North Carolina Amends Rules Governing Procurement

To assure consistency with a new law enacted by the state legislature this past summer, the North Carolina Utilities Commission (NCUC) has modified its rules pertaining to the competitive procurement of renewable energy.

The commission noted that the General Assembly had been prompted to pass the new statute, known as G.S. 62-110.8, as more and more renewable energy, especially solar power, entered North Carolina’s energy markets. In fact, the commission reported, the state has seen such tremendous growth in solar assets that North Carolina is now ranked among the top five states in the country in terms of installed solar capacity.

The new law recognizes that the increasing availability of solar power had brought into question whether the existing pricing paradigm for renewable energy — which was premised on the concept of avoided costs under the federally promulgated Public Utility Regulatory Policies Act of 1978 (PURPA) — remained appropriate. Both the legislature and the commission deemed the answer to be no. As a result, they proposed changes in the current PURPA-based regimen for pricing renewable energy that utilities purchase from qualifying facilities (QFs).

As part of its efforts to implement the new law, the commission had acted in October to revise the criteria under which small power production QFs would be eligible for avoidedcost pricing. In that decision, the commission outlined two major modifications:

1. a reduction, from five megawatts to just one megawatt, in the maximum capacity a QF can have to be eligible for standard offer rates; and
2. a decrease, from 15 years to 10 years, in the maximum duration of such standard offer contracts.

After announcing those rule changes, the commission turned its attention to other aspects of the legislation, one of which was the law’s requirement for revised regulations governing the competitive procurement of renewable energy. The commission remarked that it was critical that such rules be instituted inasmuch as the General Assembly had explicitly provided for requests for proposals for the acquisition of 2,660 megawatts of renewable energy over the next 45 months.

Under the final rules put forth by the commission, such solicitations will be subject to oversight by an independent third party that is approved by the commission. According to the commission, it is imperative that an outside monitor be retained because utilities will be allowed to participate in the associated auctions.

That is, the commission said, the law permits utilities to invest in their own renewable energy facilities and then tender the capacity therefrom into the bidding process. Utilities are also provided the option of purchasing existing renewable energy projects from others. But, the commission cautioned, in no case can a utility obtain more than 30% of its total competitively acquired renewable energy supply from utility-owned facilities. The commission said that such strictures on utility participation were appropriate and had been included in G.S. 62-110.8 in recognition that such limits would better assure a level playing field as between utilities and QFs. The commission added that reliance on a third-party independent administrator to assess and evaluate bids also offered assurances of transparency of data as well as equitable treatment in case any dispute resolution is needed.

As to the selection of auction administrators, the commission ruled that that should be left up to the utilities. In declining to engage in the selection process itself, the commission explained that its reading of the law indicated that the commission’s role was limited to approving the administrator. In addition, the commission said, inasmuch as the utilities are charged with paying the bid monitors, the “functions that are entailed in retaining the Independent Administrator are appropriately left to [them].”

The commission concluded that by minimizing its own role in the auction process, the legislature’s vision for more market-driven outcomes is advanced. Re Rulemaking Proceeding to Implement G.S. 62- 110.8, Docket No. E-100, Sub 150, Nov. 6, 2017 (N.C.U.C.).