PacifiCorp seeks change to green power rules

Opponents say changes will hurt renewable energy industry

By Joseph Ditzler, The Bulletin, @josefditzler

On the Web

Read PacifiCorp’s May application to the Oregon PUC: http://j.mp/1Kkzrds

Review the edocket on the Oregon PUC website for PacifiCorp’s application: http://j.mp/1QK3tvN

PacifiCorp, the parent company of Pacific Power, the largest supplier of electricity to Central Oregon, is attempting to stifle growth of renewable energy sources in the state by reducing contract lengths and lowering the amount of renewable power it’s required to accept, critics say.

The company wants state regulators to ease contract terms on so-called qualified renewable power generators from 15 years to three. Pacifi­Corp also requested to lower from 10 megawatts to 100 kilowatts the limit on renewable power projects that the utility must by law connect to its system.

If the Oregon Public Utility Commission approves the request when it takes it up in January, it would curtail independent development of alternative energy projects in the state, opponents say.

“First, going from 10 megawatts to 100 kilowatts is a 99 percent reduction,” said David Brown, owner of Obsidian Renewables LLC, a developer of utility-sized solar-power installations. “There’s almost nothing you can reduce that much on god’s earth and not kill it.”

Brown and others say Pacifi­Corp, by lowering the cap on renewable power and lowering the contract terms, would render new projects difficult to finance. They also argue that PacifiCorp is interested in protecting its investments in its fossil-fuel plants and keeping independent developers of solar and wind power, particularly, at bay.

PacifiCorp argues that fixed-price, long-term contracts run counter to the short-term nature of the energy market. Consumers do not benefit, the company states in its filing, when the utility is locked into a contract and the actual cost to produce renewable power falls over time. PacifiCorp also argues that the 10 MW cap allows “sophisticated, out-of-state developers” to lock in those contracts at the expense of both customers and local developers.

Opponents are lining up to fight the PacifiCorp application. They include renewable energy advocates like the Sierra Club, Renewable Northwest and the Northwest Energy Coalition and renewable power developers like Obsidian Renewables and Cypress Creek Renewables, a California company developing a solar power project near Bend. The Oregon Department of Energy and the city of Portland also plan to file statements in the case.

PacifiCorp, in its May application, states it’s overwhelmed by a surge of developers proposing to connect renewable power sources to its system. The utility is required under the federal Public Utility Regulatory Policies Act of 1978, to accept connections from qualified facilities, producers generating 80 MW or less from renewable power sources, such as water, wind, solar and other sources. States, however, have leeway to set their own limits and conditions, such as contract terms and caps on the amount of renewable power utilities are required to accept.

PacifiCorp argues that it generates enough power from its fossil-fuel plants to meet current demand and intends to meet future demand through conservation measures. It’s already met the requirements of the Oregon Renewable Portfolio Standard, which requires large utilities to have electricity from qualifying sources of at least 15 percent by 2015, 20 percent by 2020 and 25 percent by 2025, according to the Pacific Power website.

Summed up, the number of PacifiCorp’s existing and proposed renewable energy contracts in Oregon amounts to 925 MW, enough to supply about half of the company’s average power demand and 90 percent of its minimum demand, according to PacifiCorp. Across its six-state service area, PacifiCorp states it’s received requests from developers to connect 4,017 MW of renewable power to its system.

Coupled with 15-year fixed contract terms, that oversupply presents a financial burden to its ratepayers, the company states.

For example, if the company cost to generate power falls this year by just 10 percent, the proposed payouts to suppliers of solar and wind power under long-term contracts would cost Pacific Power’s roughly 600,000 Oregon customers an additional $4.3 million, according to the company filing.

Under the 1978 federal law, the utility may not pay more for power from independent producers than it costs to produce that power itself. That means customers should never feel the difference, price wise, between traditional sources of power and renewables. PacifiCorp argues it needs shorter contract terms and lower caps in order to pass on savings and keep rates as low as possible.

“The pricing risk faced by customers will only amplify as the 4,017 MW of (qualified facilities) capacity currently in the … queue come online with long-term, fixed-price contracts,” according to PacifiCorp’s filing.

The trouble is, said Brown, who countered the PacifiCorp application with an 11-page response, the utility’s argument is based on nonexistent power. PacifiCorp is exaggerating the amount of renewable power available to make its case, he wrote.

None of those contracts cited by PacifiCorp actually produce anything, he said; few of those projects in the queue will ever come online. Building renewable power projects in Oregon is costly due to land-use regulations and “unexpectedly high” costs to connect with utility systems, he wrote. Although PacifiCorp this year and last year received 68 total requests to connect qualifying facilities to its Oregon system, only 11 have so far signed connection agreements, Brown wrote. The actual amount of power they would produce comes to about 1.5 percent of the demand for electricity in Oregon, he wrote.

