February 4th 2015
A stalled project to put 15 industrial-sized wind turbines next to the six already up and running between Choteau and Fairfield will get reconsideration before the Montana Public Service Commission on Feb. 10.
Martin Wilde of Fairfield, working through the company, Greenfield Wind L.L.C., has been in a disagreement with NorthWestern Energy since April 2014 over what the utility will pay the wind developer for each megawatt-hour generated. The cost to integrate the intermittent energy into the region’s power grid is also unsettled.
In December, both parties agreed to a price to avoid further litigation, and filed a joint motion to approve a settlement agreement with the PSC, but the commissioners denied the settlement by a 3-2 vote.
Since that time, Brad Johnson replaced Bill Gallagher on the commission. Gallagher, Roger Koopman and Kirk Bushman voted against the settlement, while Travis Kavulla and Bob Lake voted for it.
Wilde called the denial “an 11th hour surprise reversal ruling” that “appeared to result from Gallagher placing his personal opinion and politics ahead of federal and state laws and ahead of the best interests of Montana rate payers.”
The PSC has invited the parties to present oral arguments for reconsideration at its Feb. 10 meeting in Helena.
At stake is whether Teton County will see a doubling of wind generation and an additional six-figure tax bill it will pay. Wilde’s Fairfield Wind six-turbine project that cost more than $25 million will start paying taxes next November.
Greenfield Wind attorney Ryan Shaffer of Missoula stated in his written motion to reconsider that the PSC’s decision was “unlawful, unjust and unreasonable” and constitutes an unlawful discrimination against “qualifying facilities,” namely, certain types of small power generation facilities, such as those from renewable-energy sources like the wind.
According to the Edison Electric Institute, the federal Public Utility Regulatory Policies Act of 1978 (PURPA) requires electric utilities to purchase energy offered by qualifying facilities. The goal is to support the development of small, onsite renewable generation and to promote diversity of a utility’s supply portfolio.
Montana has a renewable portfolio standard that requires public utilities to obtain a percentage of their retail electricity sales from eligible renewable resources. That percentage grew to 15 percent in 2015 after starting at 5 percent in 2008.
The PURPA also requires utilities to purchase electric energy from qualifying facilities at rates that are just and reasonable to consumers and that are equal to the utility’s avoided cost, defined as the incremental energy and capacity cost the utility would have incurred generating power from its own operating plant.
The state, through the PSC, governs the process to define those rates and has set a standard rate for certain qualifying facilities, but the Greenfield Wind project does not meet the criteria for that rate.
Wilde said that Greenfield has been seeking a long-term contract under PURPA with NorthWestern since 2010. But those efforts have been stymied, Wilde said, by the PSC’s rules prohibiting such long-term contracts for projects over a three-megawatt eligibility cap for the standard rate. Greenfield would generate 25 megawatts.
The rule used to be that the standard rate would apply to facilities generating 10 megawatts or less, and Wilde’s Fairfield Wind six-turbines qualified for the standard rate by generating 10 MW.
While the two parties were far apart at first in their proposed rates for the power, Shaffer said, “Greenfield recognized that with some concessions on Greenfield’s part, the gap between the rate proposed by NorthWestern and the rate proposed by Greenfield could be largely bridged.”
The negotiated rate is $50.49 per megawatt-hour if Greenfield pays NorthWestern for integration or $53.99 per MWh if Greenfield delivers a wind-integrated product. Another stipulation calls for Greenfield to delay the commercial online date until 2016.
Back in 2011, NorthWestern was paying a weighted average cost of $60.44 per MWh for qualifying facilities.
The PSC staff recommended that the commission approve the settlement but the commission voted otherwise.
Recent case law in the state determined that rates for purchases from qualifying facilities must be based on “current avoided least cost resource data,” Shaffer said. He argued that the market prices underlying the negotiated rate and the PSC staff’s benchmarking analysis come directly from NorthWestern’s 2013 least cost plan.
Shaffer alleges that the Federal Energy Regulatory Commission found that the PSC is failing to implement federal law for projects exactly like Greenfield. His argument is tied to the PSC’s recent approval of NorthWestern’s purchase of PPL’s hydroelectric dams. That process used the same market rates for evaluating whether the hydroelectric power system was a least-cost source. The commission voted for approval of the acquisition, Shaffer said.
