The economic and environmental performance of cogeneration under the Public Utility Regulatory Policies Act

In this dissertation, we formulate and analyze a series of electric utility-cogeneration facility relationships to understand their ramifications on the economic welfare and environment. For our models we focus on a host utility and a qualifying facility under Public Utilities Regulatory Policies Act (PURPA; 1978 and subsequent amendments) and the total surplus as the economic welfare performance criterion and the total nitrogen oxides (NOx) emissions as the environmental performance criterion. We first model the host utility and qualifying facility interaction as a Stackelberg game and derive the equilibrium generation quantities, prices and total surplus without emission considerations. We show analytically that the total surplus when the host utility and qualifying facility interact due to PURPA is lower than when the cogeneration facility is an Independent Power Producer or IPP. The Independent Power Producer configuration is when the cogeneration facility sells electricity directly to retail electricity customers without a PURPA contract at the prevailing electricity price set by the electric utility. Next, we extend the basic model by considering the regulation of emissions of NOx by the electric utility. The regulatory program is modeled after the Clean Air Interstate Rule's (CAIR; 2005 and subsequent amendments) ozone season NOx program. By comparing the total NOx emissions generated in the system in the cogeneration under PURPA or CGP configuration with the IPP configuration we show analytically that the total NOx emissions is lower in the CGP if the heat demand of the thermal host attached to the qualifying facility is high and the PURPA buyback price at which the qualifying facility sells electricity to host utility is low. Through this study we have derived conditions under which PURPA is justified or and clarified the applicability of PURPA.