The Public Utility Regulatory Policies Act (PURPA) is a law, passed in 1978 by the United States Congress as part of the National Energy Act. It is meant to promote greater use of domestic renewable energy. The law forced regulated, natural monopoly electric utilities to buy power from other more efficient producers, if that cost was less than the utility's own "avoided cost" rate to the consumer; the avoided cost rate was the additional costs that the electric utility would incur if it generated the required power itself, or if available, could purchase its demand requirements from another source. At the time generally, where demand was growing, this was considered to be the construction and fossil fuel costs incurred in the operation of another thermal power plant. This free market approach presented investment opportunity and government encouragement for more development of environment-friendly, renewable energy projects and technologies; the law created a market in which non-utility Independent Power Producers developed, and some energy market players failed.
Although a Federal law, PURPA's implementation was left to the individual states, because needs varied; a variety of regulatory regimes developed in states where renewable power resources were needed, available for development, or the generated power could be transmitted. Little was done in many states where such resources were unavailable, where the demand growth was slower or previously accommodated in planning.
The biggest result of PURPA is the prevalence of cogeneration plants, which produce electric power and steam. These plants are encouraged by the law, on the basis that they harness thermal energy (in the form of usable steam) that would be otherwise wasted if electricity alone was produced. PURPA also became the basic legislation that enabled renewable energy providers to gain a toehold in the market, particularly in California, where state authorities were more aggressive in their interpretation of the statute.
PURPA is depreciating, as many of the contracts made under it during the 1980s are expiring. Another reason for PURPA's reduced significance is that electric deregulation and open access to electricity transportation by utilities has created a vast market for the purchase of energy and State regulatory agencies have therefore stopped forcing utilities to give contracts to developers of non-utility power projects. However, it is still an important piece of legislation promoting renewable energy because it exempts the developers of such projects from numerous State and Federal regulatory regimes.
The portion of the act dealing with cogeneration and small power production appears in US code in Title 16 - Conservation, Chapter 12 - Federal Regulation and Development of Power, Subchapter II - Regulation of Electric Utility Companies Engaged in Interstate Commerce, Sec 824a-3 - Cogeneration and Small Power Production.
In February 2005, Senator Jim Jeffords from Vermont introduced an amendment to PURPA calling for a Renewable portfolio standard.
PURPA was amended in 2005 by the Energy Policy Act of 2005 by sections 1251 through 1254. There is pending legislation in the US Senate that would amend PURPA to require FERC to develop standards for interconnection of distributed generation facilities, and that would require “electric utilities” meeting the PURPA size requirement (retail sales of more than 500 million kw hrs) to implement those standards.
See related energy policy contained in 42 USC Chapter 134 - Energy Policy.