UNITED STATES OF AMERICA

BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION

Sustainable Power Group, LLC ) Docket Nos. EL17-35-000

sPower Development Company, LLC )
)
sPower Development Company, LLC ) QF17-502-001

MOTION TO INTERVENE AND PROTEST OF

XCEL ENERGY SERVICES INC.

Pursuant to Rules 211, 212, and 214 of the Rules of Practice and Procedure of the Federal

Energy Regulatory Commission (Commission) 1 and the January 3, 2017 Notice of Petition for

Enforcement in this proceeding, Xcel Energy Services Inc. (XES), on behalf of its utility

operating company affiliate Public Service Company of Colorado (PSCo or Public Service),

respectfully submits this motion for leave to intervene and protest of the December 30, 2017

petition by Sustainable Power Group, LLC and sPower Development Company, LLC

(collectively sPower) (the Petition).

I. Introduction

Public Service is a vertically integrated public utility providing service in portions of the

state of Colorado, primarily in the Denver metropolitan area, which has a peak load of

approximately 6,500 MWs. It serves its load from a combination of owned and purchased

resources, including a substantial level of renewable resources. Public Service is an industry

leader in the use of wind power on its system, presently having 2,566 MWs of wind resources,

all but approximately 10 MWs of which was acquired through power purchase agreements

(PPAs) entered into through competitive bidding. It also has 255 MWs of utility scale solar

1
18 C.F.R. 385.211, 385.212, and 385.214 (2016).

1
resources, also obtained through PPAs selected through competitive bidding. Although Public

Service does not complete information regarding their certification status, some of the renewable

resources that Public Service has acquired through PPAs entered into through competitive

bidding qualify as qualifying facilities (QFs). The degree of integration of renewables on

PSCos system has reached such high levels that the Commission has acknowledged that PSCo

faces unique circumstances and has permitted PSCo to implement special services under its

open access transmission tariff to address associated operational issues. 2

In this proceeding, sPower has asked the Commission to initiate an enforcement action

under the Public Utilities Regulatory Policy Act of 1978 (PURPA) against the Colorado Public

Utilities Commission (Colorado Commission or CPUC). sPower believes that the

implementation of PURPA in Colorado has disadvantaged QFs. The essence of sPowers

position is that by requiring sPower to win a competitive bid, the Colorado Commissions rules

implementing PURPA, in particular Rule 3902(c), place an unreasonable burden on sPowers

ability to require that PSCo purchase the capacity and energy output from sPowers nineteen (19)

planned 80-megawatt (MW) solar and wind QFsfor a total of 1,520 MW of resources. 3

sPower takes this position notwithstanding that PSCo is presently in an Electric Resource Plan

(ERP) proceeding before the Colorado Commission, where PSCo has indicated that it expects

to have an incremental resource need of approximately 300 MW. The primary purpose of Phase I

of this integrated resource proceeding is to determine Public Services incremental resource need

that it is to acquire. PSCo will fill that need in Phase II of the ERP through a competitive bid

process, subject to transparent oversight that includes the appointment of an independent

2
See Public Service Company of Colorado, 149 FERC 61,208 at P 92 (2014) (accepting Flex Reserve service)
3
CPUC Rule 3902(c) specifies that avoided cost rates for QFs larger than 100 kW are to be determined through a
bid or auction, and that utilities such as PSCo are only obligated to purchase capacity or energy if the QF is
awarded a contract under the bid or auction or combination process. See Petition, Attachment 2 at 196-97.

2
evaluator consistent with the Colorado Commissions requirements. When presented with

sPowers arguments that Colorados PURPA implementation rules were not compliant with

PURPA and its request that the Colorado Commission require that PSCo agree to enter into QF

purchases at an administratively determined avoided cost rate prior to conducting the Phase II

bid, the Colorado Commission reaffirmed its position that competitive bidding is an appropriate

means to establish avoided cost rates for QFs. It also indicated that sPower was not precluded

from seeking a rule modification. sPower instead has responded by filing the Petition with this

Commission.

The current status of sPowers proposed projects, several of which sPower has proposed

to locate in a transmission constrained area, is unclear. Nonetheless, through its letters to PSCo,

sPower purports to establish legally enforceable obligations (LEOs) for these projects. sPower

has demanded that PSCo purchase the capacity and energy output of these facilities at an

administratively determined avoided cost rate, notwithstanding the presently active ERP

proceeding. sPowers argument, if ultimately accepted, would not only give sPower a priority to

supply PSCos incremental resource need over all other potential suppliers, including potentially

other QFs who are willing to engage in the upcoming competitive request for proposal (RFP)

process, but it would also strip the Colorado Commission of its review and oversight authority,

exercised through Colorado integrated planning rules, over Public Services resource

acquisitions. 4 The Commission should reject sPowers attempt to circumvent the Colorado ERP

process and should decline to initiate an enforcement action.

sPower grounds its arguments and request for relief on two relatively recent declaratory

orders where the Commission concluded that competitive bidding schemes in Montana and

4
The Colorado Commissions ERP rules are included in its Rules Regulating Electric Utilities, which sPower has
included as Attachment 2 to its Petition. See Colorado Commission Rules 3600 et seq.

3
Connecticut did not satisfy the requirements of PURPA: Hydrodynamics Inc., 146 FERC

61,193 (2014) (Hydrodynamics); Windham Solar LLC, 156 FERC 61,042 (2016)

(Windham). sPower interprets these two declaratory rulings as precluding the use of

competitive bidding as the only means by which a QF can obtain a long-term avoided cost

contract. sPowers almost complete reliance on these orders is misplaced.

First, for decades Commission policy has permitted states to use competitive bidding

procedures as a means to determine avoided cost payments to QFs and to select QFs wishing to

sell capacity and energy to utilities. Indeed, the Commission has not only previously recognized

the appropriateness of using competitive bidding procedures, but it has actively encouraged

states to use such procedures, primarily because of the difficulties state commissions were

experiencing in developing administratively determined avoided cost rates. It did so primarily

through a proposed notice of proposed rulemaking: Regulations Governing Bidding Programs,

FERC Stats. & Regs. 32,455 (1988) (Bidding NOPR). Ultimately the Commission opted to

terminate this proposed rulemaking, but not because it concluded that bidding was inappropriate.

Rather, the Commission recognized that the majority of states had already adopted rules relying

on bidding, and therefore states did not need the Commissions guidance with respect to the

establishment of competitive bidding processes.

Second, there are important differences between the cases cited by sPower and the

Colorado PURPA implementation rules. Under the Montana scheme addressed in

Hydrodynamics and the Connecticut scheme addressed in Windham, QFs were effectively denied

the ability to offer to sell power to utilities under the applicable state commission rules as

implemented. For a ten-year period, competitive bidding for resources had occurred only once in

4
Montana and not at all in Connecticut, 5 and in both states there were additional rules that

restricted the ability of QFs to participate. In contrast, application of the CPUCs ERP Rules in

Colorado has resulted in the frequent acquisition of a substantial level of renewable energy

resources through competitive bidding. In fact, contrary to the factual circumstances presented in

Hydrodynamics and Windham, where the design or implementation of the applicable state

bidding schemes effectively foreclosed QFs ability to sell capacity and energy, PSCo will soon

embark on its sixth competitive solicitation open to QFs over the past decade in Phase II of its

current ERP. As such, the policy goals of PURPAallowing market access to third party

generationare fully met under the Colorado ERP process.

Third, sPower fails to recognize the latitude that state commissions have in implementing

PURPA, particularly in light of the states traditional authority over integrated resource planning

issues. The Commission has traditionally recognized the states authority in integrated resource

planning, but sPower would have the Commission abrogate that authority not only by upending

PSCos planned solicitation in Phase II of the pending ERP proceeding, which is to be conducted

with Colorado Commission oversight, but more generally by imposing on utilities such as Public

Service an ongoing resource procurement process that falls outside of the Colorado

Commissions review authority other than the establishment of administratively determined

avoided costs. If sPowers position is accepted, the Colorado Commission will not be able to rely

on its ERP rules to ensure that utilities such as PSCo achieve an optimal resource mix that is

cost-effective and consistent with the public interest. The CPUC has carefully set forth a

reasonable and PURPA-compliant integrated resource planning process through which QF

5
See Hydrodynamics, Inc., et al., 146 FERC 61,193 at P 8 (noting that, as of 2013, only one all-source
competitive solicitation had occurred since 2002); Windham Solar LLC, et al., Petition for Enforcement under the
Public Utility Regulatory Policies Act of 1978, Docket Nos. EL16-69-000, et al., petition at 13 (explaining that a
bidding process under Regs., Conn. State Agencies 16-243a-5 has not been conducted for more than 10 years.).
5
resources may be selected if they are successful in the competitive solicitation process. sPower

will obtain a right to sell energy and capacity to PSCo if it participates in the ERP and, through

that process, it is determined that sPower offers capacity of such cost and quality that it will

allow PSCo to avoid building comparable capacity or buying comparable capacity from another

source. sPower presents no justification to interfere with or depart from this process.

In summary, sPowers claim to an unrestricted right to put power to PSCo outside of

CPUC-required competitive resource processes is neither legally required nor consistent with

good policy. Allowing sPower to be exempted from the ERP process would be inconsistent with

Commission precedent that requires that all sources, including QFs, be considered in competitive

bidding processes, and it would run afoul of precedent that does not permit PURPA to be used to

upset existing capacity arrangements. The Commission should deny the Petition. 6

II. Correspondence and Communications

Correspondence and communications regarding this filing should be directed to the

following persons, who should be placed on the Commissions official service list in this

proceeding: 7

William M. Dudley James P. Johnson

Assistant General Counsel - Lead Assistant General Counsel
XCEL ENERGY SERVICES INC. XCEL ENERGY SERVICES INC.
1800 Larimer Street, 11th Floor 401 Nicolet Mall
Denver, CO 80202 Minneapolis, MN 55401
(303) 294-2842 (612) 215-4592
bill.dudley@xcelenergy.com james.p.johnson@xcelenergy.com

6
sPower has not requested that the Commission issue a declaratory order, although it has requested that the
Commission provide any other relief that it deems appropriate. Petition at 16. Should the Commission issue a
declaratory order to advise the parties of what position it would take in an enforcement action, as it sometimes has
opted to do in response to petitions for enforcement, PSCo requests that the Commission affirmatively indicate that
adherence to CPUC Rule 3902(c) does not impose an unreasonable burden on sPowers efforts to sell the capacity
and energy of its proposed facilities to Public Service under PURPA.
7
XES requests a waiver of Rule 203(b)(3) of the Commissions Rules of Practice and Procedure so that
communications may be served on each person listed in this section.

6
Terri Eaton Joseph W. Lowell
Director, Federal Regulatory Affairs Arjun P. Ramadevanahalli
XCEL ENERGY SERVICES INC. MORGAN, LEWIS & BOCKIUS LLP
1800 Larimer Street 1111 Pennsylvania Ave, NW
Denver, CO 80202 Washington, DC 20004
(303) 571-7112 (202) 739-3000
terri.k.eaton@xcelenergy.com joseph.lowell@morganlewis.com
arjun.ramadevanahalli@morganlewis.com

III. Background

After the exchange of informal correspondence, counsel for sPower sent counsel for

PSCo a letter on July 18, 2016, notifying PSCo of sPowers plans to make energy and capacity

available to PSCo from eleven 80 MW solar QFs (a total of 880 MWs) that sPower intended to

later develop and certify as QFs. 8 None of the facilities presently exist, and the proposed

commercial operation dates for each facility were in either July 2019 or July 2022. 9 sPower

informed PSCo through this letter that it was opting to enter into a contract or other LEO for a

twenty-year term. sPower proposed a capacity rate for these facilities based on the capacity rate

for a yet-to-be entered power purchase arrangement that PSCo would use to source a voluntary

solar program offering to its retail customers, and the forecasted energy rates for the same

program levelized over the next twenty-years. sPower acknowledged that CPUC Rule 3902(c)

requires the use of a competitive process to determine avoided costs, but, citing Hydrodynamics,

responded that FERC invalidated a similar process for establishing avoided cost in Montana,

finding that such a process imposes an unreasonable obstacle to obtaining a legally enforceable

obligation with a utility.

