Montana Slashes Solar Developer's Proposed Pricing

Consistent with a prior ruling in which it shortened the maximum duration of a utility's power purchase agreements (PPAs) with renewable energy projects, the Montana Public Service Commission has okayed a new solar PPA for just a 10-year term. The project developer, MTSUN, LLC, had requested approval of a longer-term PPA with NorthWestern Energy (NWE) for a proposed 80-megawatt (MW) solar farm near Billings, Montana. The project sponsor also suggested a PPA rate of $63.70 per megawatt-hour (MWh), which it said tracked the utility's avoided costs based on NWE's 2015 electricity supply resource procurement plan. 

The commission, however, approved a rate of only around $20 per MWh, in line with the utility's projected avoided costs as calculated in its most recent forward-looking resource plan. Pointing to its earlier decision, in which it restricted new renewable power contracts to a period not exceeding 10 years and incorporated lower standard offer rates, the commission said that the revised PPA terms were necessary in order to protect customers from the "excessive risk" of long-term contracts. The commission reiterated from the prior order that given the imprecision of price projections, the longer the term attached to a PPA, the greater the chance that significant forecasting error will adversely impact ratepayers. 

In addition to adjusting downward the rate to be paid by NWE to the solar qualifying facility (QF), the commission also eliminated from the rate a MTSUN-recommended carbon price adder. In doing so, the commission cited a shift in federal policy with respect to carbon emissions. More particularly, the commission noted that in conjunction with the new presidential administration, it had become increasingly unlikely that any federal agency would be pressing on with further carbon dioxide emission strictures or other environmental standards. There thus was no justification for the carbon adder, the commission said. 

In a further nod to its earlier decision on PPAs, the commission required the utility to apply symmetrical treatment for MTSUN and all other resources, including utility self-build projects. At the same time, though, the commission highlighted the fact that NWE had recently announced that it was suspending a solicitation that had been targeted primarily at natural gas assets. In concurring with the company's decision thereto, the commission observed that that request for proposals had called for 20-year  contracts at a minimum. 

In the petition it submitted to the commission, MTSUN had stated that, despite its best efforts and numerous negotiation sessions, it had been unable to obtain an agreement with the utility on (1) long-term forecasted avoided-cost pricing, and (2) the terms and conditions of a power purchase agreement. But the commission rejected the developer's concomitant claim that its negotiations had reached a point at which a "legally enforceable obligation" (LEO) had been created, which would compel NWE to purchase all of the solar facility's generation at MTSUN's proposed rate. 

The commission similarly denied the developer's pricing computations. It explained that in examining MTSUN's proffered avoided-cost calculation as an initial matter, it had assumed that the proxy model used by the developer was a reasonable method for estimating avoided costs. However, the commission said, even with that assumption, if the LEO price did not approximate the avoided cost using the QF's own method, there was no need to delve into the reasonableness of the model itself to resolve the LEO issue. According to the commission, that logic rested on the notion that a QF will not estimate avoided costs using a method that understates those costs. 

The commission found that for purposes of evaluating MTSUN's assertion that an LEO had been established in December 2016, it was first necessary to ascertain whether MTSUN's tendered LEO price of $63.70 per MWh was consistent with the utility's avoided costs as of the time the LEO allegedly was created. In that regard, the commission deemed stale the natural gas price forecast from NWE's 2015 resource plan that MTSUN had used in its avoided-cost calculations for year-end 2016. Indeed, the commission said, substituting December 2016 natural gas price data for 2015 natural gas price projections yielded a substantially lower avoidedcost price. 

The commission remarked that an even larger reduction was actually required because the QF had used an unreasonable method of estimating the capacity contribution of its project, at 9.6%. The commission expounded that when MTSUN filed its petition, the commission had not yet established a method for determining the capacity contribution of solar units. Upon addressing the matter, however, the commission had concluded that a capacity contribution of 6.1% would be appropriate. 

The commission related that that figure had been derived in reliance on the methodology used by the Southwest Power Pool in calculating net future capacity contributions of wind and solar generation projects. Re MTSUN, LLC, Docket No. D2016.12.103, Order No. 7535a, June 29, 2017 (Mont.P.S.C.).