House Energy Committee Receives Letter From Cypress Creek Renewables
- Nov 20, 2017 3:34 pm GMT
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Subcommittee on Energy and Power
Subcommittee on Energy and Power
Thank you very much for convening this week's hearing on the Public Utilities Regulatory Policies Act of 1978 (PURPA). Cypress Creek Renewables is an independent power producer specializing in the development, construction and operation of utility-scale solar farms. As the nation's largest developer of Qualifying Facilities (QF's) under PURPA, we have found the law critical to ensuring competitive access to electricity markets which would otherwise be totally monopolized by the incumbent utility.
We appreciate the opportunity to provide our views on PURPA implementation as well as bring to the Committee's attention aspects where implementation can and should be improved. As discussed, in your staff's memorandum of
As the Committee undertakes its review of PURPA, we believe it is important to keep in mind three fundamental principles:
1. By law PURPA ensures the consumer is getting the cheapest possible new power generation. A bedrock principle of PURPA is that a QF cannot receive a contract for its power unless that power can be built cheaper than the utility can build new generation for itself..
2. PURPA is the only avenue for independent power producers (IPPs) to access the market in many states. Two-thirds of states still maintain monopoly control of electricity markets. In the relatively few states, such as
3. Independent power producers (IPPs) deliver cheaper new power generation than monopoly utilities, at less risk to consumers. A monopoly utility has an incentive to build expensive new power generation in order to maximize the profits it is guaranteed under the current rate-basing system. To make matters worse, when things go wrong, ratepayers are often left holding the bag. In contrast, an IPP puts its own capital at risk in the marketplace and shoulders all the risk of construction. If we go
With regard to some of the specific issues of PURPA implementation that could benefit from the Committee's oversight, we would highlight for your consideration:
1. First and foremost, PURPA should be enforced. There are many states in which the requirements of PURPA are being blatantly ignored and violated by utilities and public service commissions. These violations include failure to publish avoided cost rates, using flawed methodologies to calculate avoided costs, refusal to provide long-term financeable contracts, and avoiding or delaying contract negotiations. In some cases, public service commissions have refused to implement or enforce PURPA even when given clear direction by
2. Where PURPA is enforced, the consumer receives lower cost electricity than in states where it is not enforced. In
3. Utilities manipulate their avoided cost methodologies, applying different standards to their own self-build projects. In states where utilities are forced to present avoided cost data for the public service commission to set rates for QFs, they routinely propose the least favorable methodology in order to drive down the avoided cost rate while utilizing much higher cost numbers for their own self-build projects. The Committee could investigate a number of ways to level the playing field, either standardizing methodologies, giving QFs an avoided cost figure derived from utility Integrated Resource Plans (IRPs), or requiring utilities to generate power at the same price as the avoided cost rate offered to QFs. In a similar vein, utilities should be required to justify their investments based on the same cost-recovery period established for QF power purchase agreements, as was recently ordered by one public service commission.
4. Long term contracts hold down costs for consumers and households. PURPA requires utilities to offer QFs long term contracts, and such contracts provide predictability for QF consumers through either a flat price or a levelized price which remains constant throughout the life of the contract, thereby locking in a steady decrease in the real price of power over time. Particularly at this point in time, historically low natural gas prices have driven avoided cost rates to historic lows, so it is an opportune time to lock in low power prices for years to come, and allows long term PURPA contracts to act as an anchor on electricity prices. Therefore public service commissions should not ask what is the shortest possible contract investors and lenders will finance, but what is the longest possible contract that could lock in low cost power for the consumer.
5. There are other ways to structure electricity market reforms that ensure market access for IPPs and lower cost electricity for consumers. We are aware and acknowledge that like any 40-year old statute, PURPA sometimes creates inefficiencies in its implementation, and at
Should utilities, regulators or legislators seek other ways to reform electricity markets to better ensure efficient allocation of resources, there are numerous market alternatives which can be structured to the benefit of consumers:
a. Market-first: requiring utilities to go to the marketplace first to solicit proposals from IPPs for all new power generation. Giving monopoly utilities control over generation investment decisions, even subject to utility commission oversight, has not proven in the public interest. There is no reason that utilities shouldn't be required to justify their investment decisions based on pricing comparison to market alternatives.
b. Alternative rate design: ensuring investor-owned utilities' shareholder returns are tied to providing consumers the lowest cost electricity, rather than maximizing their capital expenditures.
c. Consumer choice: giving the consumer the choice of whom to buy their electricity from.
Thank you again for your consideration of these important topics. We would very much appreciate working with you on any reforms the Committee might consider, and are always willing to work with our utility partners to negotiate fair improvements to current market structures. Please let us know how we can be helpful to you as you consider PURPA's implementation in today's power markets.
With kind regards, I am.
Chief Executive Officer
Cypress Creek Renewables.
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