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Oregon PUC Denies Pacific Power Request to Reduce PPAs to Three Years

April 5, 2016 By Cheryl Kaften

The Public Utility Commission of Oregon (PUC) voted on March 29 (Order No. 16-130) to approve Pacific Power’s request to reduce the eligibility cap for solar generation at qualifying facilities to 3 megawatts (MW) from 10 MW. However, the commission denied the utility’s application to reduce the negotiated contract term under the Public Utility Regulatory Policies Act of such power purchase agreements (PPAs) to three years from 15 years for all projects above 100 kilowatts (kW).

A division of PacifiCorp, Pacific Power provides electric service to about 562,000 customers in Oregon. The utility said its requests were prompted by a substantial increase in executed and proposed qualifying facility (QF) PPAs – and the divergence between average QF PPA prices and market prices (over the span of a long-term contract).

Originally, the utility had filed last May to modify the eligibility cap from 10 MW to just 100 kW.  However, PUC staff believed that “the benefit obtained by lowering the eligibility cap to 100 kW for PacifiCorp, rather than somewhere between 2 [MW] and 4 MW is not so great as to warrant the additional decrement.”

Nameplate capacity

Although federal rules implementing PURPA require utilities to offer standard contracts to QFs with a nameplate capacity of 100 kW and less, state commissions may establish a higher eligibility cap. Over the years, the Oregon PUC has increased the nameplate capacity of QFs eligible for standard contracts – first to 1 MW m 1991, and then to 10 MW in 2005.

However, Pacific Power pointed out, the PUC had granted “interim relief” in Order No. 15-199 to Idaho Power and that “a failure to provide a similar 3 MW cap on solar QF project eligibility [in this filing] might well encourage developers to engage in geographic arbitrage.”

Therefore, the PUC said, “Based on our review, we conclude that the threshold for standard contracts should be reduced on a more permanent basis. In 2015, a large developer executed standard contracts with PacifiCorp for seven 10 MW solar facilities and one 8 MW solar facility over a one-week period and another developer executed five standard contracts for 36.5 MW of solar on one day. Although the vast majority of the projects were for 5 MW and above, and most were 10 MW, there were three that were 3 MW or less. This indicates that QF projects located in PacifiCorp’s service area as small as 3 MW can be viable.”

Contract term

Staff also recommended that QFs be allowed to unilaterally select a contract term of up to 20 years, with 15 years of fixed prices. PUC staff does not believe that a 20-year contract term is legally required, but interprets the decision as seeking a balance between the QFs’ needs of obtaining financing and limiting the potential for actual avoided costs to diverge from forecasted avoided costs.

“In practical terms,” the PUC stated in its order, “staff believes that, while a term of three years may limit the risk that the utilities’ actual avoided costs will vary from the contracted avoided cost prices, the shorter term would almost certainly inhibit rather than incent QF development.

Among the interveners to the case, the Sierra Club had strongly supported the staff viewpoint, stating, “The Sierra Club does not take a position on PacifiCorp’s proposal to lower the standard contract eligibility cap, but believes that shortening QF contract terms to three years will effectively eliminate renewable QF development in Oregon. The Sierra Club notes that, when the Idaho Public Utilities Commission reduced contract terms during 1996-2001, there was a dramatic decrease in both installed capacity and contracts in Idaho.”

Indeed, the Sierra Club told the Portland Business Journal, “”Unfortunately, in an attempt to protect their own profits, utilities like PacifiCorp have sought to undermine these projects by pushing states to shorten the required contract terms, which in turn makes financing for the projects more difficult, if not impossible.”

In the end, the PUC concluded that “[Oregon law] (ORS 758.525) does not mandate a particular term for QF contracts, and that our use of 20-year contracts, with prices fixed at avoided costs for 15 years followed by indexed pricing for the remaining five years, continues to have merit.”

At press time, the utility had not said whether it would appeal the decision. A request for re-hearing or reconsideration must be filed with the commission within 60 days of the date of service of this order.

However, in an interview with the Portland Business Journal, Ry Schwark, a Pacific Power spokesperson, commented, “We like renewables. We do not like our customers being overcharged for them. Locking our customers into paying years out of date pricing for decades to come is a pretty raw deal for them and we will continue to advocate that they be given the opportunity to pay negotiated market rates. Unsurprisingly, renewable folks are pretty happy with customers being overcharged.”

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