UTILITIES AND TRANSPORTATION

[Docket U-161024, General Order R-597—Filed June 12, 2019, 8:00 a.m., effective July 13, 2019]

In the matter of amending, adopting, and repealing sections of chapters 480-106 and 480-107 WAC, relating to the Public Utility Regulatory Policies Act.

1STATUTORY OR OTHER AUTHORITY: The Washington utilities and transportation commission (commission) takes this action under Notice No. WSR 19-05-089, filed with the code reviser on February 20, 2019. The commission has authority to take this action pursuant to RCW 80.01.040, 80.04.160, and 34.05.220.

2STATEMENT OF COMPLIANCE: This proceeding complies with the Administrative Procedure Act (chapter 34.05 RCW), the State Register Act (chapter 34.08 RCW), the State Environmental Policy Act of 1971 (chapter 43.21C RCW), and the Regulatory Fairness Act (chapter 19.85 RCW).

3DATE OF ADOPTION: The commission adopts, amends, and repeals these rules on the date this order is entered.

4CONCISE STATEMENT OF PURPOSE AND EFFECT OF THE RULE: RCW 34.05.325(6) requires the commission to prepare and publish a concise explanatory statement about an adopted rule. The statement must identify the commission's reasons for adopting the rule, describe the differences between the version of the proposed rules published in the register and the rules adopted (other than editing changes), summarize the comments received regarding the proposed rule changes, and state the commission's responses to the comments reflecting the commission's consideration of them.

5 To avoid unnecessary duplication in the record of this docket, the commission designates the discussion in this order, including appendices, as its concise explanatory statement. This order provides a complete but concise explanation of the agency's actions and its reasons for taking those actions.

6REFERENCE TO AFFECTED RULES: This order amends, adopts and repeals the following sections of the Washington Administrative Code: Adopting WAC 480-106-001 Purpose, 480-106-002 Application of rules, 480-106-003 Exemptions from rules in chapter 480-106 WAC, 480-106-007 Definitions, 480-106-010 Obligations of qualifying facilities to the utility, 480-106-020 Obligations of the utility to qualifying facilities, 480-106-030 Tariff for purchases from qualifying facilities, 480-106-040 Schedules of estimated avoided costs, 480-106-050 Rates for purchases from qualifying facilities, 480-106-060 Rates for sales to qualifying facilities, 480-106-070 System emergencies and 480-106-080 Interconnection costs; amending WAC 480-107-001 Purpose and scope, 480-107-007 Definitions and 480-107-025 Contents of the solicitation; and repealing WAC 480-107-055 Schedules of estimated avoided cost, 480-107-085 Obligations of generating facilities to the utility, 480-107-095 Obligations of the utility to qualifying facilities, 480-107-105 Rates for sales to qualifying facilities, and 480-107-999 Adoption by reference.

7PREPROPOSAL STATEMENT OF INQUIRY AND ACTIONS THEREUNDER: The commission filed a preproposal statement of inquiry (CR-101) on September 1, 2016, at WSR 16-18-057. The statement advised interested persons that the commission was initiating a proceeding to consider whether rule changes were needed to implement integrated resource plan (IRP) legislation in chapter 19.280 RCW, clarify how recent advances in the energy industry should be treated, address how the resource acquisition rule in chapter 480-107 WAC can be made more effective, and make general process improvements. The commission also informed persons of this inquiry by providing notice of the subject and the CR-101 to everyone on the commission's list of persons requesting such information pursuant to RCW 34.05.320(3) and by providing notice to all utility companies and the commission's list of utility attorneys. Pursuant to the notice, the commission received comments on the subject of the rule making on November 2, 2016, and conducted a workshop on December 7, 2016.

8COMMENTS, WORKSHOPS, AND DISCUSSIONS: The commission received written comments on several dates, including but not limited to, April 17, 2017, April 13, 2018, December 14, 2018, and April 1, 2019. The commission conducted additional workshops on March 10, 2017, May 17, 2017, and May 14, 2018, and hosted discussions with stakeholders on September 6, 2018.

9SMALL BUSINESS ECONOMIC IMPACT ANALYSIS: The proposed rules implement federal requirements applicable to large, investor-owned utilities, which do not qualify as small businesses, and adopt basic information requirements for qualifying facility (QF) owners, some of which may be classified as small businesses. The commission's proposed rules, however, do not require QF owners to provide information or take action that is substantially different than information those businesses must provide to the investor-owned utilities to enter into a contract, regardless of the commission's rules. To determine whether any stakeholders had information concerning the economic impact of the proposed rules, the commission issued a notice requesting the calculation of any costs companies anticipate they would incur as a result of the proposed rules. The commission received only one response that provided such information, but the respondent subsequently submitted revised comments stating that the proposed rules would not have an economic impact. Accordingly, the information available to the commission demonstrates that the proposed rules would not impose more-than-minor costs on businesses.

10NOTICE OF PROPOSED RULE MAKING: The commission filed a notice of proposed rule making (CR-102) on February 20, 2019, at WSR 19-05-089 (notice). The notice includes only a portion of the rules at issue in the CR-101, which remains open for further commission consideration of, and action on, the remaining rules. The commission scheduled the matters in the notice for oral comment and adoption under Notice No. WSR 19-05-089 at 1:30 p.m., on Tuesday, April 30, 2019, in the Commission's Hearing Room, Second Floor, Richard Hemstad Building, 1300 South Evergreen Park Drive S.W., Olympia, WA. The notice provided interested persons the opportunity to submit written comments to the commission.

11WRITTEN COMMENTS: The commission received written comments in response to the notice on April 1, 2019, from Sun2o Partners, Puget Sound Energy (PSE), Avista Corporation d/b/a Avista Utilities (Avista), DGEP Holdings, LLC, Northwest Intermountain Power Producers Coalition (NIPPC) and Renewable Energy Coalition (REC), Pacific Power & Light Company (Pacific Power), Renewable Northwest, and OneEnergy Renewables. Summaries of these comments and the commission's responses are contained in Appendix A, which is shown below, and made part of, this order.

12RULE-MAKING HEARING: The commission considered the proposed rules for adoption at a rule-making hearing on Tuesday, April 30, 2019, before Chairman David W. Danner, Commissioner Ann E. Rendahl, and Commissioner Jay M. Balasbas. The commission heard a presentation from Brad Cebulko on behalf of commission staff (staff) and oral comments from NIPPC and REC, PSE, Pacific Power, Sierra Pacific, Renewable Northwest, OneEnergy, Geronimo Energy, and Avista, all of which largely echoed or expanded on the written comments they or others submitted.

13SUGGESTIONS FOR CHANGE THAT ARE REJECTED/ACCEPTED: Written and oral comments suggested changes to the proposed rules. The suggested changes and staff's recommendations for rejecting or accepting the suggested changes are included in Appendix A. We agree with staff and adopt these recommendations. In addition, we address and further expand our reasoning on the following issues raised in the written and oral comments from stakeholders.

14 The first issue is the contract term for initial projects for QFs. The proposed rules would expand that term from the current five years (for two of the utilities) to fifteen years from the date of contract formation but not less than twelve years from the date of commercial operation of QF. NIPPC and REC, joined by several other commenters, request that the commission further expand that time frame to begin fifteen years from the date of commercial operation, which they state is the minimum term established in California, Oregon, and Utah, while Wyoming has adopted a twenty year term. The commenters cite to findings in those states that such a fixed term appropriately balances eligible QFs' ability to obtain adequate financing with the need to limit the potential divergence of standard contract rates from the utility's actual avoided costs.

15 We respect the right of other states to establish regulations best suited for their jurisdictions, but our responsibility is to establish appropriate requirements in Washington. We have carefully considered the comments and information provided by all stakeholders in this proceeding – both the utilities that urge us to adopt a shorter contract term and independent power producers who recommend a longer one – and we find that the proposed rules strike the proper balance of the competing interests. Those rules also more than double the minimum length of the contract term for two of the three utilities, while the third has a minimum term consistent with the proposed rule. We believe that such incremental change is preferable to the broader expansion some commenters suggest. Our judgment, of course, is necessarily predictive. Financial and energy markets are not static, and we base our determination on conditions that exist today and appear likely to develop in the future. If we find after implementation and experience with the new rules that a minimum initial contract term of twelve to fifteen years is insufficient to accomplish Public Utility Regulatory Policies Act's (PURPA) and this state's goals, we will consider revising that requirement.

