After months of back and forth, Oregon’s Public Utility Commission gave its blessing this week to both Portland General Electric’s and PacifiCorp’s plans to acquire more renewable energy, albeit with a variety of conditions designed to protect ratepayers.
The companies approached the commission in 2016 and earlier this year seeking acknowledgment of resource plans that included major additions of generating capacity.
PGE’s proposal focused on making up for the loss of capacity at the Boardman coal plant, scheduled to close in 2020, potentially by building two new gas-fired power plants at the eastern Oregon site. It also proposed the immediate acquisition of 500 megawatts of renewable energy capacity – most likely a large wind farm in the Columbia River Gorge – to ensure it captures federal tax credits that begin sunsetting after 2020. The renewables portion alone was likely a $1 billion investment plan.
PacifiCorp, meanwhile, put forward a $3.5 billion plan it dubbed Energy Vision 2020. It entails upgrading about 1,000 megawatts of existing wind farms in Wyoming, adding another 1,300 megawatts of new wind resources there, and building a 140-mile transmission line to transport the energy to market.
The company offered a similar rationale for the purchases as PGE: the wind farms are a bargain if they act quickly and capture the federal tax credits, which cover 70 percent of the capital costs of the projects.
Commission staff had similar reactions to both plans: Start over; the plans are too expensive and risky for consumers. They advised regulators to avoid acknowledging the plans, a bad outcome for the utilities as it makes recovery of the costs in subsequent rate cases a dicier proposition.
And while the tax credits might make the wind farms a bargain, commission staff concluded that neither utility had an immediate need for more renewable energy. Both companies are on track to meet Oregon’s renewable energy standards – utilities would have to serve half of their customer demand with renewables by 2040. Staff felt the projected economic benefits of the new wind farms were too small, too uncertain, and too far out in the future to overcome the financial risk to ratepayers.
Commissioners and consumer groups largely agreed with staff, much to the consternation of the utilities.
Fast forward to this week. PGE had earlier jettisoned plans for any new gas plants and is pursuing contracts with existing power producers – both hydro and gas plants – to fill its capacity needs after the Boardman coal plant goes offline. Meanwhile, it downsized its near-term renewables plan by more than 40 percent, and developed a more incremental “glide path” to meet the renewable energy mandates.
The new approach won over the commission staff, as well as most of the ratepayer, industry and environmental groups.
“We’re okay with what PGE proposed, said Bob Jenks, executive director of the Citizens’ Utility Board. “Their plan changed in response to the feedback they got, and they’re doing something much different. It was a much more dynamic planning process, and that’s how this is supposed to work.”
The commissioners included a number of conditions, including an updated analysis of PGE’s energy needs before soliciting bids, and establishing a cost cap in that bidding process. It also wants the utility to rerun its numbers to determine the impact of federal tax reforms on the value of the tax credits from any wind or solar investment.
The tax bill could eliminate inflation adjustments in the tax credits, lowering their value, or undermine utilities’ ability to use them as the reduction in tax rates reduces their tax liabilities.
Meanwhile, the commission wants PGE to consider acquiring wind farms in Montana as opposed to concentrating more of its fleet in the Gorge. And it will require the utility to sell renewable energy credits from the new projects until 2025 and return the proceeds to ratepayers.
Commissioner Megan Decker said she found the revised plan compelling because it provided a more comprehensive view of PGE’s pace in meeting the state’s renewable energy mandate and the tradeoffs of early action versus waiting. The commission voted unanimously to acknowledge the plan.
PacifiCorp did not make wholesale changes to its plan in response to feedback from staff, commissioners and other stakeholders. The commission’s acknowledgement reflected that, with one commissioner dissenting and the approval subject to a variety of conditions designed to place more of the risk of the plan with the company’s shareholders rather than ratepayers.
Commissioner Stephen Bloom said he was a “soft no.”
“I’m very concerned about the risk to ratepayers,” because the company has not established any immediate for the facilities, he said. “There are too many risks right now to acknowledge without more information.”
The company has projected more than $100 million in economic benefits to ratepayers over the next two decades from the new windfarms. But cost overruns, technology changes or even the change in federal tax rates could undermine those projections.
The commission hasn’t issued its formal order, but sent out a bullet list of conditions noting that “the risk of proceeding with the Energy Vision 2020 projects remains with PacifiCorp” until the company completes the projects and the commission completes its prudence review and approves any related rate increases. “That recovery could be conditioned or limited.”
“I’m hopeful this result walks a bunch of lines in a way that makes sense,” said Chair Lisa Hardie. Absent the federal tax credits, she said she wouldn’t be comfortable with the plan, but that those benefits were real.
Like PGE, PacifiCorp will have to rerun its numbers this spring after it receives the results of a request for proposals that it issued this fall, and determines how federal tax reforms will affect the value of the tax credits and thus the economics of the projects.
Finally, the commission is requiring PacifiCorp to analyze the economics of its coal fleet to determine whether it makes sense to close some of those plants early, long a priority of the Sierra Club and other environmental groups.
“We continue to see these investments as a way to cost-effectively increase the amount of renewable energy serving all of our customers,” said Bob Gravely, a spokesman for the utility.
Jenks, the ratepayer advocate, said the commission’s action was “not a normal acknowledgement. “Shareholders are taking significantly more risk than they typically would.”
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