PacifiCorp in its application never states the wind and solar plants behind the contracts will be built, Brown said in an interview. “They know the vast majority won’t be built because progress on them has stopped.”

A PacifiCorp spokesman, Ry Schwark, in an email, wrote Thursday that the company application is “about protecting customers. Full stop.”

The utility is trying to capture savings from rapidly falling costs to build wind and solar projects, he wrote. If the company can negotiate the price it pays for that power, rather than pay according to a fixed, long-term schedule, customers in the end will pay a fair price.

“And as for few (qualifying facilities) being built, currently about 25 percent of the queue we have is in construction already,” Schwark wrote, “so I don’t buy the crocodile tears that QFs never get built.”

Lowering the cap for qualifying facilities from 10 MW to 100 kW would hinder solar and wind projects by crippling the ability of alternative energy developers to find financing for their projects, said Paul Israel, founder of Sunlight Solar, a systems installer in Bend, and president of the Oregon Solar Energy Industries Association. A rush is underway now to secure financing and get projects up and running before a 30 percent federal tax credit falls to 10 percent at the end of 2016, he said. A long contract term is more attractive to potential investors than a relatively short one, he said.

A 20 MW solar project just east of Bend is in the planning stages for a site near the intersection of Neff and Erickson roads. That project would not be affected if the PUC approves the PacifiCorp application, but future ones may be constrained, Israel said.

“To develop a project like that you have to get financing, predicated on a good, long, solid contract that provides a return on investment,” he said. “If it doesn’t pencil out, the money is going to chase other states.”

Jason Carr, spokesman for Cypress Creek Renewables, which is developing half the project itself and co-developing the other half with Oregon Solar Land Holdings, said Cypress Creek believes the 1978 federal law protects ratepayers while fostering a competitive environment for solar power developers. Lowering the eligibility cap could halt progress on building more renewable energy projects.

“We feel that by lowering the size of these projects, these decisions essentially stop competition, which could help the solar industry to not only become more competitive and more efficient, but also stop it from providing clean energy for local communities such as the city of Bend,” he said.

Developers are trying to protect a profit margin, that’s true, but those profits are generous, PacifiCorp’s Schwark wrote. He said the utility fielded proposals for solar power systems in Utah at rates 10 to 20 percent below rates in Oregon. Clearly, he said, Utah developers find the rate of return acceptable.

“If the solar developers in Utah can finance their projects under these terms, I don’t see why developers in Oregon somehow can’t,” Schwark wrote. “But I think you can also see why these developers don’t want this to change here.”

The low cost of fossil fuels is also slowing development of renewable power sources. Natural gas to burn in its power plants is relatively cheap; and PacifiCorp mines much of its own coal for its fleet of coal-burning plants. More than 60 percent of the power PacifiCorp generates in the six states where it operates comes from burning coal.

Not only would renewable power cost more than conventional sources, according to PacifiCorp, the utility has all the generating power it needs until 2028. PacifiCorp plans on meeting 86 percent of new demand for its power in six states in the next 10 years through energy conservation measures such as use of LED lighting, better heating and cooling systems and other measures.

The latest version of its 20-year plan, or Integrated Resource Plan, envisions building no new power plants that burn fossil fuels until 2028. PacifiCorp also plans on closing 10 coal-fired units by 2029, according to the plan.

With conventional fuels cheap and in abundant supply, the utility has no incentive to open its system to alternative sources of power, the management of which would lie beyond its control, Brown said. One day the price of those fuels will rise, and the cost to generate wind and solar power will fall to the point it again becomes competitive.

In the meantime, PacifiCorp, Brown said, is attempting to “barricade” its system against renewable power producers and the day coal and natural gas prices rise. One reason, he said, is that the utility cannot manage those facilities as its own. Pointing out to the PUC that renewables could provide the bulk of its power source tells the commission those renewable sources would be also beyond its control, Brown said.

Schwark said talk about erecting barriers to solar and wind sources of power is disingenuous, and PacifiCorp realizes no loss or gain itself on power purchase agreements. Unless the contract terms and eligibility caps are lowered, consumers will pay higher rates under fixed contracts even as the actual costs for wind and solar power fall, he wrote.

“Painting us as the villain is an easy way to avoid dealing with the issue of falling prices in solar and wind,” Schwark wrote. “Prices have fallen significantly; why shouldn’t our customers be able to capture some of that savings?”

— Reporter: 541-617-7815, jditzler@bendbulletin.com

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