16 The second and related issue is the difference between the minimum contract terms for new and existing QF projects. The proposed rules would establish a term of twelve to fifteen years for new QF projects and ten years for existing projects. NIPPC and REC, along with other commenters, claim that this difference is discriminatory and at odds with the requirements in other states. If the commission adopts this proposal, the commenters request that the commission clarify the distinction between a "new" QF and an "existing" QF and modify the requirements for how utilities pay QFs for capacity to ensure that both new and existing projects receive full capacity payments.

17 The commenters have not cited any Federal Energy Regulatory Commission (FERC) or judicial precedent that prohibits as discriminatory a different minimum contract term for new and existing QFs, nor are we aware of any such decision. Our determination is based on the real world considerations in Washington that obtaining financing and interconnection takes less time for a QF that is already in operation than for a new project being built from scratch. We also expect such practical realities to be used to differentiate between a new and existing QF. We recognize that both parties have a financial incentive to characterize projects and compensation requirements differently and may exercise novel creativity in support of their positions. Until we have more experience with any such disputes that arise, we hesitate to anticipate and codify resolutions in a rule. If necessary, we may take such action in the future or make other revisions to the rules, relying on a more developed record than that before us now.

18 The third issue is the proposal made by several commenters that the commission revisit its interconnection rules and provide more guidance in light of the proposed revisions to these rules and recent legislation governing renewable energy issues. These commenters are concerned that utilities have a financial incentive to delay the commercial operation of QF projects through the interconnection process and thus effectively shorten the contract term to the minimum twelve years, rather than closer to the fifteen years contemplated in the rules. Other commenters dispute the need for such a proceeding, but all agree that it would likely be complex and contentious.

19 The commission's interconnection rules are outside the scope of the CR-102, and thus we could not take them up here even if we were inclined to do so. Moreover, we agree with the commenters that reopening those rules would require the commission and stakeholders to expend considerable time and resources, which we are reluctant to require in the absence of a demonstrated substantial need. We nevertheless recognize that interconnection process and terms generally could impact the relationship between QFs and utilities and more specifically could affect the implementation of the rules we adopt today. We are committed to facilitating the development of alternative sources of energy. If we become aware that interconnection issues are inhibiting the ability of QFs to effectively provide such alternatives, we will consider initiating a proceeding to address those issues.

20 Fourth, several commenters expressed concern with language in the proposed rule that legally enforceable obligations (LEO) must be memorialized in a written contract. These commenters allege that such a requirement seems to set out a default assumption that no LEO exists unless it is in writing, which is contrary to FERC precedent and has been found to be unlawful. The commenters suggest that the commission revise the proposed rules to state expressly that a LEO arises when QF makes its commitment to sell power and that additional requirements exist to facilitate, not impede, LEO formation.

21 The commenters correctly observe that the commission did not intend the proposed rule to conflict with federal law. We acknowledge that FERC has established that a LEO comes into existence when the QF commits to sell power to the utility. The proposed rule would not change when a LEO arises. The issue the proposed rule addresses, however, is the LEO's terms and conditions. As a practical matter, a QF and the utility cannot operate without a clear delineation in writing of their respective rights and responsibilities. Nor could the commission effectively resolve any disputes arising between the parties without such a document. The proposed rule recognizes that reality and establishes the commission's expectation that the terms and conditions under which a QF and a utility operate will be included in a written agreement after a LEO arises. We nevertheless agree that the language in the rule could be clearer, and we revise it accordingly.

22 Finally, commenters made two requests in their written comments that we address in this order. First, NIPPC and REC ask the commission to clarify that any inputs and assumptions regarding avoided cost changes can be challenged when filed by the utilities. This request is consistent with past commission practice, and we confirm that any party may raise concerns with any utility's inputs and assumptions when the utility files its tariff for purchases from qualifying facilities.

23 The second request is to require the utilities to refile their estimated avoided cost prices and tariffs prior to November 1, 2019. The proposed rules make significant changes to existing requirements, and we agree that the utilities' tariffs should promptly reflect those changes. Accordingly, the utilities should refile their estimated avoided cost prices and revised tariffs within sixty days of the date of this order.

24COMMISSION ACTION: After considering all of the information regarding this proposal, the commission finds and concludes that it should amend, repeal, and adopt the rules as proposed in the CR-102 at WSR 19-05-089 with the changes described below.

25CHANGES FROM PROPOSAL: The commission adopts the proposal with the following changes from the text noticed at WSR 19-05-089:

1. WAC 480-106-030 (2)(a), replace "must be memorialized" with "will be considered."

2. WAC 480-106-030 (2)(b), at the end of the paragraph add the following sentence: "In making its determination, the commission will recognize that the formation of a legally enforceable obligation is based on a qualifying facility committing itself to sell all or part of its electric output to an electric utility."

3. WAC 480-106-040 (1)(a), replace "fifteen" with "twenty."

4. WAC 480-106-040 (1)(b), replace "ten" with "twenty."

5. WAC 480-106-040 (1)(b)(i), replace "filed" with "acknowledged."

6. WAC 480-106-050 (4)(a)(i), after "contract execution" insert "or a legally enforceable obligation."

26STATEMENT OF ACTION; STATEMENT OF EFFECTIVE DATE: After reviewing the entire record, the commission determines that chapters 480-106 and 480-107 WAC should be amended, repealed, and adopted to read as set forth in Appendix B, as rules of the commission, to take effect pursuant to RCW 34.05.380(2) on the thirty-first day after filing with the code reviser.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at the Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's own Initiative: New 0, Amended 0, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

27THE COMMISSION ORDERS:

28 The commission repeals, amends, and adopts chapters 480-106 and 480-107 WAC to read as set forth in Appendix B, as rules of the Washington utilities and transportation commission, to take effect on the thirty-first day after the date of filing with the code reviser pursuant to RCW 34.05.380(2).

29 This order and the rule set out below, after being recorded in the register of the Washington utilities and transportation commission, shall be forwarded to the code reviser for filing pursuant to chapters 80.01 and 34.05 RCW and 1-21 WAC.

DATED at Olympia, Washington, June 12, 2019.

Washington Utilities and Transportation Commission

David W. Danner, Chairman

Ann E. Rendahl, Commissioner

Jay M. Balasbas, Commissioner

(Comment Summary Matrix)

Chapter 480-107 WAC Revision—IRP Rule making U-161024

CR-102 Notice of Opportunity to File Written Comments on the PURPA—Obligations of the Utilities to Qualifying Facilities

Comments Received April 1, 2019

Rule or Topic	Summary of Comment	Staff Response
480-106-050 (4)(a)(i)	The proposed rules triple Avista's current terms from five to fifteen years. The commission should balance the risk and burden of longer-term contracts to utility customers1 against QF developers' desire for longer-term contracts. If a utility does not have a resource need, tripling the required terms makes utility customers bear the burden of any delta between the utility's actual avoided cost and rates that are locked in. There has been no showing in this proceeding that shorter contract terms prevent qualifying facility developers from being able to obtain financing for their projects.	For new QFs, fifteen years of fixed rates from date of contract strikes an appropriate balance between ensuring that the QF has the ability to obtain financing, and ratepayers' interest that the contracted rates do not significantly diverge from a utility's avoided cost. We also look to FERC Order 69, which addressed this concern. In that order, FERC stated that "The Commission does not believe that the reference in the statute to the incremental cost of alternative energy was intended to require minute-by-minute evaluation of costs which would be checked against rates established in long term [sic] contracts between qualifying facilities and electric utilities … and believes that, in the long run, 'overestimations' and 'underestimations' of avoided costs will balance out."2
480-106-050 (4)(a)(i)	The term option for twelve years after commercial operation is problematic, allowing developers to obtain a fixed avoided cost rate as early as three years prior to commercial operation. These rates may not reflect a utility's avoided cost rate three years later and shift risk to utility customers. If avoided cost rates decrease over the three year period prior to commercial operation, QF developer obtains a fixed rate that exceeds the utility's actual avoided cost. If the avoided cost rate increases significantly, QF could dissolve a special purpose LLC and reappear as a new LLC. A utility will then be required to enter into a new contract with that QF at a higher avoided cost rate. This could allow developers a free put option, shifting all of the risk to utility customers.	If a utility's avoided cost rates increase and a QF dissolves a special purpose LLC and reforms, that QF would further delay its operation and its ability to earn any revenue from the project. Furthermore, any affected party may ask the commission to review the interpretation or application of these rules under WAC 480-07-910 or 480-07-370.

