150820_PURPAfinal_files.pdf

Case No. IPC-E-15-01, AVU-E-15-01, PAC-E-15-03,
Contact: Gene Fadness [phone], 890-2712

Idaho commission reduces contract length
for some PURPA projects to two years

BOISE (August 19, 2015) – The Idaho Public Utilities Commission is granting a request by the
state’s three major electric utilities to reduce the length of negotiated PURPA* contracts to two
years.

The commission found the previous 20-year contract length resulted in utilities and,
consequently, customers paying unreasonable costs for renewable generation.

Federal PURPA law requires utilities to buy from qualifying renewable facilities (QFs) at an
“avoided cost rate,” set by the commission. The avoided cost rate is to be equal to what the
utility avoids by not having to generate the power itself or buy it from another source. Thus,
customers are to be held harmless by the PURPA requirement that utilities purchase from QFs.
However, the commission determined that long-term contracts unreasonably overestimate
future avoided cost, resulting in higher costs to utilities and their ratepayers, contrary to
PURPA’s avoided-cost principle. One hundred percent of PURPA power supply costs are passed
on to ratepayers.

Last February, Idaho Power Company asked the commission to reduce QF contract lengths in
response to a flood of solar project applications that it said would force it to buy energy it did
not need, drive up rates and threaten the utility’s ability to reliably deliver energy. At the time,
the commission had already approved 13 Idaho Power agreements with QF developers for 400
megawatts of solar energy. (The contracts for four of those projects, totaling 141 MW were
later terminated.) Idaho Power claims it has 1,326 MW of QF solar capacity actively seeking
energy sales agreements. Idaho Power now has 1,297 MW of renewable energy (not counting
hydro) on its system or under contract. That’s 40% of its 2014 peak load of 3,184 MW and
120% of its total minimum load of 1,073 MW.

In response, the commission temporarily reduced contract lengths for negotiated PURPA
contracts to five years while it investigated Idaho Power’s petition. Later, PacifiCorp, operating
as Rocky Mountain Power in eastern Idaho, joined the case, claiming to have projects seeking
contracts totaling 275.5 MW in its Idaho territory. PacifiCorp has 189.6 MW of existing Idaho
PURPA contracts – for a total of 465 MW of existing and proposed PURPA generation, enough
power to supply 108 percent of PacifiCorp’s average Idaho retail load.
Idaho Power argued that allowing developers to obtain fixed prices over the long term causes
electric rates to increase. Idaho Power’s average cost for PURPA generation since 2001 has
always exceeded the regional market price. The average cost for PURPA purchases, according to
Idaho Power, is $62.49 per megawatt-hour compared to coal ($22.79), gas ($33.57) and non-
PURPA, off-system purchases ($50.64). PacifiCorp claims that over the next decade the energy
it will buy from its 141 PURPA contracts in its six-state territory will cost customers an average
price of $66.32 per MWh, significantly higher than the regional market price of $38.11 per
MWh.
Renewable developers claim the reduction in contract length will end solar and wind
development in Idaho. They argued that during 1996-2001 when contract length was five years,
Idaho Power executed only one PURPA contract. The commission said it was not persuaded
that setting negotiated contracts to two will years will result in a substantial decline of
renewable resources. “The utilities all have ample amounts of PURPA on their systems and
additional renewable generation is in the queue,” it said, adding that 20-year published rate*
contracts are still in place.

The commission said shorter contract lengths will benefit consumers because the rate paid
developers “becomes a truer reflection of the actual costs avoided by the utility and allows QFs
and ratepayers to benefit from normal fluctuations in the market.” Utilities will still be required
to purchase from qualifying renewable developers, but with a shorter contract length that
“merely functions as a reset for calculation of the QFs avoided costs in order to maintain a
more accurate reflection of the actual costs avoided by the utility over the long term.”

Once a two-year contract is approved, the commission noted, the new QF then becomes part of
the utility’s resource stack and the contract is eligible for continuous renewal for as long as the
developer chooses to continue selling power to the utility. Rocky Mountain Power, for example,
states that limiting contract length does not mean the project will have only a two-year life.
“Rocky Mountain Power will be required to purchase the power produced as long as PURPA
requirements exist,” Rocky Mountain stated in its testimony. Limiting contract length “simply
means that the price Rocky Mountain Power and its customers will be required to pay to the QF
will be subject to adjustment ... and be more closely aligned with Rocky Mountain Power’s
current avoided cost.”

