The Idaho Public Utilities Commission (the “Commission”) heard oral arguments today on the Joint Petition filed by Idaho Power, Avista Corporation and PacifiCorp d/b/a Rocky Mountain Power (collectively the “Utilities”) in Docket No. GNR-E-10-04, requesting that the Commission address various issues related to avoided costs for PURPA Qualifying Facilities (“QFs”), including ownership and valuation of Renewable Energy Credits, system reliability, lack of a standard contract template, and the increased size and scale of QF projects. Specifically, the Utilities are seeking an order reducing the published avoided cost rate eligibility cap for Idaho QFs from the current 10 aMW level to 100 kW. On December 3, 2010, the Commission issued a Notice of Joint Petition and Order No. 32131 (the “December 3rd Order”), denying the Utilities’ request to immediately reduce the eligibility cap, and breaking the proceeding up into two phases. In the first phase, the Commission will address whether the eligibility cap should be reduced temporarily, pending a decision on the broader avoided cost issues in phase two.

Today’s hearing focused solely on the Utilities’ request to reduce the eligibility cap, during which the Commission sought discussion on the appropriateness of exempting non-wind QF projects from the reduced eligibility cap, and the consequences of disaggregation (i.e., dividing larger wind projects into multiple 10 aMW projects in order to qualify each for the published avoided cost rate). The Utilities argued that temporarily reducing the eligibility cap while addressing the other avoided cost issues is the simplest and most effective way to proceed and would address one immediate concern – the large number of currently proposed contracts, which the Utilities argue are not from small, unsophisticated developers, but instead are from large scale wind projects that are being disaggregated to meet the 10 aMW cap. Each of the Utilities agreed that although the magnitude of the problem is related to wind resources, the reduction, if granted, should apply to all QF projects. Commission Staff testified in support of a reduction in the eligibility cap, but argued that the reduced cap should apply to wind resources only. Recent industry publications have reported that Commission Staff may be willing to consider instituting a rule that requires disaggregated facilities to be located at least five miles apart (rather than the current one-mile rule provided for under FERC regulations); however, that option wasn’t raised at the hearing.

The hearing room overflowed with the more than a dozen parties who have intervened in the case, whose interests and testimony varied, but each warned of the chilling effect of such reduction on development of renewable energy projects in Idaho and the need for further evidentiary hearings to resolve the issues presented. The Commission seemed sensitive to the impact of any temporary cap reduction, particularly on projects currently under development, and the need to resolve the broader avoided cost issues quickly. However, all parties agreed that such proceedings would not be quick, and would take six months to a year to resolve. Such a delay could certainly kill a project under development, and would undoubtedly dissuade new developments in Idaho in 2011.

The Commission did not say when to expect an order on the temporary reduction, only that they would issue one as soon as possible. Pursuant to the Commission’s December 3rd Order, any order reducing the eligibility cap will have a retroactive effective date of December 14, 2010.