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Mont. regulators extend small renewable power supply contracts to 15 years

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Mont. regulators extend small renewable power supply contracts to 15 years

Months after limiting electricity supply arrangements with small renewable energy projects to 10 years, Montana regulators said they will allow such contracts to last up to 15 years.

The Montana Public Service Commission's June 22 vote to set standard rates and contract terms for qualifying facilities, which are small renewable energy projects of up to 3 MW, was not received well. Some Montana lawmakers called the decision to set standard contracts for small qualifying facilities at a maximum of 10 years, with a pricing adjustment after five years, "unlawful."

Others, including Vote Solar and the Montana Environmental Information Center; FLS Energy and Cypress Creek Renewables; and NorthWestern Corp., which does business in Montana as NorthWestern Energy and is the state's largest electric utility, urged the PSC to reconsider the order. The PSC on Oct. 5 agreed to take up reconsideration of that order and voted 4-1 to increase the maximum length of the contracts of the projects to 15 years.

A written order was not available on the PSC website Oct. 9, but the commission explained its decision in a press release.

The PSC said it declined to adopt a number of other proposed changes to its order, including modifications to the capacity payment given to solar and whether to include a hypothetical carbon price adder to payments to renewable generators.

PSC Chairman Brad Johnson in a statement said regulators listened closely to different motions and "welcomed the opportunity to further improve on our final order through the reconsideration process."

Commissioner Bob Lake said a 15-year contract protects ratepayers and gives investors certainty to proceed with energy projects in Montana.

Commissioner Roger Koopman opposed the increased contract lengths, saying he thinks 10-year contracts "were entirely fair and equitable, while providing much stronger protection to ratepayers."

Koopman said nothing has changed since the commission made its June decision.

"Adding another five years to level rate contracts increases the over-charge risk to consumers exponentially," he said. "Many examples of this already exist, where Montana ratepayers are forced to pay rates that are dramatically above market, due to very long-term QF power purchase contracts."

The PSC explained that the Public Utility Regulatory Policies Act, or PURPA, requires utilities like NorthWestern to purchase power from small renewable energy projects at what it would otherwise cost the utility to purchase the same amount of energy and capacity provided by the facility, known as the utility's "avoided cost." At the end of the 15-year contract term, if PURPA remains in effect, the utility will be required to continue purchasing electricity from the QF at an updated rate, which reflects the utility's avoided cost at that time, the PSC said.

The PSC said it also reaffirmed by a 4-1 vote its ruling that the 15-year limit applies to all new power plants, regardless of ownership or resource type, not just the small renewable generators. Lake dissented, the PSC said.

Regulators will take up this matter in NorthWestern's ongoing resource planning process, in which the utility has previously suggested that it plans to own or contract with a substantial number of gas-fired generators in the future.

The rate available to qualifying facilities under the commission's modified order breaks up payments to solar qualifying facilities into two separate time periods. During times in which demand for energy is high, NorthWestern must pay $37.26 per MWh, but when demand drops off, the rate falls to $28.14 per MWh. (Docket No. D2016.5.39)