2. DGEP Holdings, LLC

Rule or Topic	Summary of Comment	Staff Response
480-106-050(4)	The fifteen years of fixed rates should begin at the date of commercial operation, not contract execution. The financial viability of a project depends on long-term operating cash flows. QF is at risk to any unforeseen delays between contract date and the date of commercial operation.	The commission's proposed rules significantly increase the required term of fixed rates for QF projects, from five years to fifteen, for two of the three regulated utilities. Staff believes that the proposed rules strike a reasonable balance of the interests of QF and the ratepayers.
480-106-030(2)	The commission should follow FERC precedent and provide language that established a LEO upon a QF's commitment to sell its output to a utility.	Staff recognizes FERC's precedent that a LEO hinges on a QF's commitment to sell all or part of its output to a utility. To further clarify the commission's intent, see staff's proposed changes to WAC 480-106-030(2).
480-106-040	The commission should direct utilities to employ the effective load carrying capability (ELCC) methodology when calculating the value of capacity.	Staff is supportive of the use of ELCC in IRPs, which would flow into the avoided cost filings. However, there may be more than one reasonable and effective methodology for determining the value of capacity of a resource. If a party does not believe that the utility is appropriately valuing a resource in its IRP, any party may ask the commission to review the interpretation or application of these rules under WAC 480-07-910 or WAC 480-07-370, or file a complaint before the commission.

3. Northwest and Intermountain Power Producers Coalition and Renewable Energy Coalition

Rule	Summary of Comment	Staff Response
Joint recommendations	The commission should adopt all of the joint recommendations (filed February 26, 2018), as a package and not reshuffle the deck to create new "winners" and "losers" from the group that was able to forge common ground.	The commission's proposed rules adopt many of the recommendations set forth by the parties that submitted the joint recommendations.3 However, the commission's obligation is to promote the public interest while complying with all state and federal laws. Staff finds that the commission's rules strike the appropriate balance of meeting the intent of PURPA and providing adequate protection for ratepayers.
480-106-050(4)	A QF should be provided with standard rates for purchases for a term of fifteen years beginning on the date of commercial operation. The proposed rule makes it almost entirely infeasible for a project to get up to fifteen years of certainty for pricing. Oregon, California, and Utah all provided a full fifteen years of price certainty from the date of commercial operation. Wyoming requires twenty year[s] from commercial operation, and Idaho requires twenty years for biomass, cogeneration, and hydroelectric QFs.	For new QFs, fifteen years of fixed rates from date of contract strikes a reasonable balance between ensuring that QF has the ability to obtain financing and ratepayers' interest that the contracted rates do not significantly diverge from the actual avoided costs.
480-106-050(4)	If the commission maintains a fifteen year contract from date of contract execution, it should recognize that the utility has an incentive to delay commercial operation in its interconnection process. The commission should require QF to receive an extension of the total length of its contract if there is a utility-caused delay equal to the length of delay.	The rule states that a utility must make all the necessary interconnections with any QF to accomplish purchases or sales under this rule. In the event of a utility-caused delay, the QF developer can file a complaint against the utility at the commission. The commission would consider the circumstances of the case and make a determination.
480-106-050(4)	Existing QFs should also have the option of receiving fifteen year contracts. No other state in the Pacific Northwest or Rocky Mountain west discriminate in contract length between new and existing QFs. If the commission does not modify the rules to allow fifteen year contract lengths, then the final rule should provide that: 1. Existing QFs are paid a full capacity payment in all years; 2. The ten year period for an existing QF starts at the time of power delivery and not contract execution, because the vast majority of existing QFs cannot wait to enter into a new purchase power [power purchase] agreement (PPA) until the day before their current contract expires; and 3. The definition of existing QF should mean a QF that seeks to enter into a new purchase power agreement with the same utility to which QF is already selling power. If the commission "elects to discriminate" contract length for existing QFs, then it should require utilities to pay these QFs full capacity payment based on the next deferrable capacity resource in all contract years. Many existing QFs require upgrading equipment and facilities, including interconnections, at the time of their new agreements and need financing for these long-term investments.	The commission should balance between ensuring that a new QF has the ability to obtain financing and minimizing the risk of the contracted avoided cost significantly diverging from a utility's actual avoided cost. For existing QFs where capital financing is not as significant of a limiting factor as it is for new QFs, shorter contract terms, such as ten years, can help ensure the avoided cost rate is adjusted more frequently to reflect the utility's actual avoided cost. Further, other contract term lengths in this rule also differ. QFs that do not meet the greenhouse gas emissions performance standard established under RCW 80.80.040 are appropriately limited to contract terms of less than five years. Regarding capacity payments valuation, there may be more than one reasonable and effective methodology for determining the value of capacity of a resource. If a party does not believe that the utility is appropriately valuing a resource in its IRP, any party may ask the commission to review the interpretation or application of these rules. We do not believe existing QFs needs to be further defined in rule. Existing QFs are generating, commercially operational facilities under the federal definition of a qualifying facility, as defined in WAC 480-106-007.
480-106-030(2)	Regarding LEO, the phrase "must be memorialized" implies that a default assumption that no LEO exists without being embodied in writing, contrary to FERC precedent. The rules should explicitly provide that the formation of a LEO is based on when QF makes it[s] commitment to sell power, and that the policies, rules, and tariffs related to processing and negotiating PPA do not impede the format of a LEO. The rules should give minimum criteria that must be met by a QF in order to establish that a LEO was formed. If the commission does not modify its rules, the commission should clarify in its adoption that: 1. A LEO results from the QF's commitment to sell power to the utility, upon meeting those minimum criteria; 2. Neither a utility nor a state commission can impose restrictions on processes that have the practical effect of delaying the contract negotiation process; 3. Identify specific actions that have the presumption of creating a LEO; and 4. Specifically explain that prior orders in Washington on this topic are superseded by more recent precedent.	Staff recognizes FERC's precedent that a legally enforceable obligation hinges on a QF's commitment to sell all or part of its output to a utility. To further clarify the commission's intent, see staff's proposed changes to WAC 480-106-030(2).
480-106-030(5)	Clarify subsection so that the rule is explicit that QFs larger than five megawatts are eligible for the fifteen year price certainty that is afforded to QFs with standard contracts. Recommend adding, "… including the provision of fixed rates for the terms provided for in the case of standard contracts."	As stated in the rules, nonbinding term sheets for QFs with capacities greater than five megawatts should be consistent with commission rules. Contracting parties should begin negotiations using the terms and conditions of the standard offer as a starting point, but the outcome of the final contract may deviate based on the specific characteristics of QF and the utility, and the circumstances at that time.
480-106-030(2)	Clarify that contracting procedures set out in utilities' tariffs for obtaining a LEO can be completed, assuming appropriate due diligence by QFs, within sixty days.	The commission adopted the sixty days' notice provision as recommended in the joint recommendations (filed February 26, 2018). Staff does not foresee anything in the rules that would prohibit a QF from establishing a LEO within the specified time frame.
480-106-040 (1)(b)(ii)	Clarify that the capacity of market purchases is valued at a simple-cycle combustion turbine for both small and large qualifying facilities.	For QFs larger than five megawatts, the contracting parties should begin negotiations using the terms and conditions of the standard offer as a starting point, but the outcome of the final contract may deviate based on the specific characteristics of QF and the utility, and the circumstances at that time.
480-106-040 (1)(b)	Change the length of estimated avoided cost of capacity from ten years to twenty years, as the ten year limit may unintentionally limit capacity payments to the first ten years of a contract, rather than the fifteen identified in the rule.	Staff agrees and recommends making the change in the final rules.
480-106-050 (4)(c)	QFs should have the option to choose between a renewable rate and a nonrenewable rate. The rules state that during any period in which QF receives standard rates based on the avoided capacity cost of an eligible renewable resource, the utility shall receive the renewable energy certificates produced by QF at no additional cost to the utility.	PURPA includes nonrenewable and renewable energy qualifying facilities. The utility's avoided rate filed with the commission should be representative of the cost a utility would incur if it chose to either provide the energy itself by building new capacity or the cost incurred by purchasing electricity from nonqualifying facilities. If the utility's avoided cost is based on the avoided capacity costs of an eligible renewable resource as defined in RCW 19.285.030, the utility's total avoided cost should include the cost of compliance with the Energy Independence Act (EIA), chapter 19.285 RCW. Therefore, the price reflected in the avoided cost includes the renewable energy certificate.
Avoided cost filings	The order adopting the new rules should clarify that any inputs and assumptions regarding avoided cost changes can be challenged when filed by the utilities.	The rules will continue to allow all interested parties to intervene each time a utility files its avoided cost and contest the utility's results.
Interconnection rule making	The commission should commence an interconnection rule making either as an additional phase of the instant rule-making process or as a separate investigation. The current interconnection rules are not sufficiently detailed and are unclear on key aspects.	The commission should consider this request amongst all the other rule makings and proceedings it has before it.

