The Utah Public Service Commission on Jan. 7 only partially approved a May 2015 application from PacifiCorp d/b/a Rocky Mountain Power requesting approval to modify the maximum contract term for prospective power purchase agreements (PPAs) with qualifying facilities (QFs) as that term is used in the Public Utility Regulatory Policies Act of 1978 (PURPA).
The application asked the commission to reduce the maximum term of a QF’s PPA from 20 years to three years. PacifiCorp argued that continuing to require it to enter 20-year, fixed-price contracts with QFs unnecessarily subjects ratepayers to significant market risk. It said it had seen a big spike in the past couple of years of QF projects, especially solar projects. The commission, though, only approved a cut in contract length to 15 years.
PacifiCorp’s witness, Paul Clements, testified that PacifiCorp had 1,041 MW of existing PURPA contracts in Utah and 2,253 MW of proposed QF contracts in Utah, totaling 3,294 MW of existing and potential Utah QF contracts. Clements said PacifiCorp’s average Utah retail load in 2014 was 2,959 MW.
Clements further testified that, system-wide, PacifiCorp was obligated to make $2.9 billion in payments under QF PPAs and that Utah customers are projected to pay $73.3 million under QF PPAs in 2015. Clements emphasized that payments under QF PPAs are “a major factor in customers’ rates.”
Clements further testified that, over the next 10 years, PacifiCorp is under contract to purchase 44.6 million megawatt hours (MWhs) from QFs at an average price of $64.13 per MWh and that the average forward price curve for the Mid-Columbia wholesale power market trading hub over the same ten years is $26.02 per MWh lower, at $38.11. The difference amounts to nearly $1.2 billion over the ten-year period.
PacifiCorp acknowledged the market could move in the opposite direction, resulting in fixed QF PPA prices that are ultimately below market, but contended this observation is irrelevant because, in either event, customers are being forced to bear fixed-price risk to which they would not otherwise be exposed.
PacifiCorp also argued that 20-year QF PPA terms are inconsistent with its resource acquisition policies and practices and are not aligned with its Integrated Resource Plan (IRP) and planning cycle.
No party in this case disputed PacifiCorp’s representations concerning the volume of power it must purchase under existing QF PPAs, the volume of QF PPAs that have been proposed to PacifiCorp that remain unexecuted and the relative size of these existing and potential obligations in relation to PacifiCorp’s total load.
Nevertheless, intervenors from the QF industry, including SunEdison, and the state Office of Consumer Services ask the commission to deny the application based on their assertion that a reduction in contract duration will make financing unavailable and thereby preclude new QF development and defeat the policies underlying PURPA.
Commission says QF profitability is not its concern
The commission said it reads the applicable regulations to require ratepayers to subsidize QF projects to make them profitable for investors. “However, even if it were incumbent on the Commission to establish contract terms that ensured the ability of QF developers to obtain financing, the record does not demonstrate QF developers will be unable to obtain financing on projects with shortened contract terms,” it added.
While PacifiCorp’s books are open to it, the commission pointed out that it has no information pertaining to the finances of QFs. “We are not suggesting we are entitled to such information, but the argument that financing will not be available is not compelling absent supporting evidence,” it wrote. “No party presented information in this docket attempting to quantify the impact a change in contract term would have on financing terms and, by extension, on the viability of future QF projects.”
The commission granted PacifiCorp’s application in part and denied in part. It said PacifiCorp shall enter into purchase agreements with qualifying facilities for a duration not to exceed 15 years. This order does not alter the terms of existing QF PPAs, but existing QF PPAs will be subject to the 15-year limit after their current term expires. “As a general matter, this Order applies to any QF that has not executed a PPA with PacifiCorp as of the date of this Order,” the commission added. “In the event a PPA has not been executed as of the date of this Order but a party nevertheless believes it possesses a legally enforceable obligation as of the date of this Order that entitles the party to a 20-year contract term, the party may submit the circumstances for Commission review. Such review will be fact-specific and conducted on a case-by-case basis.”
While no party specifically advocated for a 15-year contract term, evidence in the record supports this finding, the commission said. An industry witness said that his employer, sPower, has successfully financed projects with 15-year contract terms, though he qualified his testimony by adding these projects were developed in states with “other incentives” or high avoided cost prices. Similarly, Bryan Harris, testifying for SunEdison, acknowledged that there are markets in the United States where contract terms are limited to 15 years. Harris qualified his testimony by adding those markets were more “liquid” than Utah and that developers can “readily sell the power from those projects.”
The commission wrote: “However, we note developers in Utah can reasonably anticipate the opportunity to continue to sell power to PacifiCorp or to some other purchaser — albeit at updated avoided cost or market prices — after the initial contract term expires. Although evidence in the record supports our decision, it should be understood that our determination ultimately constitutes an exercise of our discretion. We have endeavored to balance our competing obligations to advance the policies underlying Chapter 12 and PURPA while protecting ratepayers from unreasonable costs. We believe a 15-year term strikes the appropriate balance at this time by mitigating a fair portion of the fixed-price risk ratepayers would otherwise bear while allowing QF developers and their financiers a reasonable opportunity to adjust to this more modest change in business practice.”
Sierra Club counts this one as a win
The Sierra Club, a party to this case, in a Jan. 7 statement celebrated the commission decision as a victory. It said the utility’s plan would have effectively stopped independent renewable energy development in Utah’s burgeoning clean energy industry. “While the PSC did not reject PacifiCorp’s request outright, it did preserve 15-year clean energy contracts that will go far in protecting the state’s clean energy industry compared to PacifiCorp’s request,” the club added.
Sierra Club joined other clean energy supporters, including Utah Clean Energy, the Renewable Energy Coalition, and the Rocky Mountain Coalition for Renewable Energy to oppose Rocky Mountain Power’s plan.
Amy Hojnowski, Senior Campaign Representative for the Sierra Club’s Beyond Coal campaign, said: “Utah families want and deserve more local clean energy like wind and solar to power our homes and communities. Yet instead of supporting more investment into clean energy that creates jobs here in Utah, Rocky Mountain Power instead wants to protect its monopoly and pull the rug out from under this growing industry. Rocky Mountain Power’s plans would have stopped in its tracks the expansion of clean energy jobs and businesses that benefit our communities here at home.”
The club noted that PacifiCorp has sought similar changes before state bodies in Idaho, Oregon and Wyoming.