Congress is being urged to resurrect an issue it thought it settled four years ago, when it decided that new, diverse and smaller power producers should be able to market energy alongside the giant power-generating regulated monopolies.

The Federal Energy Act of 1978 opened the door for the alternative energy producers. Now, several recent court decisions threaten to close it.

The 1978 legislation included the Public Utility Regulatory Policies Act (PURPA), which mandated that electric utility companies buy energy produced from two outside sources at reasonable prices and allow that electricity to be dispersed through the utility's power transmission system.

One source was small, independent power producers -- companies that generate electricity on wind farms or at small hydroelectric or solar plants or from other sources. The other was companies such as paper and textile mills and breweries -- "cogenerators" that generate electricity with energy produced as a byproduct of the industrial process.

"The notion was that to decentralize electrical generation was a good thing," said an aide to Sen. Gordon Humphrey (R-N.H.). Humphrey, on the Senate side, and Rep. Richard Ottinger (D-N.Y.) on the House side, have introduced legislation to clarify Congress' intent in writing the 1978 law.

"Congress wanted to remove the present barriers for new blood to get into the business of electrical generation, and that's what it did," according to Humphrey's aide.

The 1978 act and regulations adopted by the Federal Energy Regulatory Commission as a consequence, required utility companies to pay independent producers "full avoided costs" for such electricity. That means utilities would have to pay outside suppliers a price equivalent to the costs of generating additional power from within the utilities' own systems, generally pegged to production costs at the utilities' most expensive plants.

Regulations also required utility companies to connect small power plants to the utility power delivery grids. Without that provision, small power producers would have no practical way of delivering electricity.

But those regulations and the law itself were pounded by legal challenges.

In January, a federal appeals court threw all these changes into limbo, setting aside the FERC rulings and leaving the rights of small power producers and cogenerators so unclear that financial institutions became wary of backing such energy-producing projects.

In another case, parts of the law itself had been challenged by the state of Mississippi and the state's public service commission as unconstitutional, but in June the Supreme Court rejected that contention.

Before the legal confusion arose, FERC had granted applications for enough independent producers and cogenerators to match the output of five typical nuclear power plants. After the court intervened, however, things slowed down considerably. "It's been disastrous," said Richard Munson of the Solar Lobby. "Everybody I've talked to around the country has just had their contracts put on hold. They're just waiting for Congress to resolve the issue."

Humphrey and Ottinger hope to bring up their bills in the next few weeks, but legislative time is running short and the measures face opposition from investor-owned utility companies that want no bill this year. "We're not happy with developments over there," said Fred Webber, executive vice president of the Edison Electric Institute, which lobbies on behalf of investor-owned electric utility companies.

"We've kind of dug in our heels on this one," said Webber. "We will support cogeneration, but we don't want our customers or companies subsidizing cogeneration." That would raise utilities' costs, adding to consumers' utility bills, according to opponents of the legislation.

Both bills would reinstitute the requirements for utilities to allow alternate producers to hook up to the utility grid and would set rates for the electricity at "full avoided costs," although some exceptions could be allowed.

Supporting the bill is a coalition that includes the American Paper Institute and the American Gas Association, as well as various small power producers and cogenerators.