avoided cost

Last fall we decided to intervene in a PURPA avoided cost docket in Colorado, opened by Xcel Energy, because we wanted to encourage the utility to improve the rates paid to solar generators. Instead we found ourselves in a battle over a fundamental protection that PURPA offers – the right to use the electricity that your solar energy system generates to power your property.

What’s a PURPA you ask? No, it’s not the larvae of a large insect. It’s the Public Utility Regulatory Policy Act, a Federal law that has been on the books since 1978.  The law requires electric utilities to purchase power from renewable generators, known as qualifying facilities or “QFs,” at a price equivalent to the cost the utility avoids by making an alternative purchase. This rate is known as an ‘avoided cost rate.’

The purpose of PURPA was to encourage the development of small, distributed clean generators across the U.S. However, in practice, avoided cost rates for QF facilities haven’t resulted in a lot of solar development outside of a few states. And that’s because each State in the U.S. is given the jurisdiction to set their own avoided cost rates under PURPA, and they’ve tended to set those rates below retail. Most ‘solar generators’ (i.e. rooftop solar customers) don’t even consider registering as a QF facilities, and instead use net metering – with its fair and simple retail credit  – as their compensation arrangement of choice.

Take a look at Colorado: after more than 30 years of having standard avoided cost rates in place for small QFs, the rate has encouraged the construction of a grand total of, wait for it, zero facilities.  So last fall, when Public Service Company of Colorado (PSCo), the Colorado operating subsidiary of giant utility Xcel Energy, filed to take a fresh look and potentially change the calculation method for the QF rate for small-scale solar generators (100 kilowatt and smaller systems), we saw the potential opportunity for making this mechanism useful for actually deploying valuable solar.  A PURPA-based avoided cost rate that properly quantifies DG benefits could better serve to promote local solar growth.

Our optimism was short lived however as we were able to dig into the details of Xcel’s proposal (only after the judge denied the utility attempt to prevent us from having full access to that information, but that’s another story). Not only is Xcel continuing to undervalue QF generation, the utility is also taking aim at its customers fundamental solar rights.

Under a PURPA QF arrangement – as with net metering – the host customer should first and foremost be empowered to use their generation on-site and then sell any excess energy to the utility.  Yet in this new proposal, Xcel insists that the generator must sell 100% of its output to the utility, not allowing the owner to use his or her own power.  We fundamentally disagree with this interpretation of PURPA and are pushing back hard against this position at the Commission. Vote Solar firmly adheres to the principle that customers have the right to manage their energy consumption and produce their own power. Whatever happens on the customer side of the meter is the customer’s prerogative, not the business of any utility.  Xcel’s stance in this docket would give the utility too much power over a customer’s energy decisions, and take away a customer’s right to use their power onsite.

In addition to undermining customer solar rights, Xcel’s proposal also uses some questionable modeling techniques to undervalue rooftop solar in the resulting QF rate.  I’m going to get a little into the weeds here, bear with me.

On an annual basis, the marginal costs it models and wants the Commission to adopt as avoided are less than average costs 5 out of every 6 hours.  We take issue with the utility’s methodology.  Given that utility systems are run by operating the cheapest unit first, the next cheapest second, and so on (known as economic dispatch), the marginal cost – the cost of generating the next kWh – should be higher than the average of all the cheaper plants already running. When we dove a little deeper, it turned out that the Company‘s modeling finds coal generation on the margin more than half the time.  In the utility world, coal is known as a baseload resource meaning that it typically runs almost flat out nearly all the time.  Why?  Because it is expensive to start but cheap to run (at least if you don’t consider environmental impacts.) Call me crazy, but I am arguing that Xcel should use marginal costs that actually represent the costs that will be avoided when the QF is operating. 

So what’s next for the QF docket in Colorado?  We have just concluded the formal hearing on the small QF rates and have a couple more steps before we get a decision from the Commission in August or September.  We will also concurrently be examining the avoided costs, or to put it another way, the  ‘benefits’ of rooftop solar in another process at the Commission.

Our goals in these dockets are to protect the rights of customers to produce their own solar energy for on-site consumption – and to make sure that rooftop solar is properly and consistently valued in the various rate-related proceedings open before the Colorado Commission.  Stay tuned.