He said the settlement rate “would save between $5.9 and $10.6 million over the life of the project compared to the two most reasonable alternative avoided-cost benchmarks.”
Wilde said, “Rejection of the unopposed settlement unreasonably deprives NorthWestern’s customers of the benefits of these favorable rates.”
He added that Greenfield’s rates would be significantly higher if Greenfield is forced to fully litigate its claim to a “legally enforceable obligation,” which is a “must-buy” provision of PURPA.
He explained that PSC’s own rules provide that a utility shall purchase available power from any qualifying facility at either the standard rate determined by the commission to be appropriate for the utility, or at a rate which is a negotiated term of the contract between the utility and the qualifying facility.
Feb 4 2015
Greenfield Wind and Northwestern Energy file Unopposed Joint Motion to Settle Before the Montana PSC
Greenfield Wind, LLC and NorthWestern Energy presented an unopposed joint settlement to the Montana PSC for approval in November 2014, and although there was not opposition at the hearing on December 1st, the settlement was inexplicably denied in mid December by an 11th hour surprising reversal ruling.
The December 16th Decision denying the Unopposed Stipulation appeared to result from past commission chairman Gallagher, who did not attend the December hearing, placing his personal opinion and politics ahead of Federal and State law and ahead of the best interests of Montana rate payers.
In response, on January 8th, Greenfield Wind filed a Motion for Reconsideration, which is currently before the Montana Public Service Commission and presents a critical question of whether the Commission will approve of a Qualifying Facility negotiating with NorthWestern to obtain reasonable long-term avoided cost rates as directed by PURPA and supported by recent rulings from FERC and Montana State Courts, or whether the Commission will subject the parties, and quite possibly the Commission itself, to further litigation.
After eight months of work on the contested case and the settlement, the December 16th last minute reversal decision to deny the unopposed settlement was not only surprising but unlawful, unjust, and unreasonable, and should thus be reconsidered for the following reasons:
- First, the record abundantly supports a conclusion that the rates and terms contained in the Stipulation are consistent with, and likely significantly below, any reasonable current estimate of NorthWestern’s actual avoided costs. The Commission Staff’s analysis demonstrated that the Settlement rate would save between $5.9 and $10.6 million over the life of the project compared to the two most reasonable alternative avoided cost benchmarks. Rejection of the Unopposed Settlement unreasonably deprives NorthWestern’s customers of the benefits of these favorable rates.
- Second, Greenfield Wind submits that the avoided cost rates will be significantly higher if Greenfield is forced to fully litigate its claim to a legally enforceable obligation (“LEO”) at the Commission and any subsequently necessary judicial proceedings – thus subjecting NorthWestern’s customers to higher rates than those offered in the Unopposed Stipulation.
- Third, the apparent rationale for rejection of the Unopposed Stipulation rests upon unlawful discrimination against QF projects, which combined with other recent events would constitute an actionable violation of federal and state law if allowed to stand.
- Fourth, the rejection of the negotiated rate between NorthWestern and Greenfield will launch the parties and the Commission back into unnecessary and costly litigation.
If a state chooses to regulate electric utilities, it must implement the Federal Energy Regulatory Commission’s (“FERC”) regulations under the Public Utility Regulatory Policies Act of 1978 (“PURPA”) (16 USC § 824a–3(f)(1); FERC v. Mississippi, 456 U.S. 742, 751, 102 S.Ct. 2126, 2133 (1982)).
FERC’s regulations, which are adopted by ARM 38.5.1902(1), require state commissions to implement PURPA in a way that requires a utility to purchase energy and capacity from QFs at the full avoided costs of the purchasing utility (Amer. Paper Institute, Inc. v. Amer. Elect. Power Serv. Corp., 461 U.S. 402, 415-18 (1983)).
The Montana Supreme Court has explained: “PURPA requires large utilities to purchase energy from smaller qualifying facilities at rates that allow the small facilities to become and remain viable suppliers of electricity.” (Whitehall Wind, LLC v. Montana Pub. Serv. Comm’n., 355 Mont. 15, 16-17, 223 P.3d 907, 908-09 (2009)).
FERC’s regulations also permit a QF and an electric utility to enter into a contract containing agreed-to rates, terms, or conditions. 18 C.F.R. § 292.301(b). FERC has explained that “a contracted-for-rate would never exceed true avoided costs and would thus be consistent with PURPA.” (Cedar Creek Wind LLC, 137 FERC ¶ 61,006, at n. 73 (2011) (citing Order No. 69, 45 Fed. Reg. 12,214 (1980))).