8
sPowers letter to PSCo is included as Attachment 5 to the Petition.
9
Some of the solar facilities are proposed to be located in an area of Colorado with very limited transmission
capability.

7
 Through counsel, PSCo responded in an August 8, 2016 letter that PSCo was required to

adhere to Colorado Commission Rule 3902(c), which required the use of competitive bidding,

but indicated that sPower could participate in the competitive solicitation that we will be

conducting as part of our pending ERP. 10 PSCo explained that the circumstances addressed by

the Commission in Montana were distinguishable from those in Colorado, where PSCo had

routinely acquired resources through competitive bidding. PSCo also questioned whether sPower

had provided sufficient detail regarding the feasibility of its projects to form a LEO in

jurisdictions that provided for their creation outside of competitive bidding.

On October 14, 2016, sPower filed a motion requesting that the Colorado Commission

waive CPUC Rule 3902(c). 11 Similar to its present Petition, sPower relied primarily on this

Commissions decisions in Hydrodynamics and Windham to establish that Colorado Commission

Rule 3902(c) was non-compliant with PURPA because it relied on competitive bidding as the

exclusive means for large QFs to sell capacity and energy to utilities. sPower also requested that

the CPUC require PSCo to purchase energy and capacity at its avoided costs from QFs prior to

the beginning of a competitive solicitation process in Phase II of this proceeding. 12 sPower

abandoned its pricing request set out in its prior letter and instead requested that the Colorado

Commission require that Public Service set an administratively determined avoided cost rate

using the so-called differential revenue requirement methodology. 13

10
PSCos letter to sPower is included as Attachment 6 to the Petition.
11
Motion of Sustainable Power Group, LLC (sPower) for Waiver of Commission Rule 3902(c) (Petition Attachment
3).
12
Id. at 18.
13
sPowers conception of the differential revenue requirement is that the utility models two revenue requirements,
the system revenue requirement with the QF and the system revenue requirement without the QF, setting the cost of
the QF to zero for purposes of the analysis. The difference between the two modeled revenue requirements is the
utilitys avoided cost and accounts for both avoided energy costs and avoided capacity costs simultaneously. Id.
This approach is obviously based on a utilitys projected costs as opposed actual market alternatives presented to a
utility through a competitive solicitation.

8
 PSCo responded to sPowers motion on November 18, 2016. 14 In that response, PSCo

explained that CPUC Rule 3902(c) is compliant with PURPA and that the underlying factual

circumstances in Hydrodynamics and Windham were different than those in Colorado. PSCo also

detailed the Commissions history and policy of allowing competitive bidding to establish

avoided cost rates, which occurred primarily because of the problems that had emerged with

administratively determined avoided cost rates. PSCo further explained that the Colorado

Commission had changed from using administrative determinations of avoided cost rates to the

use of competitive bidding in response to the oversupply of QF capacity and energy that had

occurred in the state during the early implementation of PURPA, a problem attributable to

improperly determined avoided cost pricing. Finally, PSCo noted that if the Colorado

Commission decided to change Rule 3902(c), it would have to consider a number of other issues,

including when and how LEOs could be created, and how QFs decisions to locate in

transmission constrained areas should be treated, a problem raised by certain of sPowers

proposed solar QFs. 15

In an order issued on December 19, 2016, the Colorado Commission denied sPowers

motion. 16 As the Colorado Commission explained:

15. Sustainable Power relies on two recent FERC declaratory orders that
specifically addressed competitive bidding opportunities and rules in Montana and
Connecticut . These determinations are limited to the specific facts presented and are
not binding precedent in Colorado. As noted by Public Service, significant differences
exist between the Montana and Connecticut competitive bidding practices in relation to

14
Response of Public Service Company of Colorado to Motion of Sustainable Power Group, LLC for Waiver of
Commission Rule 3902(c). PSCo is including its response as Attachment A.
15
sPower has not asserted requested findings or conclusions in its Petition that require PSCo address the issue of
whether its letters are sufficient to establish a LEO at this time. In addition to those reasons that PSCo set out in its
own response letter (Petition, Attachment 6) and Attachment A, and subsequently filed testimony in Colorado where
sPower has acknowledged that it will not definitely proceed with its projects, PSCo notes here that sPowers letters
would be insufficient to form a LEO even in a state that does not require selection in a bid to form a LEO.
16
Colorado Commission Decision No. C16-1156-I, included as Attachment 1 to the Petition.

9
 Colorados rules and practices.12/ Hydrodynamics and Wyndham do not overturn
longstanding encouragement from FERC that an all-source competitive solicitation is an
effective method to determine avoided costs. Immediate and indefinite waiver of the
Colorado rules is not required based on the FERC declaratory orders regarding the
specific facts and rules in Montana and Connecticut.
16. Waiving the rules for an indefinite period and setting a QF methodology for
determining avoided costs amounts to rules of general applicability. Consistent with
Colorados Administrative Procedure Act, rules of general applicability must be decided
through appropriate rulemaking procedure, including notice and opportunity for public
comment. The sPower request for the Commission to revise its methodologies for
determining avoided cost rates is therefore beyond the scope of this Proceeding.
17. Sustainable Power is not precluded from raising substantive arguments
regarding alternative QF methodologies and requesting revision of the Commissions
rules through appropriate filings and proceedings.
12/ Public Service Response, at 3. In both Hydrodynamics and Wyndham, QF petitioners
established that they were effectively foreclosed from participating in state bidding
schemes due to infrequency of, and preconditions to, competitive solicitations. In
contrast, Colorado has frequent ERP solicitations in which QFs are provided regular
opportunity to bid and obtain long-term contracts.

(other footnotes omitted).

sPower, through counsel, sent counsel for PSCo a second letter on December 29, 2016,

notifying PSCo of its plans to make energy and capacity available to PSCo from an additional

eight 80 MW wind facilities that it intended to later develop and certify as QFs, thus bringing

sPowers total indicated QF development up to 1,520 MW. None of the facilities presently exist,

and the proposed commercial operation dates for each facility is December 30, 2019. Similar to

its prior letter, sPower informed PSCo through this letter that it was opting to enter into a

contract or other LEO for a twenty-year term. sPower also asked PSCo how it intended to

determine avoided costs. sPowers letter did not mention the Colorado Commissions December

19, 2016 ruling on its prior motion. 17

On December 30, 2016, sPower filed the Petition.

17
PSCo has included a copy of this letter as Attachment B to this Protest.

10
 IV. Motion to Intervene

XES respectfully moves to intervene on behalf of its affiliate, PSCo. XES is the service

company subsidiary of Xcel Energy Inc., and as such performs a variety of administrative and

general services for the utility operating company affiliates within the Xcel Energy holding

company system, including PSCo. Among other things, XES routinely makes filings and appears

in proceedings before the Commission on behalf of PSCo.

PSCo, which is a Colorado corporation that is headquartered in Denver, is a vertically

integrated utility that generates, transmits, distributes, and sells electric energy to approximately

1.4 million retail and wholesale customers in Colorado, with most of its customers located in the

Denver metropolitan area. Approximately 10 percent of PSCos total load is wholesale

requirements load that takes service under cost-based formula production rates on file with the

Commission. PSCo owns approximately 5,500 MW of electric generation, and supplies the

remainder of its resource needs through long-term PPAs. A substantial amount of PSCos

resources are renewablesthat is, approximately 3,000 MWs (nameplate) in total.

Although the request for enforcement contained in the Petition is directed at the Colorado

Commission, sPowers ultimate objective is to effectuate a PURPA put by selling the capacity

and energy output of its proposed nineteen 80 MW solar and wind facilities to PSCo. PSCo is

regulated by the Colorado Commission and subject to the ERP rules, PSCos compliance with

which would be impacted by sPowers petition. Further, if sPower is successful in achieving its

objective of putting capacity and energy to PSCo at administratively determined avoided cost

rates, it will increase the amount PSCo pays for purchased power and impact the rates of PSCos

retail and wholesale customers. Accordingly, PSCo has a direct interest in this proceeding that

11
cannot be represented by any other party, and the Commission should grant this motion to

intervene.

V. Protest

sPowers petition for enforcement should be denied by the Commission. As explained

below, sPowers arguments fail to recognize that the Commission has supported the use of

competitive bidding for PURPA compliance. sPowers reliance on Hydrodynamics and Windham

is misplaced because Colorados PURPA implementation scheme, as reflected in part in

Colorado Commission Rule 3902(c), is distinguishable from the facts presented in those

declaratory orders. Further, despite the latitude granted to state commissions in implementing

PURPA and the deference shown to states integrated resource planning, sPower seeks to

sidestep the role of the Colorado Commission in formulating and then providing oversight over

the ERP, the integrated resource planning process in Colorado.

A. Commission Policy Has Long Permitted States to Use Competitive Bidding to Meet
the Requirements of Section 210 of PURPA.

sPower argues that requiring QFs to participate in a state competitive bidding process is

inconsistent with Commission policy and PURPA. However, the Commissions policy for

decades has been that states may use competitive bidding procedures to determine which

suppliers, including QFs, are eligible to receive avoided cost payments.

After the Commission promulgated Order No. 69 in 1980, utility and QF dissatisfaction

with PURPA implementation led to House and Senate hearings in 1986, where witnesses

testified that the Commission should re-examine its regulations. 18 The Commission held regional

conferences where a number of problems with PURPA implementation were identified, many of

18
See Bidding NOPR at 32,024.

12
which were focused on difficulties associated with administrative determinations of avoided

costs. 19

One PURPA implementation problem that surfaced at the conferences was the processing

of QFs on a first-come, first-serve basis. The Commission noted that processing QFs on a first-

come, first-serve basis is less efficient than a bidding procedure. 20 At the conferences, a number

of parties requested that [the Commission] state explicitly whether bidding is authorized under

PURPA, and other commenters provided suggestions on how bidding procedures could be

implemented in a manner consistent with PURPA. 21

To address these and other concerns, the Commission commenced a series of rulemaking

proceedings to provide guidance to the utilities, state commissions, and QFs. With respect to

competitive bidding, two of the Commissions Notices of Proposed Rulemaking (NOPRs) are

relevant, the Bidding NOPR and Administrative Determination of Full Avoided Costs, Sales of

Power to Qualifying Facilities, and Interconnection Facilities (ADFAC NOPR). 22 In the

Bidding NOPR, the Commission proposed to adopt regulations clarifying that states have the

discretion to use bidding procedures to establish avoided cost rates for QF purchases or to

administratively set avoided cost rates for QF purchases, and which would have provided

guidance on the use of bidding programs. The Bidding NOPR also included guidance that the

Commission proposed to adopt for state commissions that chose to implement competitive

19
See id.
20
See id.
21
See id.
22
FERC Stats. & Regs. 32,457 (1988) (ADFAC NOPR). Aside from the Bidding NOPR and the ADFAC NOPR,
the Commission issued two other NOPRs. In Regulations Governing Independent Power Producers, FERC Stats. &
Regs. 32,456 (1988) (IPP NOPR), the Commission proposed to streamline the regulation of independent power
producers (IPPs). In Regulations Governing the Public Utility Regulatory Policies Act of 1978, FERC Stats. &
Regs. 33,465 (1988), the Commission proposed to revise it regulations governing the criteria and procedures by
which power producing facilities could become QFs.

