Xcel fights against sPower effort to get contracts for 880 MW of solar projects

The Public Service Co. of Colorado unit of Xcel Energy (NYSE: XEL) told the Colorado Public Utilities Commission on Nov. 18 that Sustainable Power Group LLC (sPower) is improperly trying to force it to buy power from eleven solar projects that sPower is developing in Colorado.

Public Service was responding to an Oct. 14 complaint by sPower that the commission’s Electric Resource Plan (ERP) rules are not compliant with the Public Utility Regulatory Policies Act of 1978 (PURPA) and PURPA’s implementing regulations promulgated by the Federal Energy Regulatory Commission (FERC). sPower is recommending that the commission require Public Service to purchase qualifying facility (QF) energy and capacity at Public Service’s avoided cost, as calculated using the differential revenue requirement methodology.

sPower said that PURPA requires a utility, such as Public Service, to purchase energy and capacity provided by qualifying facilities (QFs) at the utility’s avoided cost. By contrast, the Colorado commission’s Rule 3902(c) only requires a utility to purchase energy and capacity from a QF if the QF wins a competitive solicitation, such as will occur in Phase II of this current proceeding. The FERC has recently found – twice – that similar rules in Montana and Connecticut were inconsistent with PURPA’s must-buy requirement, sPower added.

“Like those rules, Rule 3902(c) imposes an unreasonable obstacle to a QF obtaining a legally enforceable obligation with Public Service for the utility to purchase the QF’s energy and capacity,” said the power project developer. “It is crucial that Colorado come into compliance with PURPA before Public Service fulfills its capacity needs through Phase II of this proceeding, after which Public Service’s avoided capacity value will be greatly diminished. To come into compliance, the Commission should waive Rule 3902(c) in the near term and require Public Service to begin purchasing QF energy and capacity at its long-term avoided cost rate. Such a waiver is critical to avoid further prejudice to QFs, whose federal rights under PURPA have not been recognized in Colorado since 2005. In the long term, the Commission should open a rulemaking proceeding to develop a PURPA-compliant rule and QF procurement program in Colorado.”

According to the commission’s rules, Public Service must file an Electric Resource Plan with the commission every four years. The company’s previous ERP was filed in October 2011 and the company issued its most recent all-source solicitation in March 2013. The company’s most recent ERP, which initiated this proceeding, was filed on May 31, 2016. sPower noted: “Given the procedural schedule in this proceeding, the competitive resource acquisition phase of this proceeding, generally referred to as ‘Phase II,’ will not begin until sometime in late 2017 or perhaps in 2018. By the time Public Service issues its next all-source solicitation, at least four years will have elapsed since the previous solicitation. Other than those facilities that qualify for net metering, QFs have not been provided with any opportunities to sell energy or capacity to Public Service at avoided cost between solicitations. Requiring QFs to win a competitive solicitation that only occurs every four years in order to sell energy and capacity to Public Service violates QFs’ rights under PURPA.”

sPower attached to the Oct. 14 complaint a July 18 letter it sent to Public Service that serves as sPower’s notification that it plans to make energy and capacity available to Public Service from QFs that will be developed by sPower. sPower said it intends to make energy and capacity available to Public Service from the following QFs:

  • Twin Peaks Phase 1, 80 MW, July 2022 commercial operation date (COD);
  • Twin Peaks Phase 2, 80 MW, July 2022 COD;
  • Twin Peaks Phase 3, 80 MW, July 2022 COD;
  • Twin Peaks Phase 4, 80 MW, July 2022 COD;
  • Twin Peaks Phase 5, 80 MW, July 2022 COD;
  • Twin Peaks Phase 6, 80 MW, July 2022 COD;
  • Boone Hill Phase 1, 80 MW, July 2019 COD;
  • Boone Hill Phase 2, 80 MW, July 2019 COD;
  • Boone Hill Phase 3, 80 MW, July 2019 COD;
  • Pueblo Solar, 80 MW, July 2019 COD; and
  • Haynes Creek Solar, 80 MW, July 2019 COD.

Each of the projects listed above will use solar photovoltaic panels with single axis tracking capability. Each project will be certified with the Federal Energy Regulatory Commission as a QF. sPower is seeking a contract or other legally enforceable obligation with Public Service for a term of 20 years and to establish the avoided cost rate at which Public Service will purchase energy and capacity from each of the above projects at the time the obligation is incurred. In order to begin construction and interconnect the QF projects listed above by the dates specified, sPower sought to determine the avoided cost rate through negotiations with Public Service within 30 days of the date of this letter.