Rule	Summary of Comment	Staff Response
Compliance filings after order	Requests that the commission order utilities to file estimated avoided cost pricing within thirty days after the rules are final. There is no basis to wait until November 1, 2019, for the initial avoided cost filing.	Staff agrees that the utilities should expeditiously meet the new requirements of the rule prior to November 1, 2019. Staff encourages the commission to explore with parties a reasonable timeline for meeting the new requirements. Staff's initial recommendation is for the utilities to file within sixty days of the order.
Compliance filings	The commission should set prompt deadlines for the utilities to file tariffs and make available standard PPAs for review and execution by QFs.	See staff's recommendation, above.
Interconnection issues	Pacific Power is significantly delayed in its processing of interconnection agreements. The company is not providing the developer with a feasibility study agreement within thirty businesses days.	Parties can file complaints against a regulated utility under WAC 480-07-910 or 480-07-370.

Rule	Summary of Comment	Staff Response
General comments	The commission's PURPA rules do not go far enough to ensure that the "principle of customer indifference,"4 which requires that ratepayers and utilities should remain indifferent to whether the power is purchased from qualifying facilities or from other sources, is upheld.	Staff finds the commission's rules strike the appropriate balance of meeting the intent of PURPA while maintaining adequate protection for ratepayers. Fairness is paramount in PPAs and the principle of customer indifference is key. To this end, the utility's timely filing of accurate estimates of avoided costs is of the utmost importance.
480-106-040(1)	Filing avoided capacity costs separately from energy costs seems simple but is problematic. Must-take obligation means QFs will provide both energy and capacity, so separating these values will not provide meaningful information. Separating the values may also make tariff filings overly complex. Rules should prioritize commission flexibility. Pacific Power recommends removing the requirement that avoided costs for capacity and energy must be identified separately and combined (language revisions provided).	Staff does not support this particular recommendation or position. Separating the avoided cost by capacity, energy, and other costs is best practice for transparency to ensure that the public interest is fulfilled.
480-106-040 (1)(b)	Draft rules require use of most recently "acknowledged" IRP in WAC 480-106-040 (1)(b), then require use of the most recently "filed" IRP in WAC 480-106-040 (1)(b)(i), then revert back to most recently "acknowledged" IRP in subsection (ii). Pacific Power recommends basing avoided costs on estimates from the most recently "filed" IRP. It is critical to use the most up-to-date information available in setting avoided costs. Requiring use of old information is inconsistent with WAC 480-106-050(1). Rate cases allow new information and updated data to ensure the most accurate possible rates.	Staff thanks the parties for identifying this error. Staff recommends correcting WAC 480-106-040 (1)(b)(i) to state the most recently "acknowledged" IRP. While more recent data is generally preferable to older data, an acknowledgment is the only oversight the commission has over a utility's IRP. If resource cost estimates change dramatically between IRP cycles, a utility has the option of requesting an exception to this rule under WAC 480-07-110.
480-106-040 (1)(b) and (1)(b)(ii)	Using fixed costs of the next incremental capacity resource overstates the value of that capacity because it fails to account for the lost benefits of a deferred capacity resource. Net capacity costs are a better proxy of a QF's actual value of capacity. Non-QF utility resources are usually dispatched based on economic value; the must-purchase obligation means utilities must buy QF's output even in hours where cheaper options would have been available. "[U]nless the full benefits of the ability to economically dispatch a deferred capacity resource are accounted for in the cost of capacity, customers are not indifferent when QF capacity displaces it." Pacific Power proposes replacing "fixed" with "net" in these sections.	PURPA requires that the utilities purchase a QF's output at its "avoided cost." The actual avoided cost to the utility continuously changes and can only be captured in a snapshot time frame. FERC recognized this issue in Order 69, as previously referenced in this document. When setting its rules, the commission must balance the public interest and goals of PURPA. An important component of that is to create rules that are relatively simple to interpret and implement. We believe Pacific Power's proposal unnecessarily complicates the issue, while not demonstrating that its outcome would produce a more accurate avoided cost.
480-106-040 (1)(b)(ii)	Using a simple-cycle combustion turbine as a proxy for capacity valuation may be inconsistent with potential policies to move away from the use of fossil fuels for electricity production. A utility should value its avoided cost of such capacity based on the prevailing market cost it would otherwise incur to build the same type of resource to supply such capacity.	A simple-cycle combustion turbine is a transparent and simple proxy for the value of avoided cost of capacity of market purchases. Staff recognizes that the emerging state policy may require utilities to move away from fossil-fueled plants in the future. However, it is reasonable to assume that a simple-cycle combustion turbine will remain a marginal capacity plant for the foreseeable future.
480-106-040 (1)(c)	Qualifying facilities should be required to post security as a condition to receiving levelized pricing, as is required in Utah and Wyoming, where the requirement seems to not be a prohibitive burden. This protects the utility and ratepayers from the possibility that a QF defaults after having benefited from higher-than-normal payments in the earlier years of the term. Contrary to previous commission responses to Pacific Power comments, levelizing payments greatly diminishes a QF's long-term performance incentive by bringing some of the benefits of higher, late-term pricing forward to the beginning of the term. Without security to ensure QFs continued performance, there is an increased risk of a QF defaulting toward the end of the term.	Staff disagrees that levelizing payments does not incentivize long-term performance and greatly diminishes a QF's long-term incentive by bringing forward some of the benefits. A QF does not receive financial compensation from a utility unless it is producing and delivering electricity to the utility. Levelized payments place equal value to the payments over the life of the contract resulting in an equal weighting of benefits over time. We are not convinced that the advantages of a security requirement are outweighed by the requirement's potential disadvantages, making tariffs and contracting processes lengthier, more expensive, and less transparent for all participants.
480-106-050 (4)(a)(i)	Pacific Power believes that the intent of the proposed rules is to provide an overall maximum term of fifteen years, and to limit QFs to executing those contracts to no more than three years before their commercial operation dates. However, as written, the proposed rules would require standard rate prices be provided only starting twelve years after QF reaches commercial operation. Recommends changes to WAC 480-106-050 (4)(a)(i).	Staff appreciates Pacific Power's comments and believe that the order may need to clarify the intent. The fifteen year term begins at the date of contract execution for new QFs. Payments should begin on the commercial operation date, and should continue for either twelve years or until the end of the fifteen year term, whichever period is longer.

Rule	Summary of Comment	UTC Response
480-106-040 (1)(b)	PSE continues to disagree with the commission's rationale that a simple cycle combustion turbine is the appropriate proxy for calculating the value of avoided cost of capacity of market purchases. PSE urges the commission to adopt a more technology neutral approach. PSE proposes a planning standard developed by a stakeholder advisory group. Demand growth is not a given, and changes in the generation market have introduced a wider range of technologies with which a utility may meet its capacity needs.	A PURPA standard offer contract should be reasonable, simple to understand, and transparent. A simple cycle combustion turbine is a reasonable, simple, and transparent proxy for the value of avoided cost of capacity of market purchases, particularly for QFs with capacities less than five megawatts. PSE does not resolve how a stakeholder advisory committee could come to a conclusion should reasonable parties disagree on an appropriate outcome. This issue is within the purview of the commission and it has proposed a reasonable solution.
480-106-030 (2)(b)	Acknowledges that the establishment of a LEO is an amorphous concept. Although not perfect, the commission's approach is workable.	Staff appreciates PSE's acknowledgment of the challenges of crafting LEO language. Please see previous responses for proposed LEO clarifications in this document.
480-106-040(1)	For QFs with capacities greater than five megawatts, publishing an avoided cost methodology "would provide better cost signals" than static avoided costs in tariff.	The schedule of estimated avoided costs required in WAC 480-106-040(1) is the same schedule that offers rates to QFs less than five megawatts. PSE's proposed replacement of this tariff schedule with a methodology is not acceptable. Staff agrees that there may be merit to the utility publishing methodologies as well. The rules do not prevent the company from also filing, on an informational basis, an avoided cost methodology to assist prospective QFs greater than five megawatts.
480-106-040 (1)(b)	There is an inconsistency within draft rules, using the most recently acknowledged IRP in some instances but the most recently filed IRP in others. PSE recommends using "the most recently filed IRP throughout."	Staff appreciates PSE identification of an inconsistency. While more recent data is generally preferable to older data, an acknowledgment is the only oversight the commission has over a utility's IRP. See staff's proposed edits to the rules.

