STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * *

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1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter, on the Commission s own motion, ) to initiate an inquiry into the methods and approaches ) for determining utility capacity needs over a 10-year ) Case No. U planning horizon to establish or update avoided ) capacity costs. ) ) Geronimo Energy is a leading full-service renewable energy developer and owner/operator. The company has offices in Michigan and has built a healthy pipeline wind and solar projects in Michigan that are currently in various stages of development and construction. Geronimo s Michigan development pipeline includes multiple solar Qualified Facilities ( QFs ) located throughout the state. Geronimo provides custom renewable energy solutions for corporations, utilities, electric cooperatives, municipal power agencies, and communities who seek to secure the supply of affordable, reliable, and sustainable renewable energy. Over 1,800 MWs of wind and solar projects developed by Geronimo are either operational or currently under construction, including the Apple Blossom Wind Farm in Huron County, MI. Geronimo also has a multigigawatt development pipeline of wind and solar projects in various stages of development throughout the United States. On February 22, 2018 the Michigan Public Service Commission issued an Order and Notice of Opportunity to Comment in the above-captioned matter. The Commission requested that interested parties comment on issues related to the establishment and adjustment of utility capacity need over a 10-year period, the criteria to establish a Legally Enforceable Obligation ( LEO ), and the appropriate process to calculate and update avoided energy and capacity costs for Qualifying Facilities ("QFs"). The Commission has raised several important questions that will help establish the framework for contracting with QFs. Currently, each utility has its own process for PURPA requests, and none of those processes appear to be transparent. Considering and identifying parameters such as the need for capacity and steps to establish a LEO will help reduce cost, time and uncertainty for QFs wishing to enter into contracts under PURPA. Geronimo Energy appreciates the opportunity to provide these comments to the Commission.

2 Should the need for capacity over a 10-year period be determined in an IRP? If so, how should the capacity requirement be established? Should capacity need be evaluated for each year or incrementally (i.e., ; )? Geronimo believes that a utility s need for capacity over a 10-year period should be established in an integrated resource plan ("IRP"). An IRP is, by definition, a plan where a utility identifies, and interested parties evaluate, forecasted needs for capacity and energy as well as current and potential future supply- and demand-side resources to meet those needs. To determine capacity needs in a different proceeding would be duplicative and may result in two different capacity needs one for resource planning and acquisition purposes, and another for purposes of determining the availability of avoided capacity payments to QFs. This would disrupt the orderly planning process and potentially discriminate against QFs should the capacity need in their proceeding be deemed lower than the one identified in the resource plan. Capacity planning should be done over the entire period, establishing target years for long-term capacity additions but recognizing that many factors could result in needed capacity being installed earlier or later than the target. For example, a utility may have an opportunity to purchase cost-effective, short-term capacity and defer a long-term addition a year or so, or an unexpected loss of capacity through generator or DSM program failure could advance the need. As a result, Geronimo believes it is important to consider capacity incrementally, over discrete intervals of three or four years. This sends an appropriate signal to developers on when capacity is needed and encourages efficient and cost-effective additions of long-term capacity, whether that capacity is provided by QFs or by other resources. Furthermore, periods shorter than three to four years risk effectively discriminating against QFs, who need some lead time for project planning, site evaluation and acquisition, and financing before a credible project can be advanced. In the event that a utility claims a change in its 10-year capacity forecast, such that avoided capacity costs would change, at what point should the Commission reset the capacity price? Are there interim measures that the Commission should undertake until a full assessment of the revised forecast can be concluded? Many resource planning assumptions, especially in the later years of the plan, are speculative or subject to market forces. This is why plans are periodically reviewed and updated; in Michigan, IRPs will be refiled at least every five years. Thus, although the Commission will be determining a 10-year capacity forecast in each resource plan, that forecast will be updated at least at the halfway point in a new resource plan decision. This will help protect against outdated capacity needs and the potential for acquiring too much or too little capacity in the later years of the forecast. In between plans, however, there can be abrupt changes in capacity that were not foreseen when the forecast was approved. To avoid constantly revisiting the capacity forecast over minor variations in capacity need, Geronimo recommends that the Commission only consider 2