This rule “recognizes that the ability of a qualifying cogenerator or small power producer to negotiate with an electric utility is buttressed by the existence of the rights and protections of [FERC’s] rules.” (45 Fed. Reg. at 12,217)
FERC has rejected state implementation schemes that stand as an impediment to such amicable contract formation (Grouse Creek Wind Park, LLC, 142 FERC ¶ 61,187, at P 40 (2013)) and some courts have reversed state commission decisions rejecting agreed-to PURPA rates (Pub. Util. Commn. Of Texas v. Gulf States Utilities Co., 809 S.W.2d 201, 208-09 (Texas 1991)).
Montana’s “mini-PURPA” further instructs the Montana PSC. It declares: “Long-term contracts for the purchase of electricity by the utility from a qualifying small power production facility must be encouraged in order to enhance the economic feasibility of qualifying small power production facilities.” (M.C.A § 69-3-604(2) (emphasis added)).
The Commission’s own rules provide, “Each utility shall purchase available power from any qualifying facility at either the standard rate determined by the commission to be appropriate for the utility, or at a rate which is a negotiated term of the contract between the utility and the qualifying facility.” (ARM 38.5.1905(2)).
However, the MPSC has also implemented a rule that requires QFs sized over 3 megawatts (“MW”) to prevail in an all-source competitive solicitation to obtain a long-term contract (ARM 38.5.1902(5)). Because NorthWestern has not been compelled to regularly hold such solicitations, FERC declared this rule constitutes a failure to implement PURPA’s bare minimum requirement to make long-term avoided cost rates available to QFs (Hydrodynamics, 146 FERC ¶ 61,193, PP 32-35 (2014)).
The Montana courts have likewise faulted the Commission for failure to provide reasonable avoided cost rates to QFs (See Whitehall Wind, LLC, 355 Mont. at 18, 223 P.3d at 909 (reversing rate determination where “the PSC’s own staff economist contradicted the PSC’s rate determination”)); (Whitehall Wind, LLC v. Montana Pub. Serv. Comm’n, Cause No. DV-03-10080, Remand Order (Mont. 5th Dist., May 21, 2014) (again reversing the MPSC’s subsequent order)).
PROCEDURAL AND FACTUAL BACKGROUND
Greenfield has been seeking a long-term contract under PURPA with NorthWestern since 2010. It has spent substantial sums of time and money to develop its wind project in reliance on federal and state law. But those efforts have been stymied since at least 2010 by the Commission’s rules prohibiting such long-term contracts for projects over the eligibility cap for standard rates and outside of the 50-MW cap for wind projects.
NorthWestern states that it filed the original Petition in this case at the PSC because the Commission has not authorized it to enter into long-term contracts outside of an all-source solicitation. In the absence of a Commission-approved methodology to calculate long-term rates for Greenfield Wind’s project, the parties engaged in extensive and costly discovery and contested proceedings over the most appropriate methodology.
Through the Commission’s proceedings and discovery processes, Greenfield was able to review NorthWestern’s data and calculations. In doing so, Greenfield recognized that with some concessions on Greenfield’s part the gap between the rate proposed by NorthWestern and the rate proposed by Greenfield could largely be bridged. Additionally, a contested transmission cost issue became moot when Gaelectric’s senior transmission requests were withdrawn and removed from the transmission queue – further bridging the gap between the parties.
Thus, Greenfield and NorthWestern were able to negotiate a rate that was derived using NorthWestern’s method of estimating the avoided costs. The net Stipulation/Settlement rate is approximately $50.49/MWh if Greenfield pays NorthWestern for integration, or $53.99/MWh if Greenfield delivers a wind integrated product. Due to NorthWestern’s near-term long position, Greenfield agreed to delay the commercial online date for the full contract rate until 2016, and will only be paid $19.99/MWh (minus integration costs) for any generation delivered in 2015.
In light of the fact that NorthWestern is a regulated utility and the Commission has approved no methodology to calculate large QF rates, such approval is necessary for the project to move forward without further delay.
