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Utah upholds long-term renewable-power contracts

First Published      Last Updated Jan 20 2016 11:32 am

Energy » It compromises by making contracts last 15 years instead of 20, after PacifiCorp requested a term of 3.

Utah utility regulators on Thursday rejected PacifiCorp's bid to shorten contracts with renewable-energy generators from 20 to just three years. But they did conclude that some modification is in order to ensure ratepayers are not unduly burdened by federally mandated requirements on monopoly utilities to purchase power from solar, hydro, wind and other "qualifying facilities."

The Utah Public Service Commission decided to make the terms 15 years, finding that "the balance of policy interests favors a more gradual reduction in contract duration" than what the power company sought.

Clean-energy advocates praised the move because they believe long-term contracts are vital to ensure a lasting place for renewable energy in the utility's coal-heavy portfolio.

"While any reduction from 20 years is worrisome, the 15-year term will allow progress and encourage continued economic growth, new jobs and clean energy in Utah," said Sarah Wright, Utah Clean Energy executive director. "The federal and state policies that enable these contracts recognize the benefits independent power production brings to Utah, particularly in our rural communities."

The controversy stems from the 1978 federal statute known as the Public Utility Regulatory Policies Act, or PURPA. PacifiCorp, the corporate parent to Utah's largest utility, Rocky Mountain Power, said the long-term fixed-price contracts the law forces the utility to enter amount to subsidies to alternative generators that will ultimately be borne by ratepayers. Meanwhile, the utility argued that PURPA has yoked it to future solar projects that will produce more energy than it can use.

The utility's critics derided this claim, saying sun-bathed, high-elevation Utah is underserved by solar.

Wright and other advocates, such as the Sierra Club and HEAL Utah, as well as energy developers led by the trade association Renewable Energy Coalition, slammed the proposal as a veiled effort to thwart competition for the utility's self-generated power at large plants. They reasoned that qualifying facilities would not be able to secure financing without long-term commitments by the utility, which has a monopoly on electrical power in Utah.

The commission agreed partially, but its ruling leaves the possibility for reducing contract lengths in the future.

"Although we find the record supports taking action to protect ratepayers against undue fixed-price risk, we believe a more measured response is appropriate than either the 85 percent reduction for which PacifiCorp advocates," the three-member commission wrote in its order. "A 15-year term strikes the appropriate balance at this time by mitigating a fair portion of the fixed-price risk ratepayers would otherwise bear while allowing [qualifying-facility] developers and their financiers a reasonable opportunity to adjust to this more modest change in business practice."

Ryan Yonk, executive director of academics of the Logan-based market-oriented think tank Strata, says PURPA distorts the markets in ways that unfairly favor wind and solar, which are fickle, intermittent sources of power.

"Because these contracts fix a price for such a long time, the risks are primarily carried by customers of the utility," argued Yonk, an economics research professor at Utah State University, in an op-ed published in The Tribune. "Advocates say these contracts are necessary to make renewable energy attractive for investors. But this is just an admission that many investments in renewables are risky enough that without immunizing investors from the possibility of losing their money, renewable energy is not a safe choice."

But a Salt Lake City attorney specializing in utility law saw wisdom in the PSC's compromise that recognizes both the public interest in renewables and the need to protect ratepayers.

"They said: There is problem and we need to deal with it, but we won't go as far as you asked," said Greg Monson, who has represented RMP in some matters but was not involved with this case. "They tried to walk a fine line and did a good job."

Observers noted PacifiCorp and sister utilities also owned by Berkshire Hathaway Energy have sought reductions in PURPA contracts in other states, as well as surcharges on net-metered customers who install solar arrays on their roofs.

NV Energy, for example, persuaded Nevada regulators last month to reduce to raise rates on net-metered customers, thereby weakening financial incentives to invest in rooftop solar.

Brian Maffly covers public lands for The Salt Lake Tribune. Maffly can be reached at bmaffly@sltrib.com or 801-257-8713. Twitter: @brianmaffly