ratemaking, such as cost-of-service, seasonal rates, interruptible rates, integrated resource planning, demand-side management, energy efficiency, net metering, fuel diversity and smart grids. 

The RFA would add to this list of standards—many of which support customer-owned distributed generation—an explicit consideration of the costs of integrating such resources into the grid and whether those costs (i) are unfairly subsidized by non-beneficiaries; (ii) negatively affect resource utilization, fuel diversity, and grid security and reliability; (iii) provide any unfair competitive advantage to market the customer-owned distributed generation; and (iv) are necessary to fulfill an obligation to serve customers. If the RFA is passed, state regulatory authorities would have one year to commence consideration of the new standard and two years to complete such consideration.

The RFA reflects pushback against the growth of distributed generation, particularly from states with vertically integrated utilities. However, even if passed, its practical impact may be limited. The considerations discussed in the RFA are often already subject to discussion at the state level, particularly in the context of net metering. The RFA was referred to the Senate Committee on Energy and Natural Resources.

¹ 16 U.S.C. § 2611.

² Id. § 2627.