The Utah Public Service Commission (PSC) issued its decision today on PacifiCorp’s request to shorten the maximum term of power purchase agreements (PPAs) with qualifying facilities (QFs) from 20 years to three years.  The PSC agreed to reduce the maximum term from 20 to 15 years, concluding:  “We believe 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 QF developers and their financiers a reasonable opportunity to adjust to this more modest change in business practice.”

My colleague Greg Monson provided the following analysis:

PacifiCorp’s request is similar to requests made in its other states and by sister-company NV Energy in Nevada.  PacifiCorp provided evidence of the substantial volume of QF contracts and pending requests compared to system needs, the price differential between the current avoided costs and market, and the inconsistency of 20-year, fixed-price contracts with current resource planning and hedging policies.  The Utah Division of Public Utilities (DPU), the state agency charged with representing the public interest, supported the request to shorten the maximum term, but to five years rather than three.  The Utah Office of Consumer Services (OCS), the state agency charged with representing the interests of residential and small commercial customers, expressed concern about the fixed-price risk to ratepayers, but opposed the request, arguing that “this extreme change [in contract duration] may discourage all new QF development … contrary to Federal and State laws [that] were enacted specifically to encourage the development of small power producers or QFs.”  The Renewable Energy Coalition (REC), the Rocky Mountain Coalition for Renewable Energy (RMCRE), Sierra Club and Utah Clean Energy (UCE) also filed testimony opposing the request, arguing that granting it would end QF project development in Utah and was contrary to PURPA and the Utah law.

Key findings and conclusions of the PSC are:

  • “We reject the notion federal regulations require QF developers to enjoy ‘investor certainty’”
  • “no federal or state statute or regulation requires a 20-year contract term”
  • “it falls to [the PSC] to exercise its discretion to establish a contract term that advances the policy interests underlying PURPA and [the Utah law] without unduly burdening ratepayers with excessive price risk”
  • “even if it were incumbent on the Commission to establish contract terms that ensured the ability of QF developers to obtain financing, the record does not demonstrate QF developers will be unable to obtain financing on projects with shortened contract terms”
  • “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 or the 75 percent reduction sought by the [DPU]”

Download a copy of the decision (PDF)