Public Utility Regulatory Policies Act (PURPA) of 1978

PURPA created a market for power from non-utility power producers. Before PURPA, only utilities could own and operate electric generating plants. PURPA requires utilities to buy power from independent companies that can produce power for less than what it would cost for the utility to generate the additional power, called the "avoided cost." Because the avoided (marginal) cost is higher than the utilities average cost of electricity generation, projects using renewable energy or high-efficiency fossil fuel power may be cost competitive. The EPACT 2005 and EISA 2007 both added standards that utilities "must consider" whether or not to adopt verbatim regarding: efficient generation of power; net and time-based metering; rate design promoting energy efficiency investments; and smart grid promotion.
PURPA established a new class of generating facilities called Qualified Facilities (QFs) which would receive special rate and regulatory treatment. QFs have the right to sell energy and capacity to a utility. QFs may include congeneration facilities and small (

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