Imagine that you were forced to sign a 25 year contract for gas for your car at 3-4 times the market price. That’s the exact situation NorthWestern Energy customers were facing without the Commission’s recent action to reduce the contract length and rate available to small renewable projects known as Qualifying Facilities (QFs).
As usual with actions that put ratepayers first, those who would have us promote renewables at any cost are hopping mad.
The Federal law that the Commission must follow, PURPA, clearly states that ratepayers shouldn’t pay more for one form of energy over another. That law also requires “long-term” contracts for renewable energy projects without providing a precise definition of “long-term.”
Until recently, contracts were set at a term of 25 years; however, the Commission received compelling testimony from the state consumer advocate, the Montana Consumer Counsel that fixed price, 25-year contracts were “excessively risky for customers.” My colleagues and I on the Commission agreed and earlier this month we voted to reduce contracts to a maximum of ten years.
The price that NorthWestern must pay for the power supplied by renewables is ultimately born by the consumer. The PSC’s charge is to ensure that customers, you and I, pay no more for alternative energy than we otherwise would for power generated by the utility or purchased from the open market. The longer the length of the contract the less accurate these calculations become, and the greater the likelihood that consumers will wind up paying too much.
Case in point, last June the Commission blocked a proposal by a handful of developers to build 130 megawatts of new solar generating capacity at a highly inflated rate of $66 per megawatt hour, roughly 3 times the market price today. That action is projected to save ratepayers an estimated $65 million over the next 25 years based on a forecast of current market prices.
Shorter contracts provide a benefit to both consumers and QFs by ensuring that rates paid to developers more accurately reflect the actual cost of generating electricity.
Recently circulated stories have strongly suggested that the Commission’s actions were mean to “kill” wind and solar development in the state. There is no truth whatsoever to this claim. In fact, the Commission recognizes that the risk associated with locking customers into long-term rates is universal and that’s why we voted to apply the exact same treatment to NorthWestern, as well as QFs.
To be sure, renewable development brings jobs and dollars to the local economy, but such concerns are outside the scope of the Commission’s mandate to select the least cost resource to reliably serve customers. Federal law clearly prohibits the Commission from favoring one form of generation over any other. Such incentives are the sole privilege of the Montana Legislature or Congress.
In the coming weeks the Commission will undoubtedly face motions to reconsider our decision. I will approach those requests with an open mind and will happily reverse my decision if presented with compelling new information, but any proposal must square with the legal requirement that rates remain neutral for customers. Montana’s clean energy future must not be financed on the backs of ratepayers.
Tony O’Donnell is a member of the Montana Public Service Commission