13
bidding. Under the bidding program, bidders would compete for the opportunity to supply

capacity and energy to the purchasing utility. 23 Under the guidance that the Commission

provided, QFs could not be exempted from the bidding program; instead, for a competitive

bidding program to work, QFs must compete with all potential sources of supply, including

independent power producers (IPPs) and other QFs. As the Commission explained, [t]he

reason for taking all other sources into account is simple. Unless it is done, there is no assurance

that a QF will receive a price that is less than or equal to the purchasing utilitys real avoided

cost. 24

The Commission recognized in the Bidding NOPR, PURPA does not guarantee that QFs

can always make sales of capacity to utilities. Indeed, under PURPA, a utility was only required

to offer to purchase from QFs, a standard the Commission viewed bidding as satisfying. 25

Therefore, a purchasing utility does not have any obligation to pay a capacity payment to a QF

that lost a bid or opted not to participate in the bid, although the Commission contemplated that

losing QFs would still be entitled to avoided energy payments from utilities.26 Nor did the

Commission propose requiring that a losing QF have an opportunity to match a winning bid

since that would undermine the integrity of the bidding process. 27

In the ADFAC NOPR, the Commission proposed to more precisely define the guidelines

and criteria to be used by state commissions and others in administratively determining avoided

cost. In the ADFAC NOPR, the Commission acknowledged that, even with further guidance,
23
Bidding NOPR at 32,025.
24
Id. at 32,031.
25
See id. at 32,028 (To comply with PURPA, all that is required is for the purchasing utility to offer to purchase
power from QFs at rates that do not discriminate against QFs.) See also id. 32,027 (Provided QFs are given an
equal opportunity to compete for capacity in a bidding process, QFs are not discriminated against as a class.)
26
Id. at 32,025.
27
Id. at 32,028 ([P]roviding QFs with an opportunity for a second bite is likely to discourage other potential
power suppliers from participating in the bid.)

14
administratively setting avoided cost rates would remain a very difficult task, and for this

reason, it proposed the Bidding NOPR. 28 The Commission explained:

[B]idding addresses many of the problems associated with administratively

determining avoided cost and has the potential for eliminating the seemingly
endless debates over what alternative sources of supply are truly avoided by the
utility purchasing power from QFs. 29

In its Petition, sPower states that [t]he CPUCs decision failed to recognize the

distinction between using a competitive solicitation to establish an avoided cost rate and

requiring a QF to win a competitive solicitation before it can sell its output pursuant to a long-

term contract. sPowers legal arguments were confined to the latter issue, but the CPUC in its

decision focused on the former. 30 It is correct that the Colorado Commission did not in its order

addressing sPowers motion try to draw a distinction between the two, but it is not clear why it

needed to. sPower in its motion to the Colorado Commission noted the change to Rule 3902(c)

when it was adopted in its present form to clarify that a QF bidder had to actually win a bid in

order to make a sale under PURPA to the utility. 31 This is consistent with the Bidding NOPR

where the Commission made clear that if a QF failed to win an RFP or opted not to participate, it

had no opportunity to match a winning bid and was not entitled to receive any capacity
28
ADFAC NOPR at 32,164, 32,167.
29
Id. at 32,164. It is, of course, a fundamental principle of PURPA that a utilitys customers should be indifferent to
the utilitys purchase of capacity and energy from a QF. This principle is reflected in PURPAs avoided cost pricing
standard, which, generally stated, requires that a utility pay a QF no more than the incremental costs the utility
would otherwise incur if it did not purchase from that QF. Although one of the primary purposes of PURPA is to
encourage cogeneration and renewable energy technologies, Congress made it clear that it did not intend for utility
ratepayers to subsidize such power producers. See Bidding NOPR at 32,026 (citing H.R. Rep. No. 1750, 95th Cong.,
2d Sess.98). In order to determine an appropriate avoided cost rate, a state commission and a utility must take into
account all available alternative resources. This requirement ensures that QFs are not given a preference in making a
sale that would displace lower-priced resources to the detriment of a utilitys customers. However, the
administrative determination of avoided costs under PURPA, which was the approach followed by most state
commissions (including the Colorado Commission) during the early implementation of PURPA, proved to be
difficult, in large part because not all potential resources were or could be taken into account. As the Commission
recognized in its NOPRs, all-source competitive bidding allows a utility purchaser to take all relevant facts and
circumstances into account in selecting all available optimal resources. See id. at 32,034; ADFAC NOPR at 32,164.
30
Petition at 14-15.
31
Petition, Attachment 3 at 13-14.

15
payments. 32 The Commission recognized that to require otherwise would have compromised the

integrity of a bidding process. 33 Moreover, sPower in its motion to the CPUC did not argue for

any right to match a bid or have winning bids used as a basis to set avoided cost rates. Rather,

sPower advocated that QFs, including itself, should have the opportunity to require that Public

Service make PURPA mandatory purchases of the capacity and energy from them at an

administratively determined avoided cost rate before even conducting the Phase II competitive

solicitation. 34

The Commission eventually declined to promulgate final rules adopting the Bidding

NOPR, finding, among other things, that the proposed guidance was unnecessary due to the

progress the states had already made in implementing competitive bidding. In an order issued on

1993 terminating the Bidding NOPR, the Commission explained:

[S]ubstantial experience has been gained by state regulatory commissions and

utilities themselves regarding non-traditional power producers and competitive
bidding. At the time of the Bidding NOPR only a few states had taken steps to
allow competitive bidding. Now 30 states use competitive bidding (i.e., either the
state has adopted provisions for utilities to use bidding or the state at least permits
utilities to use bidding). Thus, both state regulatory commissions and utilities
appear to be making substantial progress without the need for additional
Commission guidance. 35

Thus, the Bidding NOPR was no longer necessary because states were already

implementing competitive bidding. The guidance requested about competitive bidding that

32
Bidding NOPR at 32,028 (a utility would not be required to make capacity payments to any QF that is an
unsuccessful bidder or that did not participate in the bidding process.)..
33
See id. (To comply with PURPA, all that is required is for the purchasing utility to offer to purchase power from QFs
at rates that do not discriminate against QFs. This does not mean that QFs have to be given a second opportunity to submit
offers. Also, providing QFs with an opportunity for a "second bite" is likely to discourage other potential power suppliers
from participating in the bid. Finally, allowing only certain parties to have an opportunity to resubmit their bids may cause
administrative difficulties.).

34
Petition, Attachment 3 at 14-15, 18.
35
Cogeneration; Small Power Production Notice of Public Conference and Request for Comment, Regulations
Governing Independent Power Producers, Regulations Governing Bidding Programs, Order Terminating
Proceedings, 64 FERC 61,364 at 63,491 (1993) (internal citations omitted).

16
appeared important after the promulgation of Order No. 69 was no longer needed as the intended

purpose of the Bidding NOPR had already been accomplished. Notably, the Commission did not

find it necessary to amend its existing regulations to enable states to use competitive bidding

procedures.

In 1998, the Commission also terminated the ADFAC NOPR without issuing a final rule.

The Commission reiterated its observations in the ADFAC NOPR regarding the promise offered

by competitive bidding programs to resolve the complexities in setting avoided cost rates, and

found that the ADFAC NOPR was no longer necessary due to the fact that both state regulatory

commissions and utilities appeared to be making substantial progress in implementing

competitive bidding programs without the need for additional Commission guidance. 36

In a number of cases after the Commission terminated the Bidding NOPR, the

Commission considered rates resulting from competitive bidding and negotiation in which QFs

were active participants. 37 The Commission never indicated in these cases that it had changed

policy or viewed competitive bidding as inconsistent with PURPA. In fact, in Southern

California Edison Company, the Commission provided further guidance to state commissions

about how to use competitive bidding procedures, emphasizing that all potential suppliers must

be included in the bidding procedures:

36
Administrative Determination of Full Avoided Costs, Sales of Power to Qualifying Facilities, and Interconnection
Facilities, Order Terminating Proceeding, 84 FERC 61,265 at 62,301 (1998)
37
Administrative Determination of Full Avoided Costs, Sales of Power to Qualifying Facilities, and Interconnection
Facilities, Order Terminating Proceeding, 84 FERC 61,265 at 62,301 (1998) (citing PSNH, 83 FERC at 62,000-01
(parties to QF purchases are free to negotiate purchase rates and a more competitive environment is expected to
foster such outcomes); accord, id. at 61,995-96, 62,001 n.20 (noting the use of competitive bidding by the applicant
to establish an avoided cost rate); Enron Power Enterprise Corporation, 52 FERC 61,193 (1990) (involving multi-
source, including QF, competitive bidding); Doswell Limited Partnership, 50 FERC 61,251 (1990) (involving QF
competitive bidding); see also Southern California Edison Company, 70 FERC 61,215 at 61,675-76, 61,677, order
on reconsid. 71 FERC 61,269 at 62,078-80 (1995); cf. Jersey Central Power & Light Company, 73 FERC 61,092
at 61,297 & n.5, reh'g denied, 73 FERC 61,333 (1995); Metropolitan Edison Company, 72 FERC 61,015 at
61,049 & n.6, reh'g denied, 72 FERC 61,269 at 62,184 (1995)).

17
 [R]egardless of whether the State regulatory authority determines avoided cost
administratively, through competitive solicitation (bidding), or some combination
thereof, it must in its process reflect prices available from all sources able to sell
to the utility whose avoided cost is being determined. If the state is determining
avoided cost by relying on a combination of benchmark and bidding procedures,
as here, this means that the bidding cannot be limited to certain sellers (QFs);
rather, it must be all-source bidding. 38

The Commission has also repeatedly referred to the Southern California Edison Company

guidance in other cases. 39

Similarly in North Little Rock Cogeneration, L.P., 40 the Commission highlighted the

importance of accurately establishing a utilitys avoided cost when it rejected a QFs challenge to

the results of a competitive solicitation that the QF did not win:

Avoided costs are determined, in the first instance, by all alternatives available to
the purchasing utility. Those alternatives, as we have explained in a number of
recent orders, include all supply alternatives. . . . If the QF proposed by
Petitioners could not match the rate offered by a competing supplier of power to
the City, regardless of whether the competitor was or was not a QF, then the QF
demonstrably was not offering a rate at the City's avoided costand the City had
no obligation under PURPA to purchase power offered at a higher price than the
lowest bid. 41

Given this context, the underlying implication of sPowers reliance on the Commissions

decisions in Windham and Hydrodynamics is that the Commission abandoned its prior policy

condoning competitive bidding procedures, without any acknowledgement that it was doing so

and without any further explanation for its change in course, a result that is inconsistent with the

Administrative Procedure Act (APA). 42 Under the APA, the Commission can depart from a

prior policy or line of precedent, but it must acknowledge that it is doing so and provide a
38
Southern California Edison Co., 70 FERC 61,215 at 61,677 (1995).
39
See Metropolitan Edison Co., 72 FERC 61,015 at 61,049 n.5 (1995); Jersey Central Power & Light Co., 73
FERC 61,092 at 61,297 (1995); Public Service Co. of New Hampshire v. New Hampshire Electric Cooperative, 85
FERC 61,044 at 61,134 (1998).
40
72 FERC 61,263 (1995)
41
Id. at 62,173.
42
5 U.S.C. 706.