Public Service says the current all-source solicitation process is the best answer

Public Service said in its Nov. 18 response: “Initially, sPower is wrong in suggesting that PURPA gives QFs some sort of absolute preference over other resources, including non-QF independent power producers (‘IPP’). It is a bedrock principle of PURPA that a utility’s customers should be indifferent to the utility’s purchase of capacity and energy from a QF. This principle is reflected in PURPA’s avoided cost pricing standard, which, generally stated, requires that a utility is to pay a QF no more than the incremental costs the utility would otherwise incur if it did not purchase from that QF.

“In order to determine an appropriate avoided cost rate, a state Commission and a utility must take into account all available alternative resources. This requirement ensures that QFs are not given a preference in making a sale that would displace lower-priced resources to the detriment of a utility’s customers.

“sPower would have the Commission require Public Service develop an administratively determined avoided cost rate. However, the administrative determination of avoided costs under PURPA has proven difficult, which is the primary reason that FERC itself proposed the use of competitive bidding for the establishment of avoided cost rates and the selection of QFs. All-source competitive bidding allows for a utility purchaser to take all relevant facts and circumstances into account in selecting all available optimal resources. To require that Public Service buy sPower’s 880 MW of solar capacity at an administratively determined rate in advance of the ERP Phase II competitive solicitation, thereby replacing other potential resources, would not leave customers – indifferent to QF development in Colorado. Further, this result would prejudice non-QF IPPs given that sPower would likely fill a significant portion of the resource need identified in this ERP proceeding.”

Public Service said that sPower’s arguments largely rely on two recent FERC declaratory orders that found competitive bidding schemes in Montana and Connecticut did not satisfy the requirements of PURPA. But it said there are important differences between those cases and the PURPA implementation in Colorado. Under the Montana and Connecticut programs, QFs were effectively denied the ability to offer to sell power to utilities. Further, competitive bidding for resources had not occurred for over ten years in Montana.

“In contrast, application of the Commission’s ERP Rules in Colorado has resulted in a high level of purchased power and the development of renewable energy resources, even if not QFs, that has been acquired at periodic intervals, including through a 2013 competitive solicitation and, ironically, the planned 2017 competitive solicitation to be held in Phase II of this proceeding that sPower is free to participate in – and that sPower effectively seeks to halt,” Public Service added.

The utility further argued: “The effect of sPower’s requested relief is to upend Public Service’s planned solicitation – a result that is neither legally required nor consistent with good policy. sPower has also overlooked that the FERC has encouraged the use of competitive bidding to establish avoided cost rates. It further suggests that the implementation of competitive bidding for the determination of avoided costs and QF selection in Colorado was some kind of hasty, ill-considered decision by the Commission in 2005. sPower ignores that the rules implementing PURPA and their development have been the subject of numerous Commission proceedings dating back to the 1980s, when QFs were putting more capacity and energy to the Public System at the then administratively determined avoided cost rate than Public Service could readily absorb. This history shows that the Commission carefully implemented PURPA in Colorado, and the upcoming solicitation to be held in conformance with the Commission’s rules, which sPower effectively seeks to prohibit, is the best means of assuring that QFs are considered along with all other potential resources.”

Independent power group wants solicitation to be held, then a look at PURPA issues

The Colorado Independent Energy Association (CIEA) filed its own Nov. 18 comments in this case that agreed with sPower, but only in part.

It wrote: “It is clear to CIEA that PURPA implementation constituting appropriate QF and avoided cost methodology in Colorado has been challenged and should be re-visited in light of evolving FERC declaratory orders. CIEA therefore agrees with the Motion to the extent that it raises concerns whether the Commission’s current Rule 3902(c) fully complies with PURPA under current FERC law. However, the remainder of the relief requested in the Motion is premature, unproven as a matter of law and fact, and not in the public interest.

“Critically, a finding that the Rule may not be in compliance with PURPA does not logically lead to the conclusion, as a matter of law, that the Commission should immediately set aside the ERP process in this proceeding and instead allow QFs to meet any energy and capacity need absent a competitive solicitation, and using an entirely untested new avoided cost methodology. Such a result is likely to harm ratepayers and the majority of Colorado’s independent power producer (‘IPP’) community. Thus, CIEA contends that the Commission should approve in part, stay in part, and deny in part the relief requested by sPower.

“CIEA’s position is that the Commission should approve the Motion’s request to investigate whether to reform Colorado’s QF policies and procedures in a rulemaking to be opened after the conclusion of the Phase II process in this ERP proceeding. The Commission should stay the Motion’s legal argument regarding the deficiency of the Rule pending the outcome of that rulemaking. The Commission should deny the remainder of the relief requested. CIEA’s recommended decisions will allow PSCo to prosecute this pending ERP and conduct the competitive solicitation, which solicitation should be required as in the public interest, while compelling the appropriate investigation into whether sPower’s claims of violation of PURPA are founded, and if so what alternatives or amendments to the Commission’s rules and QF policies may be appropriate.”

CIEA is a non-profit trade association comprised of independent power producers.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.