By George Melloan                  (9/8/88)
     [From The Wall Street Journal, 31 March 1987, p. 37:3]
              [Kindly uploaded by Freeman 10602PANC]

   Pacific Gas  & Electric Co.  is the  nation's largest electric
   utility, which means it deals in  big numbers.  One big number it
   is dealing in these  days is $850 million,  the amount it will be
   adding to its customers'  electric bills in a  few years unless a
   strange federal law known as PURPA is altered or reinterpreted.
   PG&E   Chief   Executive   Richard   A.   Clarke   finds  this
   "outrageous," but he isn't getting  much help in convincing state
   and federal  regulatory agencies  of that.   "Our allies  in this
   should be consumerists,  but they are slow  in coming around," he
   says.  One reason may  be that both PURPA  and the active segment
   of  the  "consumerist"  movement  were  both  products  of  1970s
   "alternative" politics.  But more about that later. PURPA stands
   for  Public Utility Regulatory  Policies Act.  It was one of five
   parts of the National Energy Act of 1978, perhaps the  most
   mischievous  and  misguided piece  of  legislation ever passed  by
   Congress.   All Congress  needed to  do to  end energy shortages in
   1978  was repeal price controls  on crude oil, which is how  the
   problem  was eventually  solved.  A  one-sentence law would have
   done  it.  Instead, Congress  wrote the massive energy act that
   still is  on the books  and still  is exacting enormous hidden
   costs from consumers. PURPA forces  electric utilities to  use
   "alternative" sources of energy  -- windmills,  sewage gas,  solar
   collectors  and what have  you.   Federal  regulators  supply
   guidelines  but  direct administration  was  put in  the  hands of
   state  public utility commissions.  The California of Jerry  Brown
   applied PURPA with a vengeance, the result being that  Californians
   now are stuck with one of the country's most expensive
   interpretations of the act. Dick Clarke of PG&E explains  how it
   works: "PURPA requires us to buy power  produced by so-called
   independent power producers. We've been required to execute
   contracts  to buy power even if we don't need it.  It's a very
   expensive resource; we can't dispatch it and we can't count on it.
   So we have all these contracts for something  like 9,000
   megawatts.  Our  whole  system has  only a 15,000-megawatt
   capacity, so these contracts represent 60% of our energy capacity.
   "Now so far,  only 1,600 megawatts  have been constructed; the rest
   are just pieces of paper.  But even if only 45% of the other 7,000
   megawatts come  on line, it  will be an  additional cost to our
   customers of $850 million a year." Is   all  this   power  coming
   from  those   much  discussed "alternative"  sources?  Mr.  Clarke
   waves toward  San Francisco Bay, the view from  his office window,
   and  says there are indeed windmills across the bay.  "We buy the
   power, because we have to, and  it's  an  expensive  resource."
   But  you  don't  get 9,000 megawatts from  windmills or  any other
   of these nonconventional resources.   The  "independents"
   presenting  PG&E  with  the most troublesome  must-sign   contracts
   are   not  little  operations gleaning free  power from  wind
   generators,  solar collectors and other  alternative sources.
   Rather, they  are other  big firms. For fuel, they use mainly oil
   and gas. Were in not for PURPA and especially the interpretation of
   the law  by   the  California  PUC   [Public  Utilities
   Commission], California consumers  conceivably might  benefit from
   what these "independents" are doing.   There has been  a revolution
   in power generation.   General  Electric  Co.  years  ago  began
   applying jet-engine  technology to  large-scale  gas turbines  to
   generate power.  As that technology has advanced, gas turbines have
   become the  most efficient  means of  generation,  and especially
   so in "combined-cycle" facilities where the  turbine's heat is
   captured to generate  steam.  Mr.  Clarke says  that a  modern gas
   turbine needs about half the BTUs to generate a kilowatt of power
   as some of PG&E's older plants need. But  the  Fuel   Use  Act,
   yet  another   part  of  the  1978 legislation,  says  that oil  or
   gas  may not  be  used  for new power-generating  equipment, which
   effectively precludes  use of gas turbines  by utilities
   themselves.  However,  if electricity generation is a spin-off from
   other  uses of these fuels, such as producing  steam for  an
   industrial  process, up  to 50%  of that electricity  can   be
   sold.    It  also   is  possible   for  an "independent" to get a
   "cogeneration exemption" from the fuel-use act. "What happened,"
   says Mr.  Clarke, "was that the manufacturers of utility equipment
   decided it was a  great business.  The GEs, the Babcock & Wilcoxes,
   in  conjunction with major oil companies, built these gas-fired and
   oil-fired generators and we were forced to sign contracts with
   them.  The prices under  the law were set by state regulatory
   commissions at what  is called avoided cost, which is the price
   that the facility you otherwise would have had to build have  cost
   you.  They  were using projections  of oil at $60 a barrel at that
   time in order to determine what would be the avoided cost." The
   result of  that  inflated cost  basis  has been  that the
   independent suppliers have struck gold in California.  Mr. Clarke
   says their profits, using  highly efficient turbines and charging
   regulator-set  prices, are  double or  triple a  utility's normal
   profits. Even  subsidiaries   of  other  utilities   have  entered
   the California market.  "We've got Houston  here, we've got Utah
   here -- all  have a cogeneration  subsidiary that  works outside
   their service territory." Now, if PG&E  customers are going  to be
   paying  an extra $850 million a year for  the greater good of  GE,
   Chevron, Bechtel and other giants, why  aren't California
   consumerists  banging on the door  of  the  California  Public
   Utilities  Commission  and the Federal Energy Regulatory Commission
   [FERC] demanding a change in the interpretation of PURPA?   FERC is
   currently holding hearings to  consider  just  that.   The reason
   seems  to  be  that those consumerists  spawned by  the
   alternative culture  of  the 1970s would  find it  rather
   embarrassing  to complain  about something they had so much to do
   with creating. Naderites of  that era primarily  focused their
   attack on big business.  Pacific  G&E is a  private corporate
   giant, and hence still is  regarded as  the enemy.   The 1978
   energy act requires that  public  money be  supplied  to
   "qualified"  persons  who go before  public  utility  commissions
   to  testify  against  rate increases for regulated behemoths such
   as PG&E. There  is  an irony  to  be  found in  the  fact  that
   General Electric and other giants, using  a technology developed
   with the aid of  defense contracts,  are making a  very good  thing
   out of legislation    that   originally    was   intended    to
   employ "small-is-beautiful"  principles   and  "limits-to-growth"
   moral philosophy.   American corporations  have proved  to be  far
   more resilient than their critics might have imagined in the 1970s.
   To  the  extent  the  corporate  critics  forced  companies to
   exercise their adaptive powers, it might be said that the critics
   contributed something  to technological  advancement, although in
   most cases  not intentionally.  But  the legislation  left on the
   books is  becoming more and  more expensive.   Absolute repeal of
   the 1978 energy act  would be one  of  the most beneficial things
   Congress  could  do  for  the  American  economy,  but  given the
   interests now  tied up in  that act, repeal  sees unlikely.  Dick
   Clarke of PG&E would settle for some regulatory reinterpretation.
   For an $850 million saving  to California consumers, that doesn't
   seem like much to ask.

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