18
reasoned explanation. 43 There is no indication in either Hydrodynamics or Windham that the

Commission intended to change its policy on competitive bidding, and to force states to return to

the very difficult task of relying only upon administrative cost determinations of avoided

cost. 44 As discussed below, the appropriate way to interpret Windham and Hydrodynamics is as

fact dependent decisions, which were addressing circumstances vastly different than the situation

in Colorado, as the Colorado Commission did in its order rejecting sPowers motion.

B. The Commissions Decisions in Hydrodynamics and Windham Are Distinguishable

sPower relies primarily on Hydrodynamics and Windham for the proposition that

requiring QFs to participate in competitive bidding processes violates PURPA. The two

decisions, however, address fact situations that are dramatically different than those presented in

Colorado and are accordingly should not guide the Commission in this case.

Like the Colorado process, the Montana process addressed in Hydrodynamics required

the use of competitive bidding to establish avoided costs, which in theory gave QFs an

opportunity to sell power to the host utility under contract on a long-term basis. However, in

practice, the petitioning QFs in Montana were not given a reasonable opportunity to enter into

contracts with the host utility because only one all-source competitive solicitation had occurred

in eleven years, and there was no rule prescribing that such solicitations must occur at any

particular interval. Moreover, the Montana Public Service Commission, by a separate order, had

allowed the host utility to establish a cumulative installed capacity limit of 50 MW in its tariff

for wind QFs that are larger than 100 kW but equal to or below 10 MW. The QF petitioners also

43
Louisiana Pub. Serv. Commn v. FERC, 772 F.3d 1297, 1303 (D.C. Cir. 2014); see also Greater Boston
Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970) (An agencys view of what is in the public interest
may change, either with or without a change in circumstances. But an agency changing course must supply a
reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored.),
cert. denied, 403 U.S. 923 (1971); Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57
(1983).
44
ADFAC NOPR at 32,164,

19
complained that the host utility routinely acquires generation outside of all-source competitive

solicitations. 45 In contrast, the Colorado rule requires utilities to engage in competitive

solicitations open to QFs on a regular basisthat is, every four years. The Montana scheme is

therefore distinguishable from the Colorado scheme.

Similarly, the Windham case involved a Connecticut competitive bidding scheme that

was not conducted with any regularity. The petitioners in that case explained that the bidding

process enabling QFs to obtain contracts has not been conducted for more than 10 years. The

state regulator administering that bidding process acknowledged that the competitive bidding

process was no longer used. Thus, similar to Hydrodynamics, the petitioners in Windham were

protesting an infrequent competitive bidding process that provided QFs with only scarce

opportunities to sell to host utilities.

But at its core, the Windham case addressed another barrier to QF participation. Under

Connecticuts regulations, bidders seeking to obtain a longer-term contract, including QFs, are

required to offer a bundled electricity product (i.e., including renewable energy credits or

RECs). Otherwise, only short-term contracts of one year or less were permitted, providing for

energy-only rates based on locational marginal prices. The petitioning QFs argued that

Connecticuts regulations prevent QFs from obtaining a long-term contract, except through the

procurement process, and that QFs that have sold RECs cannot participate in the procurement

process. They further argued that the other two available options for QF sales only provide for

short-term contracts and do not provide payments for capacity.

Thus, in both the Hydrodynamics and Windham cases, the QF petitioners were able to

establish that they were effectively foreclosed from participating in state bidding schemes, due to

45
Hydrodynamics, 146 FERC at 61,841.

20
the infrequency of, and preconditions to, the competitive solicitations in Montana and

Connecticut, respectively. Therefore, the QF petitioners in those cases successfully argued that

they did not have an opportunity to enter into long-term contracts with the host utility.

In contrast, the Colorado ERP Rules provide for and, more importantly, the utilities

actually conduct, competitive solicitations during each four-year ERP cycle. sPower cannot

legitimately claim that QFs have not had a reasonable opportunity to sell the output of its

planned QFs to PSCo. In the past decade, PSCo has conducted two all-source solicitations, one

wind-specific solicitation, and two solar-specific solicitations pursuant to the CPUCs ERP and

Renewable Energy Standard (RES) rules. These solicitations have been open to both QF and

non-QF bidders alike. The following table summarizes the amount of resources acquired.

Public Service Resource Solicitations and Acquisitions: 2006-2016*

Solicitation Number of IPP Total MWs Number of Renewable Total Renewable

Selected Projects Acquired Providers MWs Acquired
2006 Solar RFP 1 7 1 7

2007 CRP; 2008 1 152 1 152

Wind RFP
2007 CRP; 2009 5 1,680 5 760
All-Source RFP
2008 RES; 2008 1 18 1 18
Solar RFP
2011 ERP; 2013 6 950 4 620
All-Source RFP &
Early Wind RFP
*Note: this table does not account for the 2016 ERP Phase II solicitation that will be conducted in this proceeding.

Moreover, some of the winning bidders have been QFs, as previously noted.

The ERP process conducted in accordance with the Colorado Commissions rules has

plainly given ample opportunity for large QFs to bid and obtain long-term contracts with PSCo.

That will continue going forward, with the Phase II solicitation anticipated to be held after the

Colorado Commissions approval of PSCos resource need in Phase I. PSCo welcomes the

21
participation of sPower, other QFs, and non-QF IPPs, in that forthcoming competitive

solicitation.

sPower acknowledges the factual differences between the circumstances in Colorado and

in Montana and Connecticut, but attempts to negate their significance. Discussing

Hydrodynamics, sPower asserts that the lack of regularity with which competitive solicitations

were held in Montana as an aggravating factor, but not as a decisive factor to the Commissions

ruling. 46 However, sPower is only offering a selective interpretation of the order. In footnote 70

of that decision, the Commission faulted the Montana Commission for failing to explain how its

bidding scheme was consistent with the Commissions proposal in the Bidding NOPR. In this

connection, the Commission noted various aspects of its Bidding NOPR proposals. The

competitive bidding rules in Colorados integrated planning rules measure up well against those

factors, as shown in the following chart: 47

46
Petition at 12.
47
Given that the Commission opted not to issue a final rule, but instead concluded that it was unnecessary to
proceed with the NOPR because states had already been adopting the use of bidding for the establishment of
avoided costs and the selection of QFs, thereby making Commission guidance unnecessary, it should not be
necessary that states bidding rules precisely conform to the proposed requirements of the Bidding NOPR.

22
Bidding NOPR proposal How Colorado Rules are Consistent

Are QFs given the opportunity to fulfill Yes. In ERP proceedings in Colorado, electric
capacity needs? load carrying capability (ELCC) studies filed
and approved to determine capacity credit for
wind and solar resources.
Is the competitive bidding all source that treats Yes, QFs have ability to participate in RFP
QFs comparably? solicitations. 48
Can the utility negotiate with suppliers outside Under the Colorado rules, no resources can be
of the RFP while the RFP is pending? acquired outside of the ERP unless they fit into
certain narrow exemptions. Accordingly, this
possibility is unlikely under the Colorado
rules. 49
Is the solicitation transparent? The ERP RFP process in Colorado requires the
appointment of an Independent Evaluator, who
reports to the Commission. Additionally the
Commission reviews the selected resources.
There is thus transparency to the RFP process
in Colorado.
Does the Commission review and approve the Yes, the CPUC reviews and approves the
results of the RFP? portfolio of resources selected as part of the
RFP.

Thus, Colorado ERP rules have and will continue to give QFs such as sPower the ability

to participate in the periodic RFPs that are held and thereby sell capacity and energy to PSCo. As

explained in the previous section, Colorados implementation of PURPA, by relying on

competitive bidding, assures that consumers in Colorado pay a true avoided cost rate which is

derived through the participation of all resources in the market, thereby satisfying PURPAs
48
In the upcoming Phase II RFP, Public Service has proposed to exclude any new coal-fired resources given Clean
Power Plan requirements. That would not negatively affect QFs ability to participate.
49
sPower complains that PSCo recently obtained the Colorado Commissions authorization to build and own a 600
MW wind project without going through competitive bidding. Initially, sPower participated in that proceeding, but
decided not to oppose a settlement agreement among to the proceeding recommending approval of the project.
PSCos request was made pursuant to Colorado Commission Rule 3660(h)(I), which implements Colorado statute,
40-2-124(1)(f)(I), C.R.S. This rule provides an incentive for utilities in the state of Colorado to develop renewables
by allowing them to develop and own a portion of all renewables the utility brings on its system, subject to
satisfying specific cost standards. In other words, PSCo was only able to obtain approval for this particular project
because it had already acquired from independent power producers over 2,000 MW of renewable projects (primarily
wind). Further, although the CPUC approved of PSCos project proposed pursuant to Rule 3660(h), it indicated in
its order approving the Settlement Agreement that its preference was that PSCo request any future project pursuant
to Rule 3660(h) as part of its ERP. CPUC Decision No. C16-0958, at 48, Proceeding No. 16A-0117E (mailed Oct.
20, 2016). sPowers argument regarding this project is not germane.

23
avoided cost standard, while at the same time satisfying the requirements of PURPA from the

perspective of QF developers by giving them a fair opportunity to bid. sPower will obtain a right

to sell energy and capacity to PSCo if it participates in the ERP and, through that process, it is

determined by the Colorado Commission that sPower offers capacity of such cost and quality

that it will allow PSCo to avoid building comparable capacity or buying comparable capacity

from another source, taking Colorados applicable policy preferences into account. Further, as

discussed in the next section, sPowers position would undermine the Colorado Commissions

role in overseeing the ERP process, which is at odds with PURPA.

C. sPowers Petition Impermissibly Undermines Colorado Integrated Resource

Planning

Under PURPA and the Commissions precedent, states have a wide degree of latitude in

establishing an implementation plan for section 210 of PURPA, as long as such plans are

consistent with FERC regulations. 50 In implementing PURPA, the Commission could have

prescribed specific rules for the states to follow and could have demanded that states adopt those

prescriptive rules. 51 Indeed, some commentators urged the Commission to do exactly that.52

The Commission, however, rejected that approach because it believe[d] that providing an

opportunity for experimentation by the States is more conducive to development of the[] difficult

rate principles that arise under PURPA. Instead, said the Commission, its rules afford the State

regulatory authorities and nonregulated electric utilities great latitude in determining the manner

of implementation of the Commissions rules provided that the manner chosen is reasonably
50
Policy Statement Regarding the Commission's Enforcement Role under Section 210 of the Public Utility
Regulatory Policies Act of 1978, 23 FERC 61,304 at 61,646 (1983).
51
Such a requirement might have implicated Tenth Amendment concerns, but as the United States Supreme Court
has noted, states had the option to implement the Commissions regulations simply by adjudicating disputes arising
under PURPA and the Commissions rules. FERC v. Mississippi, 456 U.S. 742 (1982).
52
Order No. 69, 45 Fed. Reg. at 12231 (Several commenters expressed their concern that State regulatory
authorities would not be able adequately to implement the Commissions rules, and therefore, recommended the
Commission issue specific rules which the State regulatory authorities would adopt without change.).

