State regulators push back on PGE’s green energy plan

“This does not mean that staff is opposed to renewables,” JP Batmale, a senior utility analyst told commissioners Tuesday. But “PGE did not present a persuasive case to staff that the specific, take-it –or-leave-it proposal is the least-cost, least-risk for ratepayers at this time.”

The decision underscores the difficulty of planning for future electricity needs at a time of rapid and accelerating change in the industry. Even as state and local leaders pursue policies to more aggressively cut greenhouse gas emissions, it’s unclear how those efforts mesh with utilities traditional regulatory framework and their need to keep the lights on.

The decision could have big implications for PacifiCorp, which unveiled a plan earlier this year to invest $3.5 billion in wind energy and new transmission lines in Wyoming. Regulators acknowledgement of such resource plans aren’t binding on the utilities. But without that blessing, the investments are riskier when it comes to recovering costs in future rate cases.

Bottom line, staff and the ratepayer groups contend that PGE simply doesn’t need another wind farm right now, particularly in the Gorge.

Wind farms produce lots of energy, but they are inherently unpredictable, meaning they can’t be relied on to fill the capacity hole that will be left when PGE closes the Boardman coal plant. During the region’s recent heat wave, when utilities were running their fossil fuel plants hard to meet soaring demand, wind farms in the Gorge were often producing little to no electricity.

In the next two decades, state mandates will force PGE and PacifiCorp to meet a steadily larger percentage of customer demand with renewable energy, which will require more investments. Last year, state lawmakers doubled those requirements, which now top out at 50 percent of their customers’ energy use by 2040.

The utility maintains that it makes sense to act now to capture federal production tax credits before that program begins to sunset in 2020. The credits, it has stressed, would cover 25 percent of the project’s costs, making near-term action a low risk approach.

But staff and others were dubious. Ongoing price declines and technological advances mean delaying big investments could be a better strategy, even if it means forgoing the tax credits, they said. They’re also wary of PGE concentrating more of its renewables portfolio in the Gorge, as that makes its energy supply more dependent on weather conditions in a single area.

But there’s a more fundamental issue at work. Both PGE and PacifiCorp have been generating more green power than required for years. As a result, they’ve built up huge banks of renewable energy credits that can be used to comply with the state mandates in years when they don’t generate enough green power.

Utilities successfully lobbied for those long-lived, bankable credits as a kind of compliance shock absorber. But PGE’s bank of credits is now so big that it can satisfy the increasing mandates until 2029 or 2030 without purchasing any more physical resources.

Bob Jenks, executive director of the Citizens’ Utility Board, described PGE’s proposal as “problematic” given the remoteness of the actual compliance need. He said the company might have been better off proposing some big solar projects in eastern Oregon, perhaps with associated storage, as they would have provided a bigger contribution to its capacity needs.

Choosing “what resource to build and when is the key to making this transition in an affordable way. Making the right investments at the right time … We don’t believe Gorge wind at this time is the right investment.”

PGE warns that backloading its renewables investments into the decade before 2040 will lead to rate shock. Moreover, some customers, including the city of Portland and Multnomah County, already are pushing the utility go beyond the state requirements and supply all their electricity with green power by 2035.

Those political, regulatory and customer pressures are reinforced by the business reality that renewables investments are now the most promising avenue for PGE to grow its asset base and earnings. Collectively, they’re converting the company – publicly at least – into something of a climate activist.

Last weekend, PGE chief executive Jim Piro and his named successor, Maria Pope, authored an opinion piece in The Oregonian/Oregon Live that said PGE was doing its part to combat global warming, but warned that commissioners might block the path toward “a cleaner, more reliable, and affordable energy future.”

“It doesn’t make sense to sit back and wait on these carbon reductions, especially when we also have an opportunity to save our customers’ money,” they wrote.

Commissioner Stephen Bloom was not amused. He castigated the company Tuesday, saying it had failed to make its case for the investment, and that it wasn’t the commission’s job to micromanage PGE’s business. He also said the company was giving him whiplash, as it hadn’t offered a lot of support for reducing carbon emissions in the past.

“To say the OpEd was disingenuous would be charitable,” he said.

But environmental and renewable industry advocates lined up in support of PGE’s wind proposal.

Michael O’Brien, an analyst with Renewables Northwest, said that PGE’s economic analyses had demonstrated the value of early investment in renewables. He said viewing them simply as a means of regulatory compliance, divorced from the energy, capacity and emissions benefits they offer, was deeply problematic.

Mia Rebak, a campaign coordinator for the climate change advocacy group 350 PDX, made a more impassioned plea.

“Climate change is here,” she said. “Our number one concern is to transition off of fossil fuels as quickly as possible. It’s imperative to ramp up renewables as fast as possible … We can’t wait to 2029 or 2030 to make this transition.”

Commissioner Megan Decker was conflicted. She said the risks and uncertainties of early action could be offset by potential lost opportunities. She suggested PGE develop another, more incremental plan to layer in more renewables over time.

PGE executives said they understood the uncertainties and had already scaled back renewables in its plan to half of what its financial modeling suggested would be optimal. They also suggested that smaller, more incremental investments would undermine the economies of scale that benefit ratepayers.

PGE’s plan, insisted Brett Sims, the utility’s director of resource strategy, is not risky. “It is a decision that is about as no-regrets as it gets.”

In the end, the commission agreed not to acknowledge PGE’s renewables plan, but invited the company to work with its staff and other stakeholders to see if it could design a more workable version. The company said it had already been on that path for two years, but would welcome another opportunity.

While the renewables plan got most of the airtime Tuesday, environmentalists claimed victory in moving PGE off its preference for new gas-fired plants. The commission formally acknowledged that the utility needs to acquire a substantial chunk of reliable capacity resources – 560 megawatts. But it already had pushed PGE into negotiations to acquire existing resources to meet those needs – preferably from hydropower providers. PGE has told commissioners that the initial response in those negotiations has been encouraging.

“It was a really big win to stop a fossil fuel project in Oregon,” said Amy Hojnowski of the Sierra Club. “We really feel like today was a turning point in whether Oregon will tolerate another fossil fuel plant.”

She was also encouraged by PGE’s stance before regulators on the need to “decarbonize” the grid and aggressively reduce emissions.

“They sound like true converts,” she said. “Now that they’ve said it, we get to hold them accountable to this new pursuit of decarbonization.”