September 2005
Idaho to Scrutinize PURPA Rates For Wind QFs
by Robert Olson  and Maria Reinemann --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 2005/10/14)

The federal Public Utility Regulatory Policies Act (“PURPA”) requires regulated utilities to buy renewable power generated by qualifying small power production facilities (“QFs”) at an “avoided cost rate,” i.e., a rate that reflects the cost the utility avoids by not having to generate the electricity itself or buy the electricity from some other source. It also requires state authorities to publish standard avoided cost rates that apply to small QFs. In a recent order, the Idaho Public Utilities Commission (the “PUC”) decided that its published avoided cost rate should be adjusted to take into account the intermittent nature of wind generation when applied to QFs selling wind-generated power (“Wind QFs”). In the Matter of the Petition of Idaho Power Company for an Order Temporarily Suspending Idaho Power’s PURPA Obligation to Enter Into Contracts to Purchase Energy Generated by Wind-Powered Small Power Production Facilities, Case No. IPC-E- 05-22, Interlocutory Order No. 29839 (Idaho PUC, August 4, 2005) (the “Order”). According to the Order, this represents a departure from the PUC’s past practice, which has been to resist developing separate avoided cost rates targeted to individual QF generating technologies.

The petitioning utility argued that the published avoided cost rate of $61 per megawatt hour overstates the cost a utility avoids when it buys electricity from Wind QFs because it ignores the utility’s cost for back-up power required to integrate intermittent wind generation into the utility’s system. One analysis showed that for every 1,000 megawatts of intermittent wind generation, a utility must have an additional 640 megawatts of firm electricity generation on hand to maintain adequate system reliability.

The utility further pointed to a dramatic increase in QF wind generation as exacerbating the problem. According to the utility, there was only 1 megawatt of QF wind generation under contract in December of 2004, and there are now 61.5 megawatts of generation under contract, with applications for another 21.5 megawatts pending before the commission and developers currently planning projects to produce another 193 megawatts of wind generation.

Finally, the utility argued that the excessive avoided cost rate inflated the competitive bids of developers of large wind-generation projects. As one witness explained, “wind projects are unique because they consist of multiple wind turbines, each usually with a capacity of about 1.5 megawatts, spread over many acres,” that can be clustered to form relatively large or small projects. With Idaho’s eligibility threshold for the published avoided cost rate set at 10 megawatts, “there is little incentive for the developer of a wind project to bid a price” less than the published avoided cost rate if the project can be reconfigured to fall below the threshold and qualify for the published avoided cost rate.

Although the PUC was not persuaded that the competitive bids from wind developers were, in fact, influenced by the published avoided cost rate, the PUC agreed that the published rate should be adjusted for Wind QFs to reflect a utility’s cost to integrate intermittent wind generation.

The Order deferred determination of the amount of adjustment to further proceedings. The utility asked the PUC to suspend the PURPA obligation to purchase Wind QF generation pending a determination of the adjusted rate. The utility argued that developers would reconfigure their projects to fall below the eligibility threshold for the published avoided cost rates in an attempt to qualify for the current rates before they are changed, resulting in an “unmanageable influx of generation.” The PUC denied the request, but instead sharply reduced the eligibility threshold from 10 megawatts to PURPA’s required threshold of 100 kilowatts.
 

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716