Regulating independent power producers

The Public Utility Regulatory Policies Act of 1978 (PURPA) enabled private, unregulated power generators to sell electricity to electric utilities. PURPA required states to adopt somewhat flexible implementation policies with the uniform objective of facilitating sales between private producers and utilities. In contrast to many published anecdotal accounts of PURPA's impact, this research constructs a model of cogeneration investment as a function of state prices and state PURPA regulations. Tests of the model using data from around 1985 indicate that interstate regulatory differences have significant and sometimes counterintuitive impacts on private generation. Electricity and fuel prices significantly affect the amount of private capacity installed, but regulatory effects dominate the decision to invest or not to invest.