7. Renewable Northwest

Rule	Summary of Comment	Staff Response
480-106-050 (4)(a)(i)	Draft language would effectively result in a fixed-price period shorter than fifteen years, which is shorter than other PURPA contracts in the region and shorter than many PPAs. The commission should modify the rule so that the fixed-price period begins at a QF's commercial operation date.	For new QFs, fifteen years of fixed rates from date of contract strikes a reasonable balance between ensuring that QF has the ability to obtain financing, and ratepayers' interest that the contracted rates are set at the utility's avoided cost.
480-106-030 (2)(a)	Current language could be interpreted to require an executed written contract for LEO formation. Encourages the commission to clarify its intent in the final version of WAC 480-106-030 (2)(a).	Staff recognizes FERC's precedent that a legally enforceable obligation hinges on a QF's commitment to sell all or part of its output to a utility. To further clarify the intent, see the proposed changes made to WAC 480-106-030(2).
480-106-007	The definition of LEO could be interpreted to require an active commitment of the utility before a LEO can be formed. In the definition, recommends replacing "commitment" with "obligation" to align with FERC precedent.	With staff's recommended addition to the rules, staff is not concerned that the definition of a LEO can be construed as requiring an active commitment of the utility.
480-106-030 (2)(b)	Draft rule says that the commission may make a determination about whether and when a LEO has been established, but the rules do not clarify the commission's standard for making such a determination. Encourages the commission to specify what steps a QF would have to follow to form a LEO.	The commission should make a determination, consistent with FERC precedent, on a case-by-case basis. However, the commission should be guided by FERC's determination in JD Wind 1 that, "… a QF, by committing itself to sell to an electric utility, also commits the electric utility to buy from QF; these commitments result either in contracts or in noncontractual, but binding, legally enforceable obligations [pursuant to the state's implementation of PURPA]."
480-106-040 [(1)](a)	Consistent with the recommendation that QF PPAs start at operation date, the commission should also require utilities to include at least eighteen years of estimated avoided energy costs.	Staff recommends twenty years. See staff's comments in response to the Northwest Intermountain Power Producer's comments on number of years of estimated avoided costs.
480-106-040 [(1)](b)	The estimated avoided costs of capacity should be based on the same period used to estimate avoided energy costs.	Staff understands the rules to require utilities to use the same period for estimating the avoided cost of energy and capacity.
480-106-040 [(1)](b)(i)	Using request for proposals (RFP) data, which is often highly confidential, to set avoided cost rates, limits the ability of other PURPA stakeholders to vet avoided cost filings. Encourages the commission to adopt final rules that require utilities to use acknowledged IRP cost estimates.	Should the utility rely on its most recent RFP data, the utility must follow disclosure rules for its most recent project proposals received, pursuant to an RFP issued, and consistent with chapter 480-107 WAC. The utility is also subject to the commission's confidentiality rules.
Compliance filings	Recommends that the commission specify in its order a timeline for the various filings and approval processes that may be required as part of the implementation of the final rules.	Staff agrees that the utilities should expeditiously meet the new requirements of the rule prior to November 1, 2019. Staff encourages the commission to explore with parties a reasonable timeline for meeting the new requirements. Staff's initial recommendation is for the utilities to file within sixty days of the order.

Rule	Summary of Comment	Staff Response
Compliance filings	Following the adoption heating [hearing], the commission should expedite the release of the utilities' avoided cost pricing tariffs and a draft PPA. Further delays to implement the rules could have a detrimental impact on QF's ability to obtain the federal investment tax credit.	Staff agrees that the utilities should expeditiously meet the new requirements of the rule prior to November 1, 2019. Staff encourages the commission to explore with parties a reasonable timeline for meeting the new requirements. Staff's initial recommendation is for the utilities to file within sixty days of the order.
480-106-030(2)	Regarding a LEO, the rules should establish a quantifiable test that relies fundamentally on a QF unequivocally committing itself to sell its output to a utility. LEO criteria cannot depend solely on factors in the control of a utility. The proposed rules do not define the substance of the written contract but its reliance that it be executed by both the utility and QF is not in line with FERC precedent. LEO precedent in Oregon could be useful to the commission. Oregon determined that "a LEO exists when a QF signs a final draft of an executable standard contract that includes a scheduled commercial on-line date and information regarding the QF's minimum and maximum annual deliveries" while still providing that a QF could establish a LEO prior to its execution of a PPA should there be delays or obstruction in the establishment of the contract.	Staff believes that the commission's draft rules are aligned with FERC and Oregon's rules. However, we propose additional clarifying edits in WAC 480-106-030(2).
480-106-050(4)	QFs should have the option to select up to fifteen year contracts at the date of commercial operation and the right to select a date of commercial operation three years from contract execution, so long as QF can complete commercially reasonable milestone events. A period of three years after contract execution is necessary to ensure the completion of the development milestones, including the interconnection study, which is out of the control of the utility. A utility-owned generator typically last[s] for over thirty years regardless of future market pricing.	The commission's proposed rules significantly increase the required term of fixed rates for QF projects, from five years to fifteen, for most of the regulated utilities. Staff believes that the proposed rules strike a reasonable balance of the interests of QF and the ratepayers.
480-106-040	Utilities should use publicly available and independently published third-party data to drive the avoided cost rate schedules. Recommend using EIA data, which has been adopted in other states.	Staff recommends that the utilities use best available information to set its [their] avoided cost rate schedules with a preference for publicly available information, as outlined in WAC 480-100-238 (IRP rules) and chapter 480-107 WAC (acquisition rules). If the utility uses third-party data, the utility should make that information available for inspection and review.
Energy storage	QFs should have the right to incorporate energy storage and be compensated accordingly. FERC has ruled that energy storage is eligible to be incorporated into QFs, so long as at least seventy-five percent of the charging energy is from qualifying renewables.	Staff recommends that the commission remain open to the concept of QFs sited with storage and consider applications on a case-by-case basis, should a petition arrive before the commission, rather than make a determination before an application has been submitted.
480-106-040 (1)(c)	The commission should provide clarity of the levelized avoided cost pricing. A QF delays, reduces, or eliminates the utility's future capacity need and should be compensated accordingly.	Levelized avoided cost pricing means that the costs are converted to a level stream of payments over the contract period.
480-106-040	The commission should require the utilities to use a robust method for calculating the capacity value of each resource, and recommends using the ELCC method. The commission should set clear ELCC guidelines that allow for the contribution of energy storage when paired with a QF. ELCC method should be fixed upon contract execution or LEO formation, as it is essential to a QF's ability to secure financing.	Staff supports the ELCC method and its use in IRPs. However, there may be more than one reasonable and effective methodologies [methodology] for determining the value of capacity of a resource. If a party does not believe that the utility is appropriately valuing a resource in its IRP, it may intervene when the utility files avoided cost rates. Any party may also ask the commission to review the interpretation or application of these rules under WAC 480-07-910 or 480-07-370.
480-106-040	The commission should set standard ELCC percentage by technology by month for all standard offer QFs.	Staff urges the commission not to set standard ELCC percentages by technology and month for all standard offers. The ELCC of a resource will change based on its location and the utility with which it is interconnecting. This determination is best made in a utility's IRP.
480-106-030(5)	The commission should confirm that the proposed rules established for standard offer QFs provide the starting point for large QFs contract negotiations. Large QFs should still be entitled to contract provisions for qualifying facilities with capacities greater than five megawatts.	As stated in the rules, nonbinding term sheets for QFs with capacities greater than five megawatts should be consistent with the commission's rules. Contracting parties should begin negotiations using the terms and conditions of the standard offer as a starting point, but the outcome of the final contract may deviate based on the specific characteristics of QF and the utility, and the circumstances at that time.


1	WAC 480-100-001.
2	FERC Order 69 ¶ 12224, 18 C.F.R. Part 292 Federal Register Vol. 45, No. 38.
3	U-161024 Joint Recommendations, on behalf of Puget Sound Energy, Northwest and Intermountain Power Producers Coalition, Renewable Energy Coalition, Renewable Northwest, Northwest Energy Coalition and Climate Solutions (February 26, 2018).
4	Washington Utilities and Transportation Commission v. Washington Water Power Company, 83 P.U.R. 4th 364 at 375 (1987), is upheld.

Appendix B

Chapter 480-106 WAC

ELECTRIC COMPANIES—PURCHASES OF ELECTRICITY FROM QUALIFYING FACILITIES

NEW SECTION

WAC 480-106-001Purpose.

The purpose of this chapter is to implement the Public Utility Regulatory Policies Act of 1978 (PURPA), Title II, sections 201 and 210, and related regulations promulgated by the Federal Energy Regulatory Commission (FERC) in 18 C.F.R. Part 292 Subparts A and C. If there is any conflict between these rules and PURPA, or the related rules promulgated by FERC in 18 C.F.R. Part 292, PURPA and those related FERC rules control. Purchase of electric power under these rules satisfies a utility's obligation to purchase power from qualifying facilities under section 210 of PURPA.