24
designed to implement the requirements of Subpart C of the Commissions regulations. 53 In

subsequent cases construing PURPA and the regulations implementing PURPA, the Commission

continued to emphasize that states have a significant amount of discretion with respect to the

implementation of PURPA. 54

The Commission has explained that the latitude given to states is necessary in order for

implementation to accommodate local conditions and concerns, so long as the final plan is

consistent with statutory requirements. 55 The wide degree of latitude is provided in

recognition of the states traditional jurisdiction over resource planning. Under the Federal

Power Act, jurisdiction over integrated resource planning matters is reserved to the states.56

Under PURPA, the Commission recognizes the states jurisdiction in integrated resource

53
Order No. 69, 45 Fed. Reg. at 12230-12231 (emphasis added); see Federal Energy Regulatory Commn, Policy
Statement Regarding the Commissions Enforcement Role Under Section 210 of the Public Utility Regulatory
Policies Act of 1978, 12 FERC 61,304 (1983) (The Commissions regulations allow the States and nonregulated
utilities a wide degree of latitude in establishing an implementation plan. Such latitude is necessary in order for
implementation to accommodate local conditions and concerns, so long as the final plan is consistent with statutory
requirements.); see also FERC v. Mississippi, 456 U.S. 742 (stating that the rules promulgated by the Commission
afford state regulatory authorities and nonregulated utilities latitude in determining the manner of
implementation); Indep. Energy Producers Assn v. Cal. Pub. Utils. Commn 36 F.3d 848, 856 (9th Cir. 1994)
(We agree that PURPA delegates to the states broad authority to implement section 210 of the statute.).
54
Cal. Pub. Utils. Commn, 133 FERC 61,059, at P 24 (2010); ([S]tates are allowed a wide degree of latitude in
establishing an implementation plan for section 210 of PURPA, as long as such plans are consistent with our
regulations.) (quoting Am. REF-FUEL Company of Hempstead, 47 FERC 61,161, at 61,533 (1989)); West Penn
Power Co., 71 FERC 61,153, at 61,495 (It is up to the States, not this Commission, to determine the specific
parameters of individual QF power purchase agreements, including the date at which a legally enforceable
obligation is incurred under State Law.).
55
Id.
56
See, e.g., Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by
Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC
Stats. & Regs. 31,036 at 31,782 n.543 (1996) ("Among other things, Congress left to the States authority to
regulate generation and transmission siting"); id. at 31,782 n.544 ("This Final Rule will not affect or encroach upon
state authority in such traditional areas as . . . . administration of integrated resource planning and utility buy-side
and demand-side decisions [. . . .] [and] authority over utility generation and resource portfolios; Transmission
Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, FERC
Stats. & Regs. 31,323 at P 107 (2011) (This [rule] in no way involves an exercise of authority over those specific
substantive matters traditionally reserved to the states, including integrated resource planning. . . .), order on rehg,
Order No. 1000-A, 139 FERC 61,132 at P 186 (same), order on rehg and clarification, Order No. 1000-B, 141
FERC 61,044 (2012), affd sub nom. S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014) (S.C. Pub. Serv.
Auth.).

25
planning. The Commission has explained that it respect[s] the fact that resource planning and

resource decisions are the prerogative of state commissions, 57 and has noted that it is the states

that have the authority to dictate a utility's actual purchase decisions. 58 PURPA itself was

amended by the Energy Policy Act of 1992 to require that states consider the use of integrated

resource planning to evaluate the full range of alternatives. 59 Central to most state integrated

resource planning rules is the use of competitive bidding for generation resource procurements.

sPowers positions undermine the Colorado Commissions ERP rules in two primary

ways. First, the heart of the Colorado ERP rules is the reliance on competitive bidding processes,

generally all-source, to select the most appropriate and cost-effective resource portfolio to satisfy

a utilitys incremental resource needs. Requiring QF participation in all-source competitive

bidding processes like Colorados ERP is entirely consistent with PURPA, as has been explained

above.

To reiterate, the Commission also stated in the Bidding NOPR that a competitive bid used

to set avoided costs for QFs must be for all sources, including the purchasing utilitys own

capacity expansion program as well as those wholesale sources that the utility would have

purchased from absent the QF purchase, such as other QFs, IPPs and other utilities. 60 As the

Commission explained:

The reason for taking all sources into account is simple. Unless it is done, there is
no assurance that a QF will receive a price that is less than or equal to the
purchasing utilitys real avoided cost. . . . A bidding system that produces this
outcome violates the PURPA standard that QFs be paid no more than the cost of

57
Southern California Edison Co., 70 FERC 61,215 at 61,676 (1995).
58
California Public Utilities Commission, 134 FERC 61,044 at P 30 (2011) (emphasis added).
59
16 U.S.C. 2602(19).
60
Bidding NOPR at 32,031.

26
 alternative supplies. It is also inconsistent with the PURPA goal of leaving
consumers indifferent as to the source of supply. 61

As noted earlier, the Commission subsequently affirmed the requirement that all sources must be

taken into account in competitive bidding in Southern California Edison Company.

Exempting QFs from participation in the ERP would undermine the integrity of the

states integrated resource planning process and raise issues with compliance with other

Commission precedent. Colorado could not attract sufficient participation from other resources

if their bids could be displaced at the end by QFs waiting on the sidelines. Such a result would

be inconsistent with Commission precedent in City of Ketchikan, where the Commission found

that PURPA does not grant a QF a right to displace the efficient allocation of resources. 62

Exempting QFs also would result in RFP prices that do not reflect QF bids to supply, and thus do

not accurately reflect the utilitys avoided cost. Such a result would run afoul of Southern

California Edison Company, which holds that if a bidding procedure is used, a state must ensure

that the avoided cost derived from the procedure reflects all available sources of supply. 63 The

resources that will bid into the ERP this year, including QFs, are the available sources of supply

to meet PSCos capacity need, and an avoided cost rate could not be identified without taking

these sources into account.

Second, and equally important, sPowers position would effectively eviscerate the

Colorado Commissions powers to review and monitor PSCos resource acquisition under the

Colorado Commissions comprehensive ERP rules, in contravention of 16 U.S.C. 2602(19).

To elaborate, as Colorado Commission Rule 3601 provides:

61
Id. at 32,031-32 (footnote omitted).
62
See City of Ketchikan, Alaska, et al., 94 FERC 61,293 (2001) (finding that PURPA does not require a utility to
pay for capacity that would displace its existing capacity arrangements).
63
70 FERC 61,215 at 61,676 (1995).

27
 The purpose of these rules is to establish a process to determine the need for
additional electric resources by electric utilities subject to the Commissions
jurisdiction and to develop cost-effective resource portfolios to meet such need
reliably. It is the policy of the state of Colorado that a primary goal of electric
resource planning is to minimize the net present value of revenue requirements. It
is also the policy of the state of Colorado that the Commission gives the fullest
possible consideration to the cost-effective implementation of new clean energy
and energy-efficient technologies. 64

This process is conducted with Colorado Commission review and oversight. The Commission

recognizes that it is consistent with PURPA for the states, in their integrated resource planning

requirements, to determine what types, or quality, of capacity the utility should buy from, and

value QF capacity that does not meet such requirements commensurately. 65 The Colorado

Commission makes such determinations iteratively in the ERP, and does so based upon the

utilitys needs and the available resources bid into the process. If QFs are allowed to be

exemptedor to supplant this process altogetherit will interfere with the Colorado

Commissions ability to make these determinations under its traditional authority over integrated

resource planning. To reiterate, sPower may obtain a right to sell energy and capacity to PSCo if

it participates in the ERP and, through that process, it is determined by the Colorado

Commission that sPower offers capacity of such cost and quality that it will allow PSCo to avoid

building comparable capacity or buying comparable capacity from another source.

Instead of allowing the Colorado Commission to utilize the deliberate and transparent

resource selection process embodied in the Colorado Commissions ERP rules, sPowers

approach would make resource planning in Colorado subject to the timing and other preferences

of QF developers. It is sPowers position that having to wait even a year to obtain a mandatory

64
4 Colo. Code Regs. 723-3-3601.
65
See, e.g., California Public Utilities Commission, 134 FERC 61,044 at PP 32-33.

28
purchase commitment from a utility through a planned competitive bid violates PURPA, 66 and it

faults the four-year RFP cycle in the Colorado ERP rules. 67 However, it is not uncommon for

state integrated resource planning rules to set out periodic resource planning and acquisition

cycles, and state commissions should have the latitude to determine, based on the circumstances

of their states and the utilities they regulate, how often those cycles should occur. It is certainly

not unreasonable, for example, for the Colorado Commission to expect that a QF that wishes to

sell a substantial amount of renewable capacity and energy, such as sPowers proposed 1,520

MW put to Public Service, would do so in the context of a periodic ERP proceeding. State

commission oversight over resource planning would mean little if between cycles, a QF could

compel the purchase of the magnitude that sPower is seeking over 1,500 MWs.

VI. Conclusion

sPower argues that the requirement under the Colorado Commission rules that it

participate and be selected in a competitive bid places an unreasonable burden on it and its

efforts to sell capacity and energy from its nineteen proposed QFs. However, sPowers Petition

ignores Commission precedent and would unreasonably interfere with the Colorado

Commissions ability to conduct integrated resource planning. sPower will obtain a right to sell

energy and capacity to PSCo if it participates in the ERP and, through that process, it is

determined by the Colorado Commission that sPower offers capacity of such cost and quality

that it will allow PSCo to avoid building comparable capacity or buying comparable capacity

from another source. While it is true that sPower may not be selected through the upcoming

planned all-source RFP given the possibility that there may be better and more cost effective

66
See Petition at 11. sPower also complains the fact that RFPs under the Colorado ERP rules are held every four
years as too infrequent, without any support other whatsoever.
67
See id. at 12-13 (noting the four-year cycle and characterizing it as infrequent).

29
resources, that result does not violate PURPA and therefore does not constitute a burden on

sPower that this Commission must correct. The Commission should accordingly deny sPowers

petition for enforcement.

Respectfully submitted,

/s/ William M. Dudley

William M. Dudley
Assistant General Counsel - Lead
XCEL ENERGY SERVICES INC.
1800 Larimer Street, 11th Floor
Denver, CO 80202
(303) 294-2842
bill.dudley@xcelenergy.com

Joseph W. Lowell James P. Johnson

Arjun P. Ramadevanahalli
MORGAN, LEWIS & BOCKIUS LLP
1111 Pennsylvania Ave, NW
Washington, DC 20004
(202) 739-3000
joseph.lowell@morganlewis.com
arjun.ramadevanahalli@morganlewis.com
Assistant General Counsel
XCEL ENERGY SERVICES INC.
401 Nicollet Mall, 8th Floor
Minneapolis, MN 55401
(612) 215-4592
james.p.johnson@xcelenergy.com

Counsel for
Xcel Energy Services Inc.

30
 CERTIFICATE OF SERVICE

I hereby certify that I have this day served the foregoing document upon each person

designated on the official service list compiled by the Secretary in this proceeding.

Dated this 23rd day of January, 2017.