On December 1, 2014, the Commission held an evidentiary hearing on the Stipulation. Multiple rounds of testimony from Greenfield and NorthWestern and all data requests were admitted into the record for purposes of evaluating the Stipulation. All of NorthWestern and Greenfield’s witnesses were made available for live or telephonic cross examination. The Montana Consumer Counsel (“MCC”) and LEO Wind, Inc. both attended the Stipulation hearing. Neither of them opposed the Stipulation or requested post-hearing briefing to challenge its terms.
On December 16, 2014, the Commission held its work session on the Stipulation.
The Commission’s Staff presented a memorandum summarizing the terms of the Stipulation, including five market benchmarks against which to compare the Stipulation rate. Each of Staff’s five benchmark rates were higher than the Greenfield Wind rate. Thus, Commission Staff recommended approval of the Stipulation.
The PSC Commission’s Staff explained: The reasons to approve, would be that the rate appears to reasonably approximate avoided costs. It would avoid expenditure of further resources by all parties, including the Commission, on this matter. It would signal that NorthWestern can negotiate with large QFs, and that the PSC will implement rates for large QFs.
In fact, the Commission’s Staff explained that its portfolio comparison benchmark analysis, using the same inputs used to model the PPL Montana Hydroelectric Projects (“PPL Hydros”), demonstrated that “having Greenfield energy as part of the portfolio saves the portfolio costs.” But the Commission voted to reject the Stipulation by vote of three to two.
Former Commissioner Gallagher, as well as Commissioners Koopman and Bushman voted against the Stipulation, while Commissioners Kavulla and Lake supported approving the settlement.
==January 12, 2015
Marty Wilde, WINData LLC
March 21, 2014 6:00 am • By MIKE DENNISON IR State Bureau
In a strongly worded ruling, a federal commission Thursday said Montana Public Service Commission rules are improperly hindering small, renewable-power projects in the state.
The Federal Energy Regulatory Commission said the PSC rules create an “unreasonable obstacle” for the projects to get contracts to sell their power to utilities, as well as go against a federal law meant to encourage development of the independently owned projects.
Yet the unanimous FERC ruling was not an enforcement action against the PSC, which regulates electric utilities in Montana.
Instead, FERC issued a “declaratory order,” leaving either the PSC to correct its rules or the independent power projects to take the issue to a court for enforcement.
Mike Uda, the Helena attorney representing wind-power producers who asked FERC to overturn the PSC rules, said he hopes the PSC will “do the right thing” and undo rules that prevent projects from getting contracts.
“It was a perfect system that they had to prevent (renewable power) development,” he said. “Well, now FERC has told them that’s against the law.”
Two Montana commissioners, however, said Thursday it’s too early to say how the PSC may respond to the ruling, and that its lawyers will review the FERC decision.
A spokeswoman for NorthWestern Energy, the state’s largest electric utility and a supporter of the PSC rules, also noted that FERC did not overturn the rules.
“The Montana rule still stands,” said Claudia Rapkoch. “It will be up to the judicial system to make any further disposition, if the (project developers) choose to pursue it.”
The fight is over a 22-year-old rule adopted by the Montana PSC that says if an independent, renewable-power project is larger than three megawatts and wants a contract to sell to NorthWestern or other utilities, it must win the contract in a competitive bidding process.
The rule was adopted to administer a 1978 federal law that requires utilities to buy power renewable power — wind or hydro power, usually — from independent projects, under certain circumstances.
The Montana PSC also limited to 50 megawatts the total power that can be produced by independent wind projects.
NorthWestern Energy, the state’s largest electric utility, has supported the rules, arguing that without them, the utility would be forced to accept contracts to buy more power than they need at prices above the market.
Small-power developers have long opposed the rules, saying they allow NorthWestern to ignore almost any independent power project they don’t want and, instead, choose development of its own projects.
Commissioner Travis Kavulla, R-Great Falls, who has voted against the rules, said the small-power projects can act as a check and balance against the utility, by offering power that may cost less than utility-sponsored projects.
“The bottom line is, you can’t have a utility that’s absorbing all of these opportunities (for project development), while blocking small, independent developers from doing the same things that cost the same, or less,” he said.
FERC’s ruling said requiring a small producer to win a contract through a competitive bid is “an unreasonable obstacle,” especially when such bidding contests are rarely held by utilities.
It also said limiting the total power from wind projects to 50 megawatts is “inconsistent” with federal law and FERC regulations, which require utilities to buy electricity from small, renewable-power projects that agree to sell for the “avoided cost” — a rate equivalent to what the utility would have to pay for the power elsewhere.