NEW SECTION

WAC 480-106-002Application of rules.

(1) Except as otherwise provided in this chapter, the rules in this chapter apply to any utility that is subject to the commission's jurisdiction under RCW 80.01.040, 80.04.010, and chapter 80.28 RCW, and qualifying facilities as defined herein. The rules in this chapter do not supersede contracts existing before the effective date of this rule. At the expiration of such an existing contract between a utility and a qualifying facility, the provisions of this chapter shall apply to rates and terms offered under any contract extension or new contract.

(2) Nothing in this chapter prohibits a utility or a qualifying facility from agreeing to voluntary contracts with rates, terms, or conditions that differ from the provisions in this chapter.

NEW SECTION

WAC 480-106-003Exemptions from rules in chapter 480-106 WAC.

The commission, in response to a request or on its own initiative, may grant an exemption from, or modify the application of, any rule in this chapter consistent with the standards and according to the procedures set forth in WAC 480-07-110 Exemptions from and modifications to commission rules; conflicts with other rules.

NEW SECTION

WAC 480-106-007Definitions.

"Avoided costs" means the incremental costs to a utility of electric energy, capacity, or both that, but for the purchase from the qualifying facility or qualifying facilities, the utility would generate itself or purchase from another source.

"Back-up power" means electric energy or capacity supplied by a utility to replace energy ordinarily generated by a qualifying facility's own generation equipment during an unscheduled outage of the qualifying facility.

"Capacity" means the capability to produce or avoid the need to produce electric energy and ancillary electrical services, measured in kilowatts (kW) including, but not limited to, the criteria described in WAC 480-106-050 (5)(b).

"Commission" means the Washington utilities and transportation commission.

"Energy" means electric energy, measured in kilowatt-hours (kWh) or megawatt-hours (MWh).

"Integrated resource plan" or "IRP" means the filing made every two years by a utility in accordance with WAC 480-100-238 Integrated resource planning.

"Interconnection costs" means the reasonable costs of connection, switching, metering, transmission, distribution, safety provisions, and administration incurred by the utility directly related to the installation and maintenance of the physical facilities necessary to permit interconnected operations with a qualifying facility that are in excess of the corresponding costs the utility would have incurred if it had not engaged in interconnected operations. Interconnection costs do not include any costs included in the calculation of avoided costs.

"Interruptible power" means electric energy or capacity supplied by a utility subject to interruption by the utility under specified conditions.

"Legally enforceable obligation" means the binding commitment of a qualifying facility to sell, and of a utility to purchase, the energy, capacity, or both provided by the qualifying facility over a specified term in accordance with these rules.

"Maintenance power" means electric energy or capacity supplied by a utility during scheduled outages of a qualifying facility.

"Qualifying facility" means a cogeneration facility or a small power production facility that is a qualifying facility under 18 C.F.R. Part 292 Subpart B.

"Request for proposals" or "RFPs" means the documents describing a utility's solicitation of bids for delivering electric capacity, energy, or both, or conservation that was issued consistent with chapter 480-107 WAC.

"Supplementary power" means electric energy or capacity supplied by a utility that a qualifying facility regularly uses in addition to the energy or capacity that the qualifying facility generates itself.

"System emergency" means a condition on a utility's system that is likely to result in an imminent, significant disruption of service to customers or is imminently likely to endanger life or property.

"Utility" means an electrical company as defined in RCW 80.04.010 that is subject to the commission's jurisdiction under RCW 80.01.040, 80.04.010, and chapter 80.28 RCW.

NEW SECTION

WAC 480-106-010Obligations of qualifying facilities to the utility.

(1) The owner or operator of a qualifying facility purchasing or selling electricity under this chapter must execute a written agreement with the utility stating at a minimum that:

(a) The owner or operator of the qualifying facility will construct and operate all interconnected qualifying facilities within its control in accordance with all applicable federal, state, and local laws and regulations to ensure system safety and reliability of interconnected operations;

(b) The qualifying facility will furnish, install, operate, and maintain in good order and repair, and without cost to the utility, such switching equipment, relays, locks and seals, breakers, automatic synchronizers, and other control and protective apparatus determined by the utility to be reasonably necessary for the safe and reliable operation of the qualifying facility in parallel with the utility's system, or the qualifying facility may contract for the utility to do so at the qualifying facility's expense; the qualifying facility's delivery of electricity to the utility must be at a voltage, phase, power factor, and frequency as reasonably specified by the utility; and

(c) The utility at all times must have access to all switching equipment capable of isolating the qualifying facility from the utility's system.

(2) To the extent that the qualifying facility will assume responsibility for the safe operation of the interconnection facilities, the qualifying facility is not required to assume responsibility for negligent acts of the utility.

(3) The utility may operate the switching equipment described in subsection (1)(c) of this section if, in the sole opinion of the utility, continued operation of the qualifying facility in connection with the utility's system may create or contribute to a system emergency. Such a decision by the utility is subject to commission verification in accordance with WAC 480-106-070 System emergencies. The utility must endeavor to minimize any adverse effects of such operation on the owner or operator of a qualifying facility.

NEW SECTION

WAC 480-106-020Obligations of the utility to qualifying facilities.

(1) Obligation to purchase from qualifying facilities: A utility must purchase, in accordance with WAC 480-106-050 Rates for purchases from qualifying facilities, any energy and capacity that is made available from a qualifying facility:

(a) Directly to the utility; or

(b) Indirectly to the utility in accordance with subsection (4) of this section.

(2) Obligation to sell to qualifying facilities: A utility must sell to any qualifying facility, in accordance with WAC 480-106-060 Rates for sales to qualifying facilities, any energy and capacity requested by the qualifying facility at the same rates, terms, and conditions that are available to other customers of the utility in the same customer class who do not generate electricity.

(3) Obligation to interconnect: A utility must make all the necessary interconnections with any qualifying facility to accomplish purchases or sales under this section. The qualifying facility must pay for interconnection costs to the extent required under WAC 480-106-080 Interconnection costs.

(4) Transmission to other electrical companies: If a qualifying facility agrees, a utility that would otherwise be obligated to purchase energy, capacity, or both, from such qualifying facility must transmit energy, capacity, or both, to any other electric service provider at the expense of the qualifying facility. The qualifying facility's use of a utility's transmission facilities shall be pursuant to the utility's open access transmission tariff. Any utility to which energy or capacity generated by a qualifying facility and transmitted to such utility over the facilities of another utility shall purchase the energy or capacity under this subpart as if the qualifying facility were supplying energy or capacity directly to the purchasing utility. The rate the purchasing utility pays the qualifying facility shall be adjusted to reflect line losses and shall not include any charges for transmission.

(5) Parallel operation: Each utility must offer to operate in parallel with a qualifying facility if the qualifying facility complies with all applicable standards established in this section.

NEW SECTION

WAC 480-106-030Tariff for purchases from qualifying facilities.

(1) Tariff for purchases from qualifying facilities required: Each utility must file a tariff consistent with this chapter and with WAC 480-80-102 Tariff content.

(2) Contracting procedures:

(a) In the tariff required in subsection (1) of this section, each utility must file contracting procedures that sets forth the obligations of the utility and the qualifying facility entering into contracts for the purchase and sale of qualifying facility output. Such contracting procedures shall provide that a legally enforceable obligation will be considered in an executed written contract between the utility and the qualifying facility prior to commercial operation;

(b) A legally enforceable obligation may exist prior to an executed written contract. If an irreconcilable disagreement arises during the contracting process, the qualifying facility or the purchasing utility may petition the commission to resolve the disagreement, including making a determination about whether the qualifying facility owner is entitled to a legally enforceable obligation and the date that such obligation occurred based on the specific facts and circumstances of each case. In making its determination, the commission will recognize that the formation of a legally enforceable obligation is based on a qualifying facility committing itself to sell all or part of its electric output to an electric utility.

(3) Schedule of estimated avoided costs offering standard rates for purchases from qualifying facilities of five megawatts or less: In the tariff required in subsection (1) of this section, all utilities must file a schedule of estimated avoided costs offering standard rates for purchases from qualifying facilities with nameplate capacities of five megawatts or less, as described in WAC 480-106-040 Schedules of estimated avoided costs. Qualifying facility developers proposing projects with a design capacity of five megawatts or less may choose to receive a purchase price for power that is set forth in such standard tariff.

