PacifiCorp d/b/a Rocky Mountain Power applied Feb. 4 to the Utah Public Service Commission for a determination of the price and the term of a Power Purchase Agreement (PPA) with Thayn Hydro LLC that has otherwise been finalized and is awaiting execution.
The commission on Jan. 7 of this year issued an order reducing the contract term for all qualifying facility (QF) PPAs, including small QFs, from 20 years to not to exceed fifteen years. The commission said the order generally applied to a QF that had not executed a PPA with PacifiCorp as of Jan. 7. The commission further found that if a PPA had not been executed as of the date the order was issued, but the counterparty nevertheless believed that it possessed a legally enforceable obligation as of the date of Jan. 7 that entitled it to a 20-year contract term, the party could submit the circumstances for commission review.
The Thayn Hydro PPA has been finalized, with the exception of the term and the pricing. With respect to the pricing, Thayn Hydro claims that it is entitled to the pricing in effect prior to the commission’s order approving new Schedule 37 pricing, issued and effective Sept. 18, 2015 (the “SCH 37 Order”). However, because the Thayn Hydro PPA had not been executed by Sept. 18, 2015, Schedule 37 requires Rocky Mountain Power to price the PPA based on the pricing in Schedule 37 that became effective Sept. 18, 2015, instead of the Schedule 37 pricing in effect immediately preceding the Sept. 18, 2015 change, which results in lower payments to Thayn Hydro.
Thayn Hydro had previously entered into a 20-year PPA that was set to expire Dec. 31, 2015. Thayn Hydro initiated its pricing request to execute a new PPA to replace the expiring PPA two months prior to the date the commission issued its SCH 37 Order. Shortly thereafter, on July 21, 2015, Thayn Hydro requested that PacifiCorp review the insurance requirements in the draft PPA to determine if they could be lowered. Prior to the issuance of the SCH 37 Order, the parties had agreed to all terms of the new PPA with the exception of insurance requirements, and the parties were working to resolve the insurance issue when the commission issued its SCH 37 Order. Thayn Hydro signed its first 20-year PPA in 1993 for the sale of energy to the company starting in 1996. The Company’s standard minimum insurance requirements have increased since that time, and the new amounts resulted in additional negotiations between the parties.
The parties eventually resolved the insurance issue on Oct. 1, 2015. The parties agree that a resolution to the insurance issue could have been reached prior to the issuance of the SCH 37 Order had the parties been aware of the date on which the SCH 37 Order was to be issued. Thayn Hydro asserts that it is entitled to the pricing that was in place prior to the date the SCH 37 Order was issued because the PPA was materially complete and negotiated with the exception of the insurance issue and Thayn Hydro sent an email to the company on July 22, 2015, committing to sell its output at the Schedule 37 rates in effect at that time. However, PacifiCorp notes that both the draft PPA that was delivered to Thayn Hydro as well as the language in Schedule 37 clearly state that PPAs and the pricing contained therein are not final until they are executed.
The Feb. 4 application said: “Typically, the Company would not seek approval for small QF PPAs executed under Schedule 37, such as this one. However, the facts of this case warrant the Commission to determine the pricing, particularly since the Commission requested that parties bring these types of issues before the Commission with respect to the contract term and the timing of its PPA Term Order. Thayn Hydro believes the facts support a finding that pricing of the TH PPA should be calculated based on the Schedule 37 pricing in place immediately prior to the date of the SCH 37 Order because all material terms with the exception of the insurance provisions had been negotiated prior ot the change, and the parties would have worked to resolve the insurance provision prior to the SCH 37 Order had they known the date the order was to be issued.
“The Company’s position regarding the pricing is that it must follow the requirements of Schedule 37 unless otherwise ordered by the Commission. Schedule 37 states: ‘The prices applicable to a Utah Qualifying Facility shall be those in effect at the time a written contract is executed by the parties.’ Based on this plain language in the tariff, the Company is obligated to execute a contract with only the then-current Schedule 37 rates unless the Commission determines a different avoided cost price is justified under the circumstances. This notwithstanding, because the parties agreed to a final version of the TH PPA just two weeks after the date of the SCH 37 Order, and because the parties had agreed to all of the material terms with the exception of the insurance provisions prior to the date of the SCH 37 Order, the Company would support a finding that it is just and reasonable for Thayn Hydro to receive the Schedule 37 pricing that was in effect immediately prior to the date of the SCH 37 Order.
“The Company’s position regarding the contract term is that by the time the Commission issued its PPA Term Order earlier this year, the TH PPA was all but complete except for the ongoing dispute of the pricing issue. Therefore, it is just and reasonable for Thayn Hydro to obtain a 20 year contract term.
“The Agreement provides for the sale to the Company of energy to be generated by Thayn Hydro up to 575 KW, from a hydro-electric facility and located in Green River, Utah.”