All-source bidding: The purchased power market in flux

Title VII of the Energy Policy Act of 1992 (the Act) introduces a new entity to the world of electric generating capacity: electric wholesale generators (EWGs). The EWGs are free of technological restrictions imposed on qualifying cogeneration facilities (QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA). The EWGs also are exempt from territorial restrictions imposed on traditional public utilities. Finally, and perhaps most significantly of all, EWGs face no ownership restrictions. Equipment vendors as well as construction firms may own EWGs without becoming utilities under the Public Utility Holding Company Act (PUHCA). Utilities also may form affiliated EWGs. Although the Act prohibits sales to utilities by affiliated EWGs, it leaves the door open for state regulators to exempt specific contracts. A review of recent developments at the state level concerning the rapidly changing role of purchased power shows that in the field of economic regulation, less regulatory restraint at the federal level may mean more regulation farther down the line. Indeed, the Energy Policy Act requires state utility commissions to investigate the effects the Act might have on local ratepayers. In addition, state regulators already have begun to increase their focus on purchased power and new marketmore » entrants. Concerns about self-dealing among affiliated sellers and purchasers of capacity, as well as unresolved legal issues arising from QF preferences under PURPA, now are a regular part of a state regulator's diet in integrated resource planning and competitive bidding proceedings. Regulators also must look more closely at issues of fairness in transmission access and consider the possibility that traditional rate base/rate-of-return methods for setting rates might require serious overhaul if hybrid utility structures develop - where some that generate investment are regulated and some not.« less