(4) Standard contract provisions for purchases from qualifying facilities of five megawatts or less: In the tariff required in subsection (1) of this section, each utility shall specify the information required for qualifying facilities with nameplate capacities of five megawatts or less to obtain draft executable contracts. All utilities shall file standard contract provisions for purchases from a qualifying facility with a capacity of five megawatts or less. Standard contracts may include commercially reasonable milestone events and cure periods including, but not limited to, the qualifying facility's:

(a) Provision of any necessary credit support, necessary governmental permits and authorizations, evidence of construction financing, and as-built supplements;

(b) Completion of interconnection facilities;

(d) Achievement of mechanical availability of operation.

(5) Information and term sheets for qualifying facilities with capacities of greater than five megawatts: In the tariff required in subsection (1) of this section, each utility shall specify the information required for qualifying facilities of greater than five megawatts to obtain draft and executable contracts. All utilities shall post upon the utility's web site nonbinding term sheets with limited contract provisions for qualifying facilities with capacities greater than five megawatts. Such contract provisions need not be the same as the standard contract provisions required pursuant to subsection (3) of this section, but shall be consistent with the commission's rules.

NEW SECTION

WAC 480-106-040Schedules of estimated avoided costs.

(1) Filing requirement. A utility must file by November 1st of each year, as a revision to its tariff described in WAC 480-106-030 Tariff for purchases from qualifying facilities, a schedule of estimated avoided costs that identifies, both separately and combined, its avoided cost of energy and its avoided cost of capacity. All schedules of estimated avoided costs must include:

(a) Identification of avoided energy: An estimated avoided cost of energy based on the utility's current forecast of market prices for power stated on a cents per kilowatt-hour or dollars per megawatt-hour basis for the current calendar year and each of the next twenty years. In determining its avoided cost of energy, the utility may incorporate the daily and seasonal peak and off-peak period prices, by year; and

(b) Identification of avoided capacity: An estimated avoided cost of capacity expressed in dollars per megawatt based on the projected fixed cost of the next planned capacity addition identified in the succeeding twenty years in the utility's most recently acknowledged integrated resource plan filed pursuant to WAC 480-100-238 Integrated resource planning, and such identification must include the following:

(i) Identification of capacity cost: A utility must identify the projected fixed costs of its next planned capacity addition based on either the estimates included in its most recently acknowledged integrated resource plan or the most recent project proposals received pursuant to an RFP issued consistent with chapter 480-107 WAC, whichever is most current; and

(ii) Proxy for planned market purchases: If the utility's most recently acknowledged integrated resource plan identifies the need for capacity in the form of market purchases not yet executed, then the utility shall use the projected fixed costs of a simple-cycle combustion turbine unit as identified in the integrated resource plan as the avoided capacity cost of the market purchases.

(c) Levelized avoided cost pricing: The avoided cost of capacity must account for any differences between the in-service date of the qualifying facility and the date of the next planned generating unit by levelizing the lump sum present value of the avoided cost of capacity discounted by the utility's commission-approved weighted average cost of capital.

(2) Differentiating among qualifying facilities. A utility's estimated avoided cost of capacity may differentiate among qualifying facilities based on the supply characteristics of different technologies of qualifying facilities for purposes of calculating the estimated avoided cost of capacity.

(3) Schedule revisions. A utility may file to revise its schedule of estimated avoided costs prior to its next annual filing, provided that the commission may not allow such tariff revision to become effective until at least sixty days after such filing. Filing a revised schedule of estimated avoided costs in this subsection does not relieve the utility of its annual obligation to file a schedule in subsection (1) of this section if such filing occurs more than thirty days prior to such annual tariff filings.

NEW SECTION

WAC 480-106-050Rates for purchases from qualifying facilities.

(1) Rates for purchases by a utility:

(a) Rates must be just and reasonable to the utility's customers and in the public interest;

(b) Rates must not discriminate against qualifying facilities; and

(2) Establishing rates:

(a) A rate for purchase from qualifying facilities satisfies the requirements of subsection (1) of this section if the rate equals the utility's avoided costs after consideration, to the extent practicable, of the factors set forth in WAC 480-106-040 Schedules of estimated avoided costs, and in subsection (5) of this section.

(b) When a utility bases its purchase rates on estimates of avoided costs over a specific term of the contract or other legally enforceable obligation, the rates do not violate these rules if any payment under the obligation differs from avoided costs at the time of delivery.

(3) Rates for purchases - Time of calculation: Except for the purchases made under a standard rates tariff pursuant to subsection (4) of this section, each qualifying facility shall have the option to:

(a) Provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility's avoided cost of energy at the time of delivery; or

(b) Provide energy, capacity, or both, pursuant to a legally enforceable obligation, in which case the rates for purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on:

(i) The avoided costs of energy and capacity calculated at the time of delivery; or

(ii) The avoided costs of energy and capacity projected over the life of the obligation and calculated at the time the parties incur the obligation.

(4) Standard rates for purchases from qualifying facilities with capacities five megawatts or less: A utility shall establish standard rates for its purchases from qualifying facilities with capacities of five megawatts or less as follows:

(a) A utility must file the schedule of estimated avoided costs containing standard rates for purchases pursuant to WAC 480-106-040 Schedules of estimated avoided costs as a revision to its tariff required in WAC 480-106-030 Tariff for purchases from qualifying facilities.

(i) The utility's standard rates for purchases must offer fixed rates to a new qualifying facility for a term of fifteen years beginning on the date of contract execution or a legally enforceable obligation, but not less than twelve years from the commercial operation date of the qualifying facility.

(ii) The utility's standard rates for purchases must offer fixed rates to an existing qualifying facility entering into a new agreement with the utility for a term of ten years.

(iii) Qualifying facilities that do not meet the greenhouse gas emissions performance standard established under RCW 80.80.040 are limited to contract terms of less than five years.

(b) A utility's standard rates for purchases must provide the qualifying facility the option to either:

(i) Provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility's avoided cost of energy at the time of delivery; or

(ii) Provide energy, capacity, or both, pursuant to a legally enforceable obligation, in which case the rates for purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on:

(A) The avoided energy and capacity calculated at the time of delivery; or

(B) The avoided costs of energy and capacity identified in the utility's schedule of estimated avoided costs in effect when the parties incur the obligation.

(c) Except where expressly conveyed to the utility for additional consideration, the qualifying facility shall own the renewable energy certificates and any other environmental attributes associated with the production from such qualifying facility unless the standard rates are based on the avoided capacity costs of an eligible renewable resource as defined in RCW 19.285.030. During any period in which the qualifying facility receives standard rates that are based on the avoided capacity costs of an eligible renewable resource, the utility shall receive the renewable energy certificates produced by the qualifying facility at no additional cost to the utility.

(d) The standard rate may account for the integration costs associated with variable technologies, as approved by the commission.

(5) Negotiated rates for qualifying facilities with capacities greater than five megawatts: Each utility shall file and obtain commission approval of its avoided cost rate methodology for qualifying facilities with capacity greater than five megawatts. When negotiating rates for purchases from qualifying facilities with capacities greater than five megawatts, to the extent practicable, the parties should consider the following factors:

(a) The data the utility provided to the commission pursuant to WAC 480-106-040 Schedules of estimated avoided costs, and the commission's evaluation of the data;

(b) The availability of energy, capacity, and ancillary services from a qualifying facility during the system daily and seasonal peak periods, including:

(i) The utility's ability to dispatch the qualifying facility;

(ii) The qualifying facility's expected or demonstrated reliability;

(iii) The terms of any proposed contract or other legally enforceable obligation;

(iv) The extent to which the parties can usefully coordinate their respective scheduled outages;

(v) The usefulness of energy, capacity, or both, supplied from a qualifying facility during system emergencies, including the qualifying utility's ability to separate its load from its generation;

(vi) The individual and aggregate value of energy and capacity from qualifying facilities on the utility's system; and

(vii) The smaller capacity increments and the shorter lead times available, if any, with additions of capacity from qualifying facilities.

(c) The relationship of the availability of energy, capacity, or both, from the qualifying facility as derived in (b) of this subsection, to the ability of the utility to avoid costs, including the deferral of capacity additions and the reduction of fossil fuel use; and

(d) The costs or savings resulting from variations in line losses from those that would have existed in the absence of purchases from a qualifying facility.

NEW SECTION

WAC 480-106-060Rates for sales to qualifying facilities.

(1) General rules:

(a) Rates for sales:

(i) Shall be just and reasonable, and in the public interest; and

(ii) Shall not discriminate against any qualifying facility in comparison to rates for sales to other customers served by the utility.