3 significant changes in capacity forecast (for example, ±15% or more) in between resource plan decisions. Geronimo believes that the capacity forecast, and thus avoided capacity price, should only be reset once the Commission has investigated and approved such a change. The Commission should consider interim changes that both increase and decrease the capacity forecast of the utility. How should QF projects that are in the queue be treated at the point where a utility claims that its need for capacity in the 10-year planning period has been reduced or eliminated? The regulations under PURPA of the Federal Energy Regulatory Commission ("FERC") speak to this issue at 18 CFR C.F.R Each qualifying facility shall have the option : To provide energy or capacity pursuant to a legally enforceable obligation... in which case the rates for such purchases shall... be based on either: (i) The avoided costs calculated at the time of delivery; or (ii) The avoided costs calculated at the time the obligation is incurred. Like all electric generation projects, QFs take both time and money to develop. In many cases, developers are reluctant to make major investments in projects, such as ordering equipment or paying for system upgrades, until they have secured a LEO and fully understand project costs and revenues. If a project has relied upon a LEO that includes full capacity payments to move forward with investment, financing and construction of a project, it would be unreasonable to reduce avoided capacity payments and potentially strand such investment. As a result, Geronimo believes that projects that have established a LEO at full capacity payments should continue to receive those payments even if a capacity need is reduced. Geronimo proposes that if a capacity reduction is requested, all QFs that have established a LEO prior to the proposed change should be entitled to full capacity payments up to the original amount of capacity need, regardless of whether a lower capacity value is approved. All QFs establishing a LEO after the request is filed should be either: a) entitled to full capacity payments up to the new ceiling of the proposed capacity, or b) the MISO capacity rate, if their capacity exceeds the revised limit. If the Commission fails to approve the requested change, or approves a lesser reduction, QFs that established a LEO after the initial filing and received the MISO capacity rate should be entitled to receive a full avoided capacity payment up to the capacity ceiling approved by the Commission. What criteria should the Commission use in determining whether an LEO has been created? A LEO is created when the QF makes an unequivocal commitment to sell to the utility, thereby creating an obligation for the utility to purchase from the QF (Grouse Creek Wind Park, LLC, 142 F.E.R.C. 61,187, 61,893 (2013) (finding QF petitioners had unequivocally committed 3

4 themselves to sell ). The LEO was adopted to prevent utilities from refusing to negotiate or otherwise getting around the purchase obligation. FERC has left it to the states to define, either through rules or on a case-by-case basis, when a legally enforceable obligation has been created. It has, however, provided some guidance when it has been asked to enforce state actions. For example, through various cases FERC has declared that a LEO cannot be conditioned on: A fully executed PPA A fully executed Interconnection Agreement 1 Seeking regulatory assistance Winning a competitive solicitation 2 States that have made LEO determinations have looked at both bright line tests and totality of circumstances tests to determine whether a QF has established a LEO. Geronimo believes that a bright line test, where a LEO is established when a QF has achieved a specific set of milestones, is preferable to the totality of circumstances test, which requires a case-by-case determination of the progress a QF has made toward becoming a viable project. The bright line test provides clear direction to the QF of the steps it must take to establish a LEO; a viability or circumstances test is more subjective and could require frequent regulatory intervention to establish. States that have established bright line tests have selected several common factors needed to establish a LEO: a commitment to sell, a partially executed interconnection agreement, and certain measures that show that the project is established. Among criteria we have seen used are the following: when the QF executes a PPA that has price terms consistent with the utility s avoided costs, a beginning and end date, and sufficient security to guarantee the QF s performance; when a QF demonstrates site control; when a QF has made permit applications; or when a QF has financing to construct the facility. Geronimo recommends that the Commission adopt the following criteria to determine whether a QF has established a LEO: QF has informed the utility of its intent to sell power to the utility and provided a PPA with all key business terms filled in and a commitment from the QF to be bound by those terms should the utility accept them, The project is registered as a QF at FERC QF has site control for the project QF has applied for interconnection and paid its deposit Geronimo believes that these steps are significant enough to demonstrate an actual project and a clear commitment to sell capacity and energy to the utility, but will not allow the utility to control the establishment of the LEO by requiring items that rely on utility action for example, completion of interconnection studies or utility execution of agreements. 1 FLS Energy, Inc., 157 F.E.R.C. 61,211 (2016) 2 Hydrodynamics, Inc., 146 F.E.R.C. 61,193 (2014) 4

