The Montana Public Service Commission yesterday granted an emergency request by NorthWestern Energy to suspend the rate paid to small renewables projects for their electricity, arguing the move would save the utility’s customers money.
By a 3-2 vote, the PSC said that while the suspension is in place, NorthWestern Energy should negotiate contracts with any proposed solar facilities of 100 kilowatts to 3 megawatts in size, just as it does now with large renewables projects.
Until now, such small projects, known as qualifying facilities, or QFs, were paid a standard rate established by the PSC based on the cost the utility theoretically would avoid if it provided the power itself. That rate for solar projects is $66 per megawatt-hour, and NorthWestern wants to lower that significantly.
The suspension of the QF rate for solar projects will remain in effect until a new rate is established, which the PSC expects to take about six months.
"The sheer number of these very high priced proposed projects, which would produce power our electric system doesn’t need, is of significant concern to the company and its 360,000 Montana electric customers. Our customers will pay substantially more for electricity because of the current mandated prices paid to these projects," NorthWestern said in a fact sheet issued in May.
NorthWestern has proposed a rate of $34 per MWh, or $44 per MWh if the project developer transfers the project’s renewable energy credits to NorthWestern, which allows the projects to count toward the state’s renewable portfolio standard.
NorthWestern submitted testimony to the PSC estimating that anticipated small solar projects could create more than $215 million in additional costs to their customers over the next 25 years if the current rate was not reworked.
PSC Chairman Brad Johnson characterized the action as protecting NorthWestern Energy’s customers from "unreasonably priced solar power" and "a compromise that still allows solar energy development to continue across the state."
The Montana Consumer Counsel agreed with NorthWestern’s concerns about consumer impact, stating in comments submitted to the PSC, "The long-term risk of harm to customers justifies granting the relief requested by NorthWestern."
Commission Vice Chairman Travis Kavulla dissented, saying, "Even if this were a good idea, I do not believe this approach is lawful."
In an interview, Kavulla, who also serves as president of the National Association of Regulatory Utility Commissioners, said the commission-set standard rates "can go stale as electricity and natural gas market price forecasts are updated."
"But the debate today was whether to retain those rates or change them pending a further hearing or just toss them altogether. I was for the second option," he said.
Commissioner Roger Koopman voted to suspend, criticizing "out-of-state solar developers flooding into Montana, anxious to capture the windfall profits created by an ill-conceived federal program that the PSC is required to enforce."
The practice of a utility having no choice but to buy the output of small renewables projects stems from the Public Utility Regulatory Policies Act of 1978. The law was meant to promote alternate forms of generation other than nuclear, coal, natural gas and oil.
"It’s only been in the last couple of years where it’s really started to take off in terms of developers building larger solar projects using their PURPA rights," said Daniel Simon, special counsel in the Washington, D.C., office of Stroock & Stroock & Lavan LLP.
In the early 1980s, "the vast majority of megawatts coming on line was through [cogeneration]," he said, as well as biomass, waste-to-energy and certain type of hydroelectric projects.
"This issue is going to continue to grow in magnitude. We’re going to continue to see developers trying to get projects built under PURPA, and we’ll probably see utilities trying to fight back on some of this," Simon said, noting that the Federal Energy Regulatory Commission is having a technical conference later this month on PURPA, specifically the mandatory purchase obligation under the law on how to determine avoided costs for those purchases.
"Since the beginning of this year, we’ve had two out-of-state developers propose 43 3-MW QF solar projects, projects which our electric system does not need," said John Hines, NorthWestern vice president for supply. The state is "very attractive to these developers because their profits are so much higher under the current rates," he said.
There are currently 29 qualifying facilities on NorthWestern’s system — mostly wind farms but also small hydro, a waste coal generator and a petroleum-coke facility at a Billings-area refinery.
But now, "We have a whole bunch of [solar proposals] in the hopper," said NorthWestern spokesman Butch Larcombe. The $66-per-MWh rate the project developers are seeking is "well above what we think the avoided cost rate is. All of that creates a good economic proposition for these developers. That’s free enterprise," he said.