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Ore. PUC rejects utilities pleas to slash PURPA contract lengths

OnMarch 29, the Oregon Public Utility Commission rejected requests by and to drastically shortenthe length of contracts for nearly all small renewable energy projects, butdecided to permanently reduce the size of solar projects eligible for standardavoided cost contracts.

Thecases started on April 24, 2015, when Idaho Power filed its application and on May21, 2015, when PacifiCorp made a similar request to change the terms underwhich the companies must enter into power purchase agreements with qualifyingfacilities, or QFs, under the Public Utility Regulatory Policies Act. PURPA isa federal law designed to provide a market for electricity produced by smallpower producers and co-generators. States are responsible for implementing thelaw and setting certain rates, terms and conditions for QF contracts withutilities.

PacifiCorpand Idaho Power both wanted to lower the standard contract eligibility cap forwind and solar QFs to 100 kW, as well as reduce both the standard andnegotiated contract terms from 20 years to two years. At thattime, projects up to 10 MW had an opportunity to enter into more developer-friendlystandard PURPA contracts for 20 years with 15-year fixed prices.

Asthe commission noted, the standard contract terms are intended to reducetransaction costs associated with negotiations between the utility anddevelopers.

ThePUC on Aug. 14, 2015, granted the utilities' requests to lower the eligibilitycap for standard contracts to 3 MW for solar QFs on an interim basis pending afinal decision on the matter. The commission said its decision was made due tounprecedented growth in QF activity as seen in the number of applications andexpressions of interest from QF developers.

ThePUC in its March 29 orderaddressing PacifiCorp's application and its concurrent order for Idaho Powerconcluded that the cap for standard contracts should be reduced to 3 MW on apermanent basis for both utilities due to solar development interests.The orders do not reduce the eligibility cap for wind projects.

"In2015, a large developer executed standard contracts with PacifiCorp for seven10-MW solar facilities and one 8-MW solar facility over a one week period andanother developer executed five standard contracts for 36.5 MW of solar on oneday," the PUC noted in the PacifiCorp order.

DespiteIdaho Power's small service areain Oregon compared to PacifiCorp, the PUC noted the Idaho-based utility hadeven more activity. Currently, the company has just six operating QF projectsin Oregon with a combined output of 21 MW, the PUC said. However, 11 wind andsolar QF projects with 110 MW combined are under contract, though not yetoperational. Furthermore, 26 solar QF projects with a combined output of 245 MWare seeking or inquiring about energy service agreements. In addition, IdahoPower in March received interconnection applications from four QF solarprojects of 10 MW each and two other QF projects with a combined output of 10.5MW, the PUC said.

Despite deluge, PUC keeps20-year contracts

Asfor the utilities' requests to shorten the contract length, the PUC found thatthe "use of 20-year contracts, with prices fixed at avoided costs for 15years followed by indexed pricing for the remaining five years, continues tohave merit."

"Longerterm contracts help align the financing period with an asset's useful life,making the investment less risky and likelier to obtain far more reasonablefinancing terms," the PUC said. "On the other hand, longer termcontracts increase the likelihood of forecasting errors in developing QFavoided prices, thus potentially subjecting ratepayers to costs that exceed theutility's actual avoided costs."

Byspecifying index-based rates for the final five years of the contracts, QFdevelopers have the incentive to manage their operations for maximizeefficiency and this makes renewable energy more competitive with lessenvironmentally-friendly alternatives, the commission said.

ThePUC earlier moved Idaho Power's request in its QF contracts application toimplement a solar integration charge to another docket.

Addressingonly the preservation of 20-year contracts in the PacifiCorp order, the SierraClub breathed a sigh of relief.

"Theutility's plan would have effectively stopped independent renewable energydevelopment in Oregon's burgeoning clean energy industry," the Sierra Clubsaid in an e-mailed statement.

TheSierra Club said the decision comes after Utah regulators rejected a similarrequest PacifiCorp's Rocky Mountain Power division made earlier.

TheRenewable Northwest, the City of Portland, Renewable Energy Coalition and theCommunity Renewable Energy Association also opposed PacifiCorp's application.The coalition said the record shows there are almost no QFs in Oregon above thestandard contract eligibility cap that have successfully negotiated contractsand rates.

TheSierra Club was especially concerned that shortening QF contract terms to threeyears would eliminate QF development in Oregon.

Oregonhas just passed a law to doubleits renewable energy standard to 50%, which PacifiCorp's efforts would haveundercut, the club said.

"Onthe heels of historic legislation that will double Oregon's commitment to cleanenergy and move our state off of coal, the Public Utility Commission's decisionwill help ensure the continued growth of homegrown clean, renewable energy likewind and solar," said Amy Hojnowski for the Sierra Club's Beyond Coalcampaign by e-mail.

RenewableNorthwest, the Northwest Energy Coalition, Community Renewable EnergyAssociation, solar developers and other parties fought Idaho Power's proposalsas well. The first two groups particularly argued that drastically reducing theeligibility cap for QFs seeking contract terms would decrease the marketabilityof energy they produce.

PacifiCorpis a subsidiary of BerkshireHathaway Energy and Idaho Power is a subsidiary of