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Is renewable energy development in Utah entering a bubble? The state's largest utility thinks so.
To avoid getting overcommitted to wind and solar, Rocky Mountain Power is asking regulators to shorten required contract terms with green-energy producers from 20 years to just three. Critics have blasted the idea as "a radical shift in policy" aimed at thwarting competition from renewable sources.
RMP contends the long-term fixed-price contracts required under the 1978 federal statute known as PURPA amount to subsidies to alternative generators that will ultimately be borne by ratepayers.
"The company has no need for resources for the next decade," Paul Clements, RMP's director of commercial services, wrote in testimony to the Utah Public Service Commission. "Failure to implement the modification to contract terms proposed by the company in this case may result in significant irreversible harm to customers."
But renewable energy advocates say such a change would thwart growth in solar and wind power and actually hurt Utah ratepayers.
"Renewable [qualifying] projects are capital intensive projects with estimated lives of at least 20 years. As such, investors will not provide funding for these projects unless they have reasonable assurance that they will earn a return on their investment," Sarah Wright of Utah Clean Energy wrote in rebuttal testimony.
Congress passed the Public Utility Regulatory Policies Act after the 1970s energy crisis to require big utilities to purchase co-generated power and small-scale generation, so long as these generators, known as "qualifying facilities," or QFs, meet certain criteria.
In recent years, interest in wind and solar generation has exploded as costs have dropped while pressure builds to reduce climate-disrupting emissions associated with fossil fuels.
According to Clements, RMP's parent, PacifiCorp, has seen a huge upswing in requests for PURPA contracts across its six-state service area. In Utah, it is fielding 40 project requests totaling 2,253 megawatts of generating capacity. In the past two years, it has executed contracts with 24 projects totaling 897 megawatts.
PacifiCorp is already obligated to pay $2.9 billion to QFs over the next 10 years, $170.5 million in 2015 alone.
"Utah customers are projected to pay $73.3 million to QFs in 2015," Clements told the PSC at a Nov. 12 hearing. "I highlight that to illustrate that QF contracts are a major factor in customers' rates."
The Utah Office of Consumer Services, which advocates for ratepayer interests, is not buying the utility's arguments.
"This extreme change may discourage all new QF development," wrote Bela Vastag, an OCS analyst. "This would be contrary to federal and state laws which were enacted specifically to encourage the development of small power producers or QFs."
But Clements says the 3,300 new megawatts of recently completed generation and in the pipeline will exceed the utility's expected retail load.
As these new QF projects come online, the utility will be forced to ramp down its reliance on cheaper sources from its own plants, which burn coal and natural gas, according RMP spokesman Paul Murphy.
"By signing a 20-year contract for wind or solar, you are locking into a price [for a product] that could change dramatically," Murphy said. "We would still be required to purchase their power. We just want it redesigned in a way to protect our customers."
Utility critic Matt Pacenza of HEAL Utah contends this argument is a "smoke screen."
"They are tying to maximize profit for their shareholders," Pacenza said. "Whenever they are forced to buy power from someone else, they make less money."
"Fuel sources for renewable energy projects like solar or wind are unlimited and not volatile like fossil fuels. Long-term contracts allow for stable and predictable energy prices as compared to the variability in natural gas pricing," said Ryan Creamer, sPower's CEO. "If our nation is to achieve energy independence, obstacles to developing clean energy projects should be minimized."
The state Division of Public Utilities endorses the utility's request, but recommends shortening contract periods to five years instead of three. The agency contends that proposed QFs no longer need long-term contracts, but Nathan Rich, a spokesman for the Renewable Energy Coalition, disputed that in rebuttal testimony.
"The most likely mechanism to provide financing for these type of projects will be revenue bonds. Without a long-term contract, a project developer will not be able to demonstrate with any certainty the projected revenue a proposed project will generate. Higher uncertainty equals higher risk which increases the cost of capital," wrote Rich, who serves as executive director of the Wasatch Integrated Waste Management District.
Rich's district generates power by incinerating Davis County's municipal waste at its Layton plant and sells the juice to RMP as a qualifying facility. It plans to expand its capacity by 5.4 megawatts with a $9.5 million turbine upgrade, but those plans will like be shelved if PURPA contract terms cannot exceed three years, according to Rich.