Further, the commission noted, PURPA is not the only means through which a utility can
acquire renewable resources. Utilities have developed non-PURPA renewable resources such
as Avista’s agreement with Palouse Wind and Idaho Power’s agreement with Elkhorn Wind.

Renewable developers claimed the utilities are overreacting to the flood of applications,
asserting that many of the projects seeking contracts will not be developed because, in Idaho
Power’s case, as more projects are added to its queue, the avoided cost rate to be paid QFs
declines. The utilities argued they must take each request for a contract seriously and that any
added generation impacts the utility’s power supply cost.

The change in the mandatory minimum contract length is “not intended to be punitive to QFs,”
the commission said. For several years, the commission has been adjusting terms and
conditions of PURPA contracts “in order to establish avoided cost rates that are just and
reasonable to electric consumers, in the public interest and not discriminatory against QFs.”

Those opposing the change in contract length also argued that QFs should be treated similarly
to utilities, which are able to build large generation sources with recovery for investment
spread over as long as 30 to 50 years. However, the commission said, QFs differ from utility
sources in several significant ways. For example, utilities cannot be compensated for energy
produced from a generating facility without first establishing the need for that generation
through the PUC’s Certificate of Need process. That’s different than PURPA, which requires
utilities to buy QF power whether the power is needed or not. Second, a utility-authorized
resource is typically subject to competitive bidding, cost scrutiny and oftentimes is able to fit
into the utility’s need for dispatch better than a mandatory QF. Third, the fuel component for
utility plants is adjusted annually, but is fixed for the duration of fuel-based, long-term QF
contracts. PURPA contracts are special, the commission said, because federal law compels
utilities to buy power without arms-length bargaining and without regard to whether the utility
needs the power.

The commission said it has a long history of encouraging PURPA projects and renewable energy
development in Idaho. PURPA generation increased modestly in the first 25 years (1982-2007)
to 200 MW. Since 2007, Idaho Power, in particular, has experienced a six-fold increase in
PURPA generation to 1,161 MW. Its power supply expense, it claims, will have increased by
575% from 2004 to 2024.

During the course of this case, the commission conducted two public hearings, a technical
hearing and received more than 200 written comments from customers.

Those commenting in favor of shortened contracts included a number of companies that are
large consumers of power. Those companies cited an interest in keeping power costs low and
fair and ensuring reliable service. Several of the companies said utilities should not be required
to buy electricity they do not need. A number of Idaho school districts and community colleges
also supported the petitions, noting the importance of maintaining low operational costs and
supporting a balanced approach to encouraging wind and solar power.
Those opposing the utilities’ petition included the City of Ketchum, the League of Women
Voters and environmental organizations. They cited the need to promote renewable energy
and claimed shorter contracts would eliminate solar development in Idaho. The Renewable
Northwest Coalition, among other parties, supported keeping 20-year contracts but adjusting
the energy rate component of the contracts annually after 10 years. Commission staff argued
in favor of reducing contract lengths to five years.
Parties to the case in addition to the three utilities and commission staff included the Idaho
Conservation League/Sierra Club, Intermountain Energy Partners, Micron, JR Simplot Co., Snake
River Alliance, Ag Power DCD/Ag Power Jerome, Amalgamated Sugar Co., Twin Falls Canal
Company/Northside Canal Company/American Falls Reservoir District, Clearwater Paper Corp.,
Idaho Irrigation Pumpers Association and the Renewable Energy Coalition.

The commission’s order and other documents related to this case are available on the
commission’s Website at www.puc.idaho.gov Interested parties may petition the commission
for reconsideration by no later than September 10, 2015. Petitions for reconsideration must
set forth specifically why the petitioner contends that the order is unreasonable, unlawful or
erroneous. Petitions should include a statement of the nature and quantity of evidence the
petitioner will offer if reconsideration is granted. Petitions can be delivered to the commission
at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to
208-334-3762.

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*PURPA, the federal Public Utility Regulatory Policies Act, was enacted by Congress in 1978 to encourage
renewable development. It requires regulated utilities to buy energy from qualifying renewable generation
projects at rates established by state commissions. FERC leaves it to states to develop the terms and conditions for
PURPA contracts. Idaho has two different types of PURPA contracts, a published rate contract or a negotiated
contract that is based on a utility’s most recent Integrated Resource Plan (IRP). Wind and solar projects smaller
than 100 kilowatts and non-intermittent (hydro, geothermal, cogeneration) projects smaller than 10 average
megawatts qualify for the commission’s “posted” or “published” avoided-cost rate and do not require a
negotiation process. Wind and solar projects larger than 100 kW must negotiate for a contract using the utility’s
IRP as a basis.