5 Geronimo does not believe that simply being in the interconnection queue alone is sufficient for a project to establish a LEO. Many different types of projects file for interconnection QFs, utility-owned projects, behind-the-meter generation, and independent power projects that intend to sell to entities other than the utility. The utility cannot discern, from the interconnection application alone, whether the project is a QF and is making a commitment to sell to the utility under PURPA, or if it is interconnecting for other purposes. A QF should be required to express its commitment to sell in writing in order to establish a LEO. Going forward, should the Commission consider a competitive process for the procurement of QF capacity, based on the utility s capacity need, as determined by the IRP? Should the competitive process be used solely to allocate available capacity, or should it also be used to determine avoided cost payments to QFs? As noted above, the FERC has previously determined that a state cannot use a competitive solicitation as the sole means of establishing the right to PURPA contracts. All QFs are entitled to sell their energy and capacity to the utility at the utility s avoided cost; the issue here is how to determine which QFs are entitled to full capacity payments, up to the established capacity need of the utility. Geronimo does not believe it is appropriate to use a competitive bid to allocate the capacity need among QFs. Avoided cost is determined by a number of factors, including a broad examination of the types of long-term resources the utility would acquire if it did not purchase capacity and energy from the QF. Using a competitive process would not provide a reasonable view of the utility s actual avoided costs. Using an all-source competitive process to determine avoided costs would be unfair to non-qf bidders if sufficient QF capacity with LEOs existed to fill the full capacity need. Responding to a competitive solicitation is both expensive and timeconsuming, and Geronimo believes it would be inappropriate to conduct one simply for the purpose of establishing avoided costs. Further, requiring a QF to participate in a competitive solicitation creates uncertainty around whether it will receive sufficient revenues to complete the project. This risk could result in lower investment in projects prior to knowing the outcome of the bid. Lower investment can result in less viable projects, creating a risk that the awarded projects will have fatal flaws and the needed capacity will not materialize to meet customer needs. Instead, Geronimo believes that capacity should be allocated to QFs on a first-come, first-served basis, determined by when their LEOs are established. Using this method will encourage QFs with established projects to come forward and establish LEOs when they are able to honor their commitment to sell to the utility, and will also provide a clear demarcation point where the capacity need is fulfilled, and avoided capacity prices change. This will provide clearer signals to QFs on whether to commit to sell projects to the utility. 5

6 Should the IRP process be used to update avoided energy and capacity payments based on the blended cost of the plan (e.g., energy efficiency, demand response, fossil generation, renewables, market purchases), or some other method that ensures an accurate representation of a utility s actual avoided costs and non-discriminatory treatment of QFs? Avoided costs are based on the long-term resources the utility would implement, but for the QF being available to provide the capacity and energy. To the extent that the blended cost of the plan is representative of what the utility would implement, it could be a reasonable proxy for avoided costs. However, the blended cost of the plan may include resources that have varying terms and may be subject to uncertainty and persistence problems. Because QFs are offering long-term capacity and energy, the Commission should establish avoided costs based only on long-term options and should not consider the cost of short-term resources such as market purchases and some efficiency programs. Putting aside the overall capacity forecast, how should QF energy and capacity be treated with respect to the utility s renewable portfolio or customer-requested renewable energy under 2008 PA 295? PURPA was designed to encourage development of renewables and efficient generation to supply utilities with energy and capacity they might otherwise procure elsewhere, at a price that is no higher than their avoided cost. In PURPA transactions (and all renewable transactions), RECs stay with the owner of the facility unless otherwise contracted. Utilities can, however, purchase RECs from PURPA projects and use those RECs to help meet their RPS. Because the utility already has the obligation to purchase the capacity and energy from the QF, Geronimo believes that it would be less expensive for the utilities to also purchase RECs from renewable QFs at a small incremental price than to build new renewable facilities to fulfill their RES. The price of the REC could be established through a regulatory process, or it could be negotiated between the utility and the QF. As more transparent REC markets are developing across the US, Geronimo believes that it would be more appropriate for the parties to negotiate the REC price, using available market information to determine a fair market value for the RECs. In conclusion, Geronimo acknowledges that contracting for a PURPA project is complex and requires careful consideration. The Commission has already taken a large positive step by determining the appropriate avoided cost rate and setting a schedule for that rate to be reviewed and reset. The Commission should now provide clear direction on when a LEO is established, when the utility s capacity need is evaluated and when the capacity limit is reached to smooth implementation, level the playing field between QFs and utilities, and save Commission and regulatory staff resources by avoiding frequent regulatory proceedings between QFs and utilities seeking to establish these parameters. Geronimo Energy appreciates the Commission s consideration of these comments. 6