/s/ Arjun P. Ramadevanahalli

Arjun P. Ramadevanahalli
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Ave., NW
Washington, DC 20004
(202) 739-5913
arjun.ramadevanahalli@morganlewis.com
ATTACHMENT A
 BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF COLORADO

* * * * *

IN THE MATTER OF THE APPLICATION )

OF PUBLIC SERVICE COMPANY OF ) PROCEEDING NO. 16A-0396E
COLORADO FOR APPROVAL OF ITS )
2016 ELECTRIC RESOURCE PLAN )

RESPONSE OF PUBLIC SERVICE COMPANY OF COLORADO TO

MOTION OF SUSTAINABLE POWER GROUP, LLC
FOR WAIVER OF COMMISSION RULE 3902(c)

I. INTRODUCTION AND SUMMARY OF ARGUMENT

Colorado PUC E-Filings System

Pursuant to Commission Rule 1400(b) and Decision No. C16-1019-I (as modified

by Decision No. C16-1036-I), Public Service Company of Colorado (Public Service or

Company) hereby responds to the Motion of Sustainable Power Group, LLC

(sPower) for Waiver of Commission Rule 3902(c), which was filed on October 14,

2016 (Motion). Through its Motion, sPower effectively seeks to have the Commission

require Public Service to buy 880 MW of solar capacity and energy, specifically from

eleven 80 MW solar facilities that, according to sPower, will be built at some time in the

future and will be certified as qualifying facilities (QF) within the meaning of the Public

Utility Regulatory Policies Act of 1978 (PURPA). To effectuate this sale, sPower

through its Motion requests that the Commission:

(1) find that the Colorado rules implementing PURPA are inconsistent
with the Federal Energy Regulatory Commissions (FERC)
PURPA rules and immediately waive Rule 3902(c), which requires
that large QFs win a competitive bid before being able to sell
capacity or energy to a utility such as Public Service; and,
(2) require that Public Service begin purchasing QF capacity and
energy at an administratively determined avoided cost rate, using a
 methodology sPower proposes, prior to filling its resource need
through the Phase II competitive solicitation in this Electric
Resource Plan (ERP) proceeding.

For reasons explained below, the Commission should deny sPowers Motion.

Initially, sPower is wrong in suggesting that PURPA gives QFs some sort of

absolute preference over other resources, including non-QF independent power

producers (IPP). It is a bedrock principle of PURPA that a utilitys customers should be

indifferent to the utilitys purchase of capacity and energy from a QF. This principle is

reflected in PURPAs avoided cost pricing standard, which, generally stated, requires

that a utility is to pay a QF no more than the incremental costs the utility would

otherwise incur if it did not purchase from that QF. In order to determine an appropriate

avoided cost rate, a state Commission and a utility must take into account all available

alternative resources. This requirement ensures that QFs are not given a preference in

making a sale that would displace lower-priced resources to the detriment of a utilitys

customers.

sPower would have the Commission require Public Service develop an

administratively determined avoided cost rate. However, the administrative

determination of avoided costs under PURPA has proven difficult, which is the primary

reason that FERC itself proposed the use of competitive bidding for the establishment of

avoided cost rates and the selection of QFs. All-source competitive bidding allows for a

utility purchaser to take all relevant facts and circumstances into account in selecting all

available optimal resources. To require that Public Service buy sPowers 880 MW of

solar capacity at an administratively determined rate in advance of the ERP Phase II

competitive solicitation, thereby replacing other potential resources, would not leave

2
customers indifferent to QF development in Colorado.1 Further, this result would

prejudice non-QF IPPs given that sPower would likely fill a significant portion of the

resource need identified in this ERP proceeding.

sPowers arguments largely rely on two recent FERC declaratory orders that

found competitive bidding schemes in Montana and Connecticut did not satisfy the

requirements of PURPA: Hydrodynamics Inc., 146 FERC 61,193 (2014)

(Hydrodynamics) and Windham Solar LLC, 156 FERC 61,042 (2016) (Windham).

First, it is important to understand that unlike, for example, a district court declaratory

order, FERCs declaratory rulings are not binding FERC decisions. Rather, these rulings

are merely advisory guidance based on specific facts and circumstances. There are

important differences between those cases and the PURPA implementation in

Colorado. Under the Montana scheme addressed in Hydrodynamics and the

Connecticut scheme addressed in Windham, QFs were effectively denied the ability to

offer to sell power to utilities. Further, competitive bidding for resources had not

occurred for over ten years in Montana. In contrast, application of the Commissions

ERP Rules in Colorado has resulted in a high level of purchased power and the

development of renewable energy resources, even if not QFs, that has been acquired at

periodic intervals, including through a 2013 competitive solicitation and, ironically, the

planned 2017 competitive solicitation to be held in Phase II of this proceeding that

sPower is free to participate in and that sPower effectively seeks to halt. In

Hydrodynamics and Windham, the essence of the QFs arguments was that the design

1
These proposed QFs are identified in a letter dated July 18, 2016 from sPower to Public Service, which
was attached to sPowers Motion. An additional issue with the proposed QFs is that six of them (totaling
480 MWs) are proposed to be located in the San Luis Valley, a transmission-constrained area. sPower
does not explain what steps it has taken to develop these QFs, although it submitted interconnection
requests.

3
or implementation of the applicable state bidding schemes foreclosed their ability to

participate. Here, Public Service will embark on its sixth competitive solicitation open to

QFs in the past ten years. In short, we disagree that FERC would view the Colorado

scheme as ineffective, and even if it did, believe a federal district court would find

Colorado in full compliance with its responsibilities under PURPA. The effect of

sPowers requested relief is to upend Public Services planned solicitation a result that

is neither legally required nor consistent with good policy.

sPower has also overlooked that the FERC has encouraged the use of

competitive bidding to establish avoided cost rates. It further suggests that the

implementation of competitive bidding for the determination of avoided costs and QF

selection in Colorado was some kind of hasty, ill-considered decision by the

Commission in 2005. sPower ignores that the rules implementing PURPA and their

development have been the subject of numerous Commission proceedings dating back

to the 1980s, when QFs were putting more capacity and energy to the Public System at

the then administratively determined avoided cost rate than Public Service could readily

absorb. This history shows that the Commission carefully implemented PURPA in

Colorado, and the upcoming solicitation to be held in conformance with the

Commissions rules, which sPower effectively seeks to prohibit, is the best means of

assuring that QFs are considered along with all other potential resources.

Nonetheless, if the Commission were to conclude that competitive bidding cannot

be used for PURPA implementation in Colorado on an exclusive basis for larger QFs,

then it will be necessary to determine how avoided costs are to be determined. This is a

complicated issue that would require lengthy evidentiary hearings. There are a number

4
of factors that go into determining appropriate avoided cost rates, and not all QFs

qualify for the same rate. Illustrating the complexity of this process, the proceeding to

determine Public Services administratively determined avoided cost rate in the 1980s

took approximately four years and was highly contested. In fact, the problems

associated with administrative determinations of avoided costs are what led the FERC

to propose to states the use of competitive bidding as the means for avoided cost

determinations and QF selection almost thirty years ago.

Further, there are significant other PURPA implementation issues that the

Commission would need to address and resolve if it no longer relied on Rule 3902(c) for

avoided cost determinations and the selection of large QFs. These include the following:

(1) What is the appropriate length for a contract between the utility and
a QF? This is an issue FERC is presently addressing in an
ongoing notice of inquiry docket.2

(2) What stage of development must a QF reach before it is entitled to

form a legally enforceable obligation (LEO)? sPower, which
provides no information about the present stage of development of
its projects, assumes it should be entitled to a LEO at this time, but
other states that have addressed this issue have required that a QF
be at an advanced stage of development before it may obtain a
LEO.3 To give a LEO to a proposed QF project that may never be
actually developed simply gives a QF developer a free option,
which it may or may not exercise, to the detriment of the utility and
its customers.

(3) Are the QFs that sPower is proposing, which will only provide
energy on an intermittent basis, even entitled to a LEO with pricing
set at projected avoided costs?

(4) Would it be fair to other renewable generators and IPPs to grant

sPowers preferential request for relief in this case? If the
Commission wishes to modify its QF rules, other developers may
wish to make proposals, and they may be more advantageous than

2
Federal Energy Regulatory Commn, Implementation Issues Under the Public Utility Regulatory Policies
Act of 1978, Docket No. AD16-16-000.
3
E.g., Power Resource Grp. v. Public Utility Commn of Texas, 422 F.3d 231, 237-238 (5th Cir. 2005).

5
 what sPower is offering to the Company. PURPA does not require
that a utility purchase capacity from a QF that it does not need. If
Public Service is effectively going to be required to give QFs a first
call to provide its needed capacity, then other QFs, as well as
sPower, should have the opportunity to make proposals.

In summary, the use of competitive bidding to implement and administer PURPA

has worked well in Colorado for nearly three decades consistent with the underlying

purpose of PURPA, to promote non-traditional generation and renewables. Moreover,

the use of bidding is consistent with the FERCs past pronouncements on the issue. The

two recent declaratory rulings upon which sPower relies, aside from being non-binding,

address facts that are clearly distinguishable.

II. BACKGROUND ON PURPA AND ITS IMPLEMENTATION

sPowers motion generally describes PURPA, and provides a succinct and

accurate overview of certain relevant provisions. The discussion below briefly

summarizes key provisions of PURPA and the discretion afforded states in

implementing the law.

A. PURPA

Congress enacted PURPA in 1978 during the energy crisis that was occurring at

that time. The statute had many goals, among which was to encourage more

competitive generation markets and further development of cogenerators and non-fossil

fuel resources (small power producers) limited in size to 80 MWs or less QFs under

PURPA. As explained in Decision No. R03-0687, pursuant to Section 210:

PURPA aimed to encourage the development of QFs by, among other

things, requiring electric utilities to purchase electric energy from QFs.
PURPA directed FERC to promulgate regulations on a number of topics,
including the price to be paid by public utilities for their purchases of
electric energy from QFs. The statute contains three limitations on the
rates for such purchases: a rate must be just and reasonable to the

6
 electric utilitys consumers and must be in the public interest; a rate cannot
discriminate against qualifying small power producers or qualifying
cogenerators; and a rate cannot exceed the incremental cost to the
electric utility of alternative electric energy.

The third limitation is commonly referred to as the avoided cost standard. It is a

bedrock principle of PURPA that is intended to keep a utilitys customers indifferent as

to whether capacity and energy is obtained from a utilitys facilities or acquired from a

QF.4 Accordingly, an underlying issue in this proceeding is how avoided costs of

sPowers QF facilities are to be determined.

The PURPA implementation scheme is somewhat unusual. Section 210(f)(1) of

PURPA requires state regulatory commissions to implement the FERC QF Rules with

regard to jurisdictional electric utilities. In 1980, FERC promulgated final rules to

implement PURPA.5 In 1982, this Commission promulgated its original QF rules. This

Commissions implementation of PURPA is more fully discussed below.

B. State Discretion under PURPA and FERC Rules

Both FERC and the federal courts have stated on numerous occasions that state

regulatory commissions enjoy a significant amount of discretion in terms of how they

implement PURPA.6 In Power Resource Grp., for example, a QF complained that the

Texas commission had failed to implement PURPA and FERC rules properly because a

4
See Order No. 69, 45 Fed. Reg. 12214, 12219 (Feb. 25, 1980) (Under the definition of avoided costs
in this section, the purchasing utility must be in the same financial position it would have been had it not
purchased the qualifying facilitys output.); see also Southern California Edison Company, 71 FERC
61,269, 62,080 (1995) (stating that the intention [of PURPA] was to make ratepayers indifferent as to
whether the utility used more traditional sources of power or the newly encouraged alternatives).
5
Federal Energy Regulatory Commn, Small Power Production and Cogeneration Facilities; Regulations
Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, 45 Fed. Reg. 12214 (Feb.
25, 1980).
6
E.g., Power Resource Grp. v. Public Utility Commn of Tex., 422 F.3d 231, 238 (5th Cir. 2005) (stating
that the FERC regulations grant the states discretion in setting specific parameters for LEOs); West
Penn Power Co., 71 FERC 61,153, 61,495 (May 8, 1995) (It is up to the States, not [FERC], to
determine the specific parameters of individual QF power purchase agreements, including the date at
which a legally enforceable obligation is incurred under State law.).

