IDAHO PUC REJECTS CHALLENGE TO
(originally published by PMA OnLine Magazine: 2006/10/27)
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 implementing its standard avoided cost rates as applied to small QFs that sell wind-generated power (“Wind QFs”), the Idaho Public Utilities Commission (the “PUC”) applies a so-called “90/110 performance band” requirement to address the intermittent nature of wind generation and resulting costs to utilities. In the Matter of the Petition of Magic Wind LLC to Determine Exemption Status, Case No. IPC-E-05-34, Order No. 30109, slip op. at 10-11 (Idaho PUC, August 15, 2006) (the “Order”), citing Order No. 29632 in Case Nos. IPC-E-04-8 and 04-10. Under that requirement, to ensure that it receives the standard avoided cost rate, a Wind QF must deliver between 90% and 110% of its monthly commitment to the purchasing utility. If a Wind QF fails to deliver at least 90% of its monthly commitment, all of the delivered energy is priced at the lesser of 85% of the market rate or the standard avoided cost rate. Similarly, if a Wind QF delivers in excess of 110% of its monthly commitment, the excess is priced at the lesser of 85% of the market rate or the standard avoided cost rate. The PUC recently rejected arguments that this compensation mechanism threatens wind project financing and violates PURPA. Order at 11.
Magic Wind, a Wind QF, petitioned the PUC to require Idaho
Power to accept a contract term under which Magic Wind would be paid for
“nonconforming deliveries,” i.e., energy deliveries outside the 90/110
performance band, at fixed prices rather than at 85% of the market rate. The
PUC had previously approved such an arrangement where both the Wind QF and
the purchasing utility had agreed to the fixed prices and the prices were
reasonable. Order 2, citing Order No. 3000 in Case No. PAC-E-05-6. Magic
Wind sought a modified version of the fixed prices that had been approved in
the earlier case, but unlike the earlier case, the purchasing utility was
not in agreement.
With respect to the argument that the PUC’s approach threatens wind project financing, Idaho Power countered that 14 out of the 22 power purchase agreements it had signed since the PUC adopted the 90/110 performance band were with Wind QFs. With respect to PURPA compliance, Idaho Power countered that the market-based mechanism as applied to nonconforming deliveries was not a computation of avoided costs, but rather was a measurement of damages for failure to perform under the contract. As long as a Wind QF performs as agreed, it argued, the Wind QF receives compensation at published rates based on projected avoided costs.
In rejecting Magic Wind’s petition, the PUC stated that the record did not support the claim that Wind QFs would be unable to obtain financing unless market-based pricing for nonconforming deliveries were change to fixed pricing. With respect to PURPA compliance, the PUC did not address the specific arguments presented by the parties, but stated that the PUC had approved the 90/110 performance band requirement in a fully litigated proceeding and that the argument that the market-based pricing for nonconforming deliveries violates PURPA was “misplaced and unpersuasive.” Interested parties have until September 5, 2006, to petition for reconsideration.