Matthew Kandrach – President, CASE
July 6, 2020
American health officials are beginning to warn of a second wave of COVID-19, and it’s expected to come at a time when many of the consumer protections that the state and federal governments have implemented – like unemployment and bill relief – are nearing expiration. This news has understandably left many U.S. families wondering how they will manage to afford their day-to-day household expenses in the weeks and months ahead.
Among the biggest worries for low-income families is paying for their utility bills. Energy costs already consume more than 25-percent of the country’s poorest families’ after-tax incomes. The financial pressure typically caused by monthly energy bills will only worsen as many households continue to use more water and electricity than usual in this new stay-at-home economy.
Thankfully, additional relief is on the way. As some states continue to pass more temporary energy relief measures, Chairman Neil Chatterjee and the Federal Energy Regulatory Commission (FERC) are working through this pandemic on a more permanent fix for American families.
One of FERC’s top current priorities is reforming an outdated law from 1978 called the Public Utility Regulatory Policies Act (PURPA). Rep. Mike Walberg (R-Michigan) and other Members of Congress have long recognized that PURPA reform will “go a long ways toward bringing down utility bills.” They released a bill last year to provide the law with a sweeping 21st-century update, and now FERC is preparing to adopt critical components of their reform plan in short order.
PURPA requires all utility companies to buy energy from renewable generators under long-term purchase agreements, which sometimes last as long as 20 years. Were these restrictive purchase agreements effective at the time? Research suggests that in the aftermath of the national oil crisis of the 1970s, this federal policy may have helped in kindling energy competition that kept costs low and ensured a steady domestic oil supply. Nevertheless, Congressman Walberg is right in that “energy markets have changed significantly over the last 40 years, and many challenges of that era no longer exist.”
Nearly 20-percent of electricity generation in the U.S. now comes from renewable sources, and the U.S. Energy Information Administration even forecasts that renewables will become the most common source of electricity in the U.S. by 2050. But despite these new industry dynamics and the rapid speed of renewable innovation in the 21st century, PURPA’s mandates still exist in full force as if we are still in the 1970s.
Rather than preventing energy shortages, PURPA’s long-term renewable energy contract obligations are now making utilities overpay for energy and forcing them to purchase power they don’t need. A study from Concentric Energy Advisors found that its outdated mandates raised the cost of energy by at least $2.7 billion from 2013 to 2019. Large portions of these overpayments have been passed into consumers’ utility bills, meaning added household costs on you and me.
While the pandemic’s stay at home orders may have spiked Americans’ energy usage at home, it’s PURPA’s outdated mandates that raise the cost of energy by as much as $216 million per year. FERC Chairman Chatterjee’s PURPA reform efforts will allow ratepayers to finally receive fair-priced power no matter how much utility usage they require. The agency’s hard work will ensure that this primary input for nearly every good and service remains at cost during this pandemic and the years that follow it, and it will help incite economic growth at this time of great need when we can all use it most.
