Rocky Mountain Power is bringing to Wyoming its fight against government protected long-term contracts that it says favors wind, and other mid-sized energy producers, over consumers.
Rocky Mountain Power is seeking to reduce from 20 years to 3, the length of contracts it is required to offer mid-sized producers, under a regulation that has recently been used to promote wind and solar power development.
Alternative energy companies say the short-term contracts would make it harder to secure financing, and hinder the progress of clean energy development.
More traditional mid-size producers, such as large industrial complexes that have their own electrical generation, and who sell their excess capacity, also oppose the change.
Wyoming is the last domino in a bid by PacifiCorp, the parent company of Rocky Mountain Power, to shorten the contract terms in its five regional states that also include Utah, Idaho, Oregon, and Washington.
Utah reduced the term to 15 years, Idaho cut it to two years, Oregon’s application is still pending, and Washington produces so little wind and solar (about 4 megawatts) that it was not really included.
Why the request
Rocky Mountain Power contends the 20-year term is hurting consumers because it is unable to take advantage of the rapidly declining cost of wind power, particularly, as well as other sources.
In testimony taken for the Wyoming Public Service Commission’s hearing scheduled for March 29th, Paul Clements, of Rocky Mountain Power, said prices have been dropping significantly.
“(In February, 2015) the price for that 10-year product was $38.11 per MWh. When I prepared my Wyoming testimony on August 17, 2015, the price had dropped to $33.55 per MWh. On December 31, 2015, the price had dropped further to $29.52 per MWh. Over the course of just 11 months, the price had changed by 23 percent,” Clements said.
Clements said applications from Qualified Facilities (the regulatory term for mid-sized providers) have gone up significantly, and if they all continue to get long contracts at the higher rates, consumers would bear the brunt.
“If recent QF projects are priced higher than the market alternative by just 10 percent, it would create a $2.7 million impact in 2015 for Wyoming customers,” Clements said.
Under the regulations, Rocky Mountain Power is required to buy the generation from ‘qualified facilities’. While the company is not challenging that provision, it used it to emphasize the need to shorten contract lengths.
“Limiting the term of the contract to three years simply means that the price Rocky Mountain Power and its customers will be required to pay to the Qualifying Facility will be subject to adjustment every three years,” Clements said.
One of Rocky Mountain Power’s supporters is the Northern Laramie Range Alliance. The Alliance is a landowners group in Converse County that has been trying to stop the building of the 46 turbine Pioneer Wind Project, just south of Glenrock, owned by sPower.
“As everyone knows, we have been consistently opposing the efforts to try and install an industrial scale wind facility in the mountains,” said Ken Lay, spokesman for the Northern Laramie Range Alliance. “However, about a year or so after it started—most of our members are ratepayers in Wyoming, in the Rocky Mountain Power service area—we began to understand what the ratepayer implications of all this are.”
“If you look at the history of these long-term fixed price contracts with these so called ‘qualifying facilities’, they have resulted in the public utility having to lock in power at relatively high costs—in fact quite high costs—and not being able to take advantage of declining prices for natural gas, declining prices for coal, indeed even declining prices for wind energy,” Lay said.
“We want an open, competitive, market for the electricity—which is going to be in the best long-term interest of reliable, low cost service. That’s the key point,” Lay said of the alliance’s position.
Meanwhile, in a summary of Lay’s testimony for the commission, Lay said the long term contracts are a benefit to large investors.
“This rigged system has fostered a business model that provides outsized financial returns to certain developers, and their financial backers, that depend on the Commission’s current mandated price lock in long-term contracts,” Lay’s summary said.
Consumer Advocates opposed
On the opposite side of the fence, sPower said the longer-term contracts were intended to foster the growth of alternative energy development.
“A key intent of the Public Utility Regulatory Policies Act (PURPA) was to promote renewable energy projects (along with inducing greater use of domestic energy and supporting energy conservation efforts),” SPower said in an email to the Journal.
“If our nation is to achieve energy independence, obstacles (like shortening lengths of PURPA contracts, discontinuing tax credits, etc.) to developing clean energy projects should be minimized,” it continued.
The Wyoming Office of Consumer Advocate, which represents the general public on matters before the Public Service Commission, taken a position opposed to reducing the contract term to 3 years, calling it ‘overreaching and potentially shortsighted.’
“The three year contract length will only ensure that most, if not all, future ‘Qualified Facility’ development will halt,” Belinda Kolb, of the Office of Consumer Advocate said. “I am not sure that this outcome is at all in the public interest, and could be construed as anti-competitive.”
Kolb said longer term contracts help provide rate stability, while also noting the majority of Rocky Mountain Power’s larger contracts average 18 years.
“The Company’s request introduces a sweeping change to contract length that is in no way gradual, and may even introduce revenue and rate instability,” Kolb said. “Sweeping changes that seem more reactionary than principled will not serve the public interest over the long term,”
Kolb also mentioned that longer-term contracts help alternative energy developers secure financing for their projects.
“A ‘reasonable opportunity to sell’, in my opinion, indirectly depends on the Qualified Facility being able to obtain investor financing to develop a project in the first place, which in turn is directly related to the contract length,” Kolb said. “To be clear, I do not mean guaranteed, just feasible.”
She said lower gas and oil prices, uncertainty around EPA Rulings and Clean Power Plan requirements, and the company already having sufficient energy sources, may have contributed to the company’s request.
“I believe a mix of changes are in play,” Kolb said. “Total Company and Wyoming load growth has flattened from just a few years ago, and currently the Company does not expect to need a new generating resource until 2028.”
In her concluding remarks, Kolb mentioned a tiered pricing system as a potential compromise on the request.
“Perhaps the creation of tiered Megawatt thresholds, that with a first tier that is offered 20 year pricing, a next tier offering 10 year pricing, and finally a tier that offers 3 year pricing,” Kolb said.
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