Utilities may not deny service to a customer for which the customer otherwise qualifies based on the presence of a qualifying facility, including interruptible power service.

(b) Rates for sales that are based on accurate data and consistent system-wide costing principles will not be considered to discriminate against any qualifying facilities if those rates apply to the utility's other customers with similar load or other cost-related characteristics.

(2) Additional services to be provided to qualifying facilities:

(a) Upon request by a qualifying facility, each utility will provide:

(i) Supplementary power;

(ii) Back-up power;

(iii) Maintenance power; and

(iv) Interruptible power.

(b) The commission may waive any requirement of (a) of this subsection if, after notice in the area served by the utility and after opportunity for public comment, the utility demonstrates and the commission finds that compliance with such requirement will:

(i) Impair the utility's ability to render adequate service to its customers; or

(ii) Place an undue burden on the utility.

(3) The rate for sale of back-up power or maintenance power:

(a) Shall not be based on an assumption, unless supported by factual data, that forced outages or other reductions in electric output by all qualifying facilities on a utility's system will occur simultaneously, or during the system peak, or both; and

(b) Must take into account the extent to which scheduled outages of the qualifying facilities can be usefully coordinated with scheduled outages of the utility's facilities.

NEW SECTION

WAC 480-106-070System emergencies.

(1) Qualifying facility obligation to provide power during system emergencies: A qualifying facility may be required to provide energy or capacity to a utility during a system emergency only to the extent:

(a) Provided by agreement between the qualifying facility and utility; or

(b) Ordered under section 202(c) of the Federal Power Act.

(2) Discontinuance of purchases and sales during system emergencies: During any system emergency, a utility may, in a nondiscriminatory fashion, discontinue:

(a) Purchases from a qualifying facility if such purchases would contribute to such emergency; and

(b) Sales to a qualifying facility provided that such discontinuance is on a nondiscriminatory basis.

(3) System emergencies resulting in utility action under this chapter are subject to verification by the commission upon request by either party to the power contract.

NEW SECTION

WAC 480-106-080Interconnection costs.

(1) Any costs of interconnection are the responsibility of the owner or operator of the qualifying facility entering into a power contract under this chapter. The utility must assess all reasonable interconnection and necessary system or network upgrade costs the utility incurs against a qualifying facility on a nondiscriminatory basis.

(2) The owner or operator of the qualifying facility must reimburse the utility for any reasonable interconnection costs the utility may incur. Such reimbursement may be made, at the utility's election:

(a) At the time the utility invoices the owner or operator of the qualifying facility for interconnection costs incurred by the utility; or

(b) Over an agreed period not greater than the length of any contract between the utility and the qualifying facility.

Chapter 480-107 WAC

ELECTRIC COMPANIES—PURCHASES OF ELECTRICITY ((FROM QUALIFYING FACILITIES AND INDEPENDENT POWER PRODUCERS AND PURCHASES OF ELECTRICAL SAVINGS FROM CONSERVATION SUPPLIERS))

AMENDATORY SECTION(Amending WSR 06-08-025, filed 3/28/06, effective 4/28/06)

WAC 480-107-001Purpose and scope.

(1) The rules in this chapter require utilities to solicit bids, rank project proposals, and identify any bidders that meet the minimum selection criteria. The rules in this chapter do not establish the sole procedures utilities must use to acquire new resources. Utilities may construct electric resources, operate conservation programs, purchase power through negotiated contracts, or take other action to satisfy their public service obligations.

(2) The commission will consider the information obtained through these bidding procedures when it evaluates the performance of the utility in rate and other proceedings.

(((3) The rules in this chapter are consistent with the provisions of the Public Utility Regulatory Policies Act of 1978 (PURPA), Title II, sections 201 and 210, and related regulations promulgated by the Federal Energy Regulatory Commission (FERC) in 18 C.F.R. Part 292. To the extent of any conflict between these rules and PURPA, or the related rules promulgated by FERC in 18 C.F.R. Part 292, PURPA and those related rules control. Purchase of electric power under these rules satisfies a utility's obligation to purchase power from qualifying facilities under section 210 of PURPA.))

AMENDATORY SECTION(Amending WSR 06-08-025, filed 3/28/06, effective 4/28/06)

WAC 480-107-007Definitions.

"Affiliate" means a person or corporation that meets the definition of an "affiliated interest" in RCW 80.16.010.

"Avoided costs" means the incremental costs to a utility of electric energy, electric capacity, or both, that the utility would generate itself or purchase from another source, but for purchases to be made under these rules. A utility's avoided costs are the prices, terms and conditions, including the period of time and the power supply attributes, of the least cost final contract entered into as a result of the competitive bidding process described in these rules. If no final contract is entered into in response to a request for proposal (RFP) issued by a utility under these rules, the utility's avoided costs are the lesser of:

(((1)))(a) The price, terms and conditions set forth in the least cost project proposal that meets the criteria specified in the RFP; or

(((2)))(b) Current projected market prices for power with comparable terms and conditions.

(("Back-up power" means electric energy or capacity supplied by a utility to replace energy ordinarily supplied by utility-owned generation or purchased through contracts that is unavailable due to an unscheduled outage.))

"Commission" means the Washington utilities and transportation commission.

"Conservation" means any reduction in electric power consumption that results from increases in the efficiency of energy use, production or distribution, or from demand response, load management or efficiency measures that reduce peak capacity demand.

"Conservation supplier" means a third party supplier or utility affiliate that provides equipment or services that save capacity or energy.

(("Economic dispatch" means modifying the scheduling of power purchases from a generating facility within contractually specified limits to minimize the costs of delivering electricity.))

"Generating facilities" means plant and other equipment used to generate electricity purchased through contracts entered into under these rules.

"Independent power producers" means an entity that owns generating facilities or portions thereof that are not included in a utility's rate base and that are not qualifying facilities as defined in this section.

"Integrated resource plan" or "IRP" means the filing made every two years by a utility in accordance with WAC 480-100-238 Integrated resource planning.

(("Interruptible power" means electric energy or capacity supplied to a utility by a generating facility, the availability of which may be interrupted under certain conditions.

"Maintenance power" means electric energy or capacity supplied by a utility during scheduled outages of a generating facility.))

"Project developer" means an individual, association, corporation, or other legal entity that can enter into a power or conservation contract with the utility.

"Project proposal" means a project developer's document containing a description of a project and other information responsive to the requirements set forth in a request for proposal, also known as a bid.

"Qualifying facilities" means generating facilities that meet the criteria specified by the FERC in 18 C.F.R. Part 292 Subpart B.

"Request for proposals" or "RFPs" means the documents describing a utility's solicitation of bids for delivering electric capacity, energy, or capacity and energy, or conservation.

"Resource block" means the deficit of capacity and associated energy that the IRP shows for the near term.

"Subsidiary" means any company in which the utility owns directly or indirectly five percent or more of the voting securities, and that may enter a power or conservation contract with that electric utility. A company is not a subsidiary if the utility can demonstrate that it does not control that company.

(("Supplementary power" means electric energy or capacity supplied by a utility that is regularly used by a generating facility in addition to that which the facility generates itself.))

"Utility" means an electrical company as defined by RCW 80.04.010.

AMENDATORY SECTION(Amending WSR 06-08-025, filed 3/28/06, effective 4/28/06)

WAC 480-107-025Contents of the solicitation.

(1) The RFP must identify the resource block, consisting of the overall amount and duration of power the utility is soliciting, the initial estimate of avoided cost schedule as calculated in WAC ((480-107-055))480-106-040 Avoided cost schedule, and any additional information necessary for potential bidders to make a complete bid.

(2) The RFP must document that the size of the resource block is consistent with the range of estimated new resource needs identified in the utility's integrated resource plan.

(3) The RFP must explain general evaluation and ranking procedures the utility will use in accordance with WAC 480-107-035 Project ranking procedure. The RFP must also specify any minimum criteria that bidders must satisfy to be eligible for consideration in the ranking procedure.

(4) The RFP must specify the timing of process including the solicitation period, the ranking period, and the expected selection period.

(5) The RFP must identify all security requirements and the rationale for them.

(6) Utilities are encouraged to consult with commission staff during the development of the RFP. Utilities, at their own discretion, may submit draft RFPs for staff review prior to formally submitting an RFP to the commission.

REPEALER

The following sections of the Washington Administrative Code are repealed:

WAC 480-107-055	Schedules of estimated avoided cost.
WAC 480-107-085	Obligations of generating facilities to the utility.
WAC 480-107-095	Obligations of the utility to qualifying facilities.
WAC 480-107-105	Rates for sales to qualifying facilities.
WAC 480-107-999	Adoption by reference.