7
Texas rule required QFs to provide power within 90 days in order to be eligible to form a

LEO. According to the QF, that rule prevented QFs from obtaining financing because

they needed the LEOs to get financing, and the generating facilities could not be

constructed within 90 days after receiving financing. The Fifth Circuit concluded that

FERC had conferred discretion on the Texas commission to impose such a

requirement, even though it might not be as advantageous as QFs would have liked: If

FERC had determined it necessary to set more specific guidelines concerning LEOs, it

could have done so. . . . [D]efining the parameters for creating a LEO is left to the states

and their regulatory agencies.7 Similarly, in Exelon Wind 1, LLC v. Nelson, the Fifth

Circuit rejected a claim that the Texas commission had violated PURPA and FERC

regulations by requiring that a QF be able to provide firm power in order to form a LEO.

Relying on the Power Resource Grp. case, the Fifth Circuit rejected the QFs argument

and reiterated that state commissions, not FERC, define the parameters for when a QF

may form a LEO.8 As explained below, sPower does not properly give effect to this

Commissions discretion in implementing PURPA in Colorado.

III. DISCUSSION

sPowers waiver request should not be granted by the Commission. The

Commission should deny sPowers requested relief because its reliance on

Hydrodynamics and Windham is misplaced by failing to recognize that Colorados

PURPA implementation scheme, as reflected in part in Rule 3902(c), is distinguishable

from these declaratory orders, which are non-appealable and non-binding. Further,

sPower fails to account for the FERCs historic support for competitive bidding as a

7
Power Resource Grp., 422 F.3d at 239.
8
Exelon Wind 1, LLC v. Nelson, 766 F.3d 380, 396 (5th Cir. 2014).

8
means of implementing PURPA and, more specifically, setting avoided cost rates. And

finally, sPower overlooks thirty years of history before this Commission where bidding

was carefully and deliberately adopted as the means of implementing PURPA in

Colorado. We further address the regulatory complexities associated with sPowers

request for relief and the numerous issues the Commission would need to consider if it

were to depart from competitive bidding as the means of implementing PURPA.

A. Request for Immediate Waiver of Rule 3902(c)

1. sPowers reliance on the Hydrodynamics and Windham cases is

misplaced

The heart of sPowers argument is that the Rule 3902(c) requirement that QFs

win a competitive solicitation to receive an avoided cost capacity or energy payment is

inconsistent with the FERCs findings in the Hydrodynamics and Windham cases.

According to sPower, these two FERC declaratory rulings establish that requiring

sPower to participate in a competitive solicitation conducted pursuant to an ERP

imposes an unreasonable obstacle to sPower obtaining a legally enforceable

obligation and therefore contravenes PURPA. Although the FERC declared in both of

those cases that the implemented state bidding approaches did not give QFs a

reasonable opportunity to enter into long-term contracts with host utilities, those

competitive bidding processes are distinguishable from the implementation of

competitive bidding in Colorado through the ERP Rules. Thus, the Hydrodynamics and

Windham cases have little or no application here.

Initially, sPower does not address the nature of FERCs declaratory orders under

PURPA, and thereby suggests that they are binding orders on this Commission. They

are not. The FERCs declaratory orders under PURPA are non-appealable, non-binding

9
statements of the law. In both the Hydrodynamics and Windham cases, FERC was

requested to initiate an enforcement action under Section 210(h)(2)(A) of PURPA but

declined to do so. Instead, the petitioners had to seek an enforcement action against

the respective state commissions in the appropriate court. In those district court actions

FERCs interpretation of PURPA and the FERC rules is legally ineffectual apart from

its ability to present a cogent argument that might help persuade the federal district

court to adopt the same view. See Industrial Cogenerators v. Federal Energy

Regulatory Commn, 47 F.3d 1231, 1235 (D.C. Cir. 1995) (stating that a declaratory

order issued by FERC under PURPA merely advise[s] the parties of the [FERCs]

position and is much like a memorandum of law prepared by the FERC staff in

anticipation of a possible enforcement action); see also Niagara Mohawk Power Corp.

v. Federal Energy Regulatory Commn, 117 F.3d 1485, 1488 (D.C. Cir. 1997) (An order

that does no more than announce [FERCs] interpretation of the PURPA or one of the

agencys implementing regulations is of no legal moment unless and until a district court

adopts that interpretation when called upon to enforce the PURPA.) As the United

States Court of Appeals for the Fifth Circuit has noted, [w]hile this FERC-issued

document is rather impressively called a Declaratory Order, it is actually akin to an

informal guidance letter. Exelon Wind 1, LLC v. Nelson, 766 F.3d 380, 391 (5th Cir.

2014).

Further, the FERCs declaratory orders provide guidance that is limited to the

specific facts and circumstances presented, and the FERC does not issue generally

applicable declaratory orders to resolve broad policy issues. See Puget Sound Energy,

Inc., 139 FERC 61,241, 62,742 (2012); ITC Grid Development, LLC, 154 FERC

10
61,206, 45 (2016). In this regard, the two decisions address fact situations that are

quite different than those presented in Colorado. Like the Colorado process, the

Montana process addressed in Hydrodynamics required the use of competitive bidding

to establish avoided costs, which in theory gave QFs an opportunity to sell power to the

host utility under contract on a long-term basis. However, in practice, the petitioning

QFs in Montana were not given a reasonable opportunity to enter into contracts with the

host utility because only one all-source competitive solicitation had occurred in eleven

years, and there was no rule prescribing that such solicitations must occur at any

particular interval. Moreover, the Montana Public Service Commission, by a separate

order, had allowed the host utility to establish a cumulative installed capacity limit of 50

MW in its tariff for wind QFs that are larger than 100 kW but equal to or below 10 MW.

The QF petitioners also complained that the host utility routinely acquires generation

outside of all-source competitive solicitations. Hydrodynamics, 146 FERC 61,193,

61,841. In contrast, the Colorado rule requires utilities to engage in competitive

solicitations on a regular basis.9 The Montana scheme is therefore distinguishable from

the Colorado scheme.

Similarly, the Windham case involved a Connecticut competitive bidding scheme

that was not conducted with any regularity. The petitioners in that case explained that

the bidding process enabling QFs to obtain contracts has not been conducted for more

than 10 years.10 The state regulator administering that bidding process acknowledged

9
To be sure, Colorado law allows for the acquisition of generation resources outside of competitive
bidding processes in specific circumstances. See, e.g., 40-2-124(1)(f)(I), C.R.S. However, the
Commissions ERP Rules ensure that competitive solicitations occur on at least a quadrennial basis.
10
See Petition for Enforcement Under the Public Utility Regulatory Policies Act of 1978 of Windham Solar
LLC et al. at 13, Docket No. EL16-69 (May 19, 2016).

11
that the competitive bidding process was no longer used.11 Thus, similar to

Hydrodynamics, the petitioners in Windham were protesting an infrequent competitive

bidding process that provided QFs with only scarce opportunities to sell to host utilities.

But at its core, the Windham case addressed another barrier to QF participation

in the bidding scheme. Under Connecticuts regulations, bidders seeking to obtain a

longer-term contract, including QFs, are required to offer a bundled electricity product

(i.e., including renewable energy credits or RECs). Otherwise, only short-term

contracts of one year or less were permitted, providing for energy only rates based on

locational marginal prices.12 The petitioning QFs argued that Connecticuts regulations

prevent QFs from obtaining a long-term contract, except through the procurement

process, and that QFs that have sold RECs cannot participate in the procurement

process. They further argued that the other two available options for QF sales only

provide for short-term contracts and do not provide payments for capacity.

Thus, in both the Hydrodynamics and Windham cases, the QF petitioners were

able to establish that they were effectively foreclosed from participating in state bidding

schemes, due to the infrequency of, and preconditions to, the competitive solicitations in

Montana and Connecticut, respectively. Therefore, the QF petitioners in those cases

11
See Protest of the Connecticut Public Utilities Regulatory Authority at 14, Docket No. EL16-69 (June
15, 2016).
12
The Windham decision is very brief, and in setting out the facts of the Connecticut bidding process,
only noted that the fact that Connecticut required any energy sales to be bundled with RECs. That aspect
of the Connecticut bidding process appears to be the primary focus of that decision. See Windham, 156
FERC at 4 (Moreover, while the Commission has made clear that states have the authority to regulate
RECs, states cannot impede a QFs ability to sell its output to an electric utility pursuant to PURPA. Thus,
regardless of whether a QF has previously sold its RECs under a separate contract, that QF has the right
to sell its output pursuant to a legally enforceable obligation.) The information regarding the bidding
process noted above was obtained by reviewing the petition to the FERC. See Petition for Enforcement
Under the Public Utility Regulatory Policies Act of 1978 of Windham Solar LLC et al. at 14, Docket No.
EL16-69 (May 19, 2016).

12
successfully argued that they did not have an opportunity to enter into long-term

contracts with the host utility.

In contrast, in Colorado the Commission Rules provide for and, more importantly,

the utilities actually conduct, competitive solicitations during each ERP cycle. That point

is obvious from the circumstances of this proceeding. The Company has shown in its

filed ERP that it has a present need for resources, and assuming approval of the

resource need in Phase I of this proceeding, Public Service will conduct a solicitation to

acquire resources to meet that need. Public Service welcomes the participation of

sPower, other QFs, and non-QF IPPs, in the forthcoming competitive solicitation.

sPower, however, is seeking to upend that solicitation process by seeking to put its 880

MW of solar resources to Public Service in advance of any Phase II solicitation.

sPower cannot legitimately claim that it has not had a reasonable opportunity in

the past to sell the output of its planned QFs to Public Service. In the past decade,

Public Service has conducted two all-source solicitations, one wind-specific solicitation,

and two solar-specific solicitations pursuant to the Commissions ERP and Renewable

Energy Standard (RES) rules. These solicitations have been open to both QF and

non-QF bidders alike. The following table summarizes the amount of resources

acquired.

Public Service Resource Solicitations and Acquisitions: 2006-2016*

Solicitation Number of IPP Total MWs Number of Total Renewable

Selected Projects Acquired Renewable MWs Acquired
Providers
2006 Solar RFP 1 7 1 7
2007 CRP; 2008 1 152 1 152
Wind RFP
2007 CRP; 2009 5 1,680 5 760
All-Source RFP
2008 RES; 2008 1 18 1 18
Solar RFP

13
2011 ERP; 2013 6 950 4 620
All-Source RFP
and Early Wind
RFP
*Note: this table does not account for the 2016 ERP Phase II solicitation that will be conducted in
this proceeding.

The ERP process conducted in accordance with Commission Rules has plainly given

ample opportunity for large QFs to bid and obtain long-term contracts with Public

Service. That will continue going forward with the Phase II solicitation that we expect to

hold after the Commissions approval of our resource need in Phase I.13

In summary, the circumstances in Colorado are substantially different than those

confronting the FERC in its review of the implementation of PURPA through bidding in

Montana and Connecticut in the Hydrodynamics and Windham cases. Colorado has

historically had and continues to have a robust ERP process, and Public Service has

acquired resources pursuant to a Phase II solicitation process, with regularity. sPower

cannot legitimately claim on the eve of a planned Phase II competitive bid that

competitive bidding does not give it an opportunity to sell power to Public Service.

2. The FERC has historically supported bidding

Public Service also believes it is important to read Hydrodynamics and Windham

in the context of its prior PURPA-related cases and its past promotion of bidding as a

mechanism to simultaneously: (i) set avoided cost rates and (ii) meet utility resource

needs with both QF and non-QF resources. While the FERC in Hydrodynamics noted

that it had declined to adopt its Bidding NOPR, the FERC failed to acknowledge why it

declined to do so and has never disclaimed its past underlying analysis of both law and

policy supporting bidding.

