188.8.131.52 Purchase of Electricity. For parallel operation with a cogenerator, electric
utilities under certain terms and conditions, may purchase excess electricity generated
by the cogenerator.
As covered under section 201 of the Public Utility Regulatory Policy
Act of 1978 (PURPA), cogeneration facilities that are not owned by an electric utility
and that meet certain standards are eligible for special incentive rates to be paid to
them by the utility as required under Section 210 of PURPA. These incentive rates that
the utility is obligated to pay to qualifying facilities are not required directly by
PURPA but are required by rules promulgated by the Federal Energy Regulatory Commission
These rules by FERC provide that electric utilities must purchase
electric energy and capacity made available to the electric utilities by qualifying
cogenerators at a rate that reflects the costs that the purchasing utility can avoid as
a result of obtaining energy and capacity from these sources, rather than generating the
energy itself or purchasing the energy or capacity from other suppliers.
The term "avoided costs" has been defined by FERC as the costs to an
electric utility of energy, capacity, or both, that but for the purchase from a
qualifying facility, the electric utility would generate or construct itself or purchase
from another source. "Avoided costs" include the fixed and running costs on a utility
system that can be avoided by obtaining energy or capacity from a qualifying facility.
An electric utility's "avoided costs" are primarily fuel cost for
production of energy and capital cost of facilities for generation capacity. The amount
a utility will pay a cogenerator for purchased electricity produced by the cogenerator
is equal to or is a percentage of the utility's "avoided cost" as decided by agreement
contract between the utility and cogenerator, or as set out in a rate schedule published
by the utility.