13
As further proof of a QFs opportunity to enter into contracts with the Company under the existing
PURPA implementation scheme, Attachment C to the sPower Motion shows Public Service has
negotiated contracts with a number of smaller QFs outside of competitive bidding.

14
 To elaborate, in the late 1980s, the FERC recognized that there were

implementation issues with PURPA that it needed to address, the most significant of

which were problems with the administrative determination of avoided costs by various

state commissions in their implementation of PURPA. To address these issues, the

FERC issued four notices of proposed rulemaking, including the Bidding NOPR and a

separate NOPR addressing how avoided cost rates are to be administratively

determined the ADFAC NOPR.14 Although the recognized problem the FERC was

trying to address was improperly administratively determined avoided cost rates and the

attendant difficulties that presented, the FERC noted that bidding was an alternative

means that could efficiently set avoided cost rates.

The FERC in the Bidding NOPR not only set out proposed rules, which were

intended to be minimum guidelines that state commissions wishing to use competitive

bidding for PURPA implementation would implement, but also: (1) provided extensive

discussion regarding the logic and purpose of the proposed rule; (2) provided a legal

analysis as to how the use of bidding comported with the requirements of PURPA and

its own implementing regulations under 18 C.F.R. Part 292; and (3) explained the bases

of specific elements of its proposal. As envisioned by the FERC in 1988 when it issued

the NOPRs:

[B]idding has the potential for eliminating the seemingly endless debates
over what alternative sources of supply are truly avoided by the
purchasing utility. Avoided cost need not be an administratively
determined number, argued over by experts. Instead, avoided cost could
be derived simply and directly from the prices offered by competing
suppliers in the bidding process. Because bidding provides a systematic
mechanism for identifying potential suppliers, it increases the chances that

14
Administrative Determination of Full Avoided costs, Sales to Qualifying Facilities, and Interconnection
Facilities, 53 FR 9331 (1988), See FERC Statutes and Regulations 32,457 (1988).

15
 the purchasing utilitys capacity needs will be supplied from the more
efficient sources.

FERC Statues and Regulations 32,021, 32,025 (footnote omitted).

Specifically with regard to the legality of bidding, the FERC stated that it viewed

bidding as consistent with PURPAs avoided cost standard. See Id. at 32,026. (To the

extent bidding successfully identifies a utilitys lowest cost alternative supply option,

bidding cannot, by definition, depart from the full avoided cost standard. By simulating

the outcome of a competitive and unregulated market, bidding would satisfy the original

purpose of the avoided cost rule.) The FERC recognized that bidding might result in a

lower level of QF development, but concluded that result was not inconsistent with

PURPA. See id. (Although one of the primary purposes of PURPA is to encourage

cogeneration renewable energy technologies, Congress made it clear that it did not

intend for utility ratepayers to subsidize such power producers. (footnote omitted)).

The FERC emphasized that PURPA did not guarantee that QFs could make

sales of capacity to utilities. Indeed, under PURPA a utility was only required to offer to

purchase from QFs, a standard the FERC viewed bidding as satisfying. See id. at

32,028 (To comply with PURPA, all that is required is for the purchasing utility to offer

to purchase power from QFs at rates that do not discriminate against QFs.) See also

id. 32,027 (Provided QFs are given an equal opportunity to compete for capacity in a

bidding process, QFs are not discriminated against as a class.) In light of this

conclusion, the FERC did not believe that a purchasing utility had any obligation to pay

a capacity payment to a QF that lost a bid. Id. at 32,025. Nor did FERC propose

requiring that a losing QF have an opportunity to match a winning bid since that would

undermine the integrity of the bidding process. Id. at 32,028 ([P]roviding QFs with an

16
opportunity for a second bite is likely to discourage other potential power suppliers

from participating in the bid.)

Finally, FERC emphasized that a competitive bid used to set avoided costs for

QFs must be for all sources, including the purchasing utilitys own capacity expansion

program as well as those wholesale sources that the utility would have purchased from

absent the QF purchase, such as other QFs, IPPs and other utilities. Id. at 32,031. As

FERC explained,

The reason for taking all sources into account is simple. Unless it is done,
there is no assurance that a QF will receive a price that is less than or
equal to the purchasing utilitys real avoided cost. . . . A bidding system
that produces this outcome violates the PURPA standard that QFs be paid
no more than the cost of alternative supplies. It is also inconsistent with
the PURPA goal of leaving consumers indifferent as to the source of
supply.

Id. at 32,031-32 (footnote omitted).

FERC cases following the issuance of the Bidding NOPR and the ADFAC NOPR

were consistent with the view that an all-source competitive solicitation is an effective

method to determine avoided costs. For example, in 1995 in Southern California Edison

Co.,15 the FERC reviewed the use of a competitive solicitation to award QF contracts.

The competitive bidding program in that case permitted QFs to bid against a benchmark

price for the acquisition of capacity that was determined by the California Public Utilities

Commission. The results of the bidding program were used to determine the utilitys

avoided costs and to award QFs contracts with California utilities. Although FERC ruled

that the program violated PURPA, it did so because the competitive solicitation failed to

consider output from other non-QF sources:

15
70 FERC 61,215 (1995), order on reconsideration, 71 FERC 61,269 (1995).

17
 [U]nder PURPA an avoided cost (incremental cost) determination must
permit QFs to participate in a non-discriminatory fashion and, at the same
time, assure that the purchasing utility pays no more than the cost it
otherwise would incur to generate the capacity (or energy) itself or
purchase from another source (the language of section 210 of PURPA,
emphasis added). Congress in this language did not in any way limit the
sources to be considered. The consequence is that regardless of whether
the State regulatory authority determines avoided cost administratively,
through competitive solicitation (bidding), or some combination thereof, it
must in its process reflect prices available from all sources able to sell to
the utility whose avoided cost is being determined. If the state is
determining avoided cost by relying on a combination of benchmark and
bidding procedures, as here, this means that the bidding cannot be limited
to certain sellers (QFs); rather, it must be all-source bidding.16

That same year in North Little Rock Cogeneration, L.P.,17 FERC highlighted the

importance of accurately establishing a utilitys avoided cost when it rejected a QFs

challenge to the results of a competitive solicitation that the QF did not win:

Avoided costs are determined, in the first instance, by all alternatives

available to the purchasing utility. Those alternatives, as we have
explained in a number of recent orders, include all supply alternatives. . . .
If the QF proposed by Petitioners could not match the rate offered by a
competing supplier of power to the City, regardless of whether the
competitor was or was not a QF, then the QF demonstrably was not
offering a rate at the City's avoided costand the City had no obligation
under PURPA to purchase power offered at a higher price than the lowest
bid.18

Southern California Edison Co. and North Little Rock demonstrate that the FERC

viewed all-source competitive solicitations as an effective method to establish avoided

cost and secure opportunities for QFs to sell their output to utilities. While the FERC

ultimately terminated the Bidding NOPR, it did so not on the basis of a legal error or

policy misstep, but because of a proliferation of competitive bidding programs.

Specifically, the FERC acknowledged that over 30 states had developed bidding

16
70 FERC 61,215, 61,677 (1995).
17
72 FERC 61,263 (1995)
18
Id. at 62,173.

18
mechanisms for procurement of QF energy and capacity. The FERC then closed the

Bidding NOPR and ADFAC NOPR dockets because the prevalence of bidding

procedures among the states eliminated the need for FERC guidance on how to

manage RFP processes:

In addition to the Commission's case-by-case experience regarding

regulation of non-traditional power producers, including IPPs, substantial
experience has been gained by state regulatory commissions and utilities
themselves regarding non-traditional power producers and competitive
bidding. At the time of the Bidding NOPR only a few states had taken
steps to allow competitive bidding. Now 30 states use competitive bidding
(i.e., either the state has adopted provisions for utilities to use bidding or
the state at least permits utilities to use bidding). Compare Bidding NOPR,
FERC Statutes and Regulations at p. 32,025 with 4 Robertson's Current
Competition No. 3 at p. 16 (August 1993). Thus, both state regulatory
commissions and utilities appear to be making substantial progress
without the need for additional Commission guidance.

64 FERC 61,364 (1993).

Five years later, the FERC terminated the ADFAC NOPR based on similar

reasoning:

In addition, as stated above, the ADFAC NOPR acknowledged the

difficulty of administratively setting avoided cost rates, and particularly
recognized that competitive bidding was a viable alternative to determining
avoided cost. Since 1988, in fact, substantial experience has been gained
by state commissions, electric utilities and QFs themselves regarding
competitive bidding. While few states allowed competitive bidding at the
time of the ADFAC NOPR, well over half the states now use competitive
bidding to one degree or another in setting avoided cost rates. Indeed, in a
number of cases the Commission itself has considered rates resulting
from competitive bidding and negotiation in which QFs were active
participants. Accordingly, the industry itself appears to have made
substantial progress regarding the determination of avoided cost and the
setting of avoided cost rates.

84 FERC 61,265 (footnotes omitted).

Although not noted by the FERC in terminating the NOPRs, but nonetheless

germane, use of competitive bidding is consistent with PURPA itself, as amended by

19
the Energy Policy Act of 1992, which requires that states consider the use of integrated

resource planning to evaluate the full range of alternatives. 16 U.S.C. 2602(19).

Thus, while the FERC noted in the Hydrodynamics proceeding that it never

finalized the Bidding NOPR, the context of that decision and the FERCs subsequent

PURPA cases are illustrative. For nearly three decades, it was a settled issue that

properly constituted bidding could be a means of procuring from QFs and setting

avoided cost rates for those sales. Accordingly, FERC did not eliminate competitive

bidding in cases like Southern California Edison Co. or North Little Rock Cogeneration.

Moreover, the FERC has refused to permit a QF to displace the efficient allocation of

resources selected in a competitive RFP to meet a utilitys needs, which is precisely

what sPower requests the Commission do here.19 For those reasons, Public Service

believes that the well-supported reasoning reflected in the Bidding NOPR remains valid,

and that a properly implemented bidding scheme, as we have in Colorado, is a valid

and efficient way to determine avoided cost rates.

3. Colorado has used bidding to implement PURPA for decades

sPower suggests that the Commission adopted its current bidding rule in 2005

with little input from anyone other than Public Service.20 sPower asserts that the

Commission failed to consider whether requiring a QF to win a bidding process would

comply with PURPAs must buy requirement. Id. at 14. sPower overlooks the context of

the Commissions 2005 decision. Bidding has been in place in Colorado in some form

for almost thirty years, and has been well vetted by the Commission with the input of

19
See City of Ketchikan, Alaska, et al., 94 FERC 61,293 (2001) (finding that PURPA does not require a
utility to pay for capacity that would displace its existing capacity arrangements).
20
sPower Motion, at 13 (The current language of Rule 3902(c) was added by the Commission with little
discussion at the suggestion of Public Service.)

20
many stakeholders including QF developers, other IPPs, environmental interests,

industrial and commercial customers, utilities, Commission Staff, and the Colorado

Office of Consumer Counsel, among others. What happened in Colorado paralleled

what happened nationally an influx of QF development beyond what could be

absorbed, due in part to administratively determined avoided cost rates that were too

high. The Commissions solution to this problem was the adoption of competitive

bidding for setting avoided costs and selecting QFs.

To elaborate, Public Service proposed tariffs to determine its avoided costs in

I&S Docket No. 1603, and the Commission established, among other things, the

method and in-puts to be used to determine PSCos avoided costs and by extension

the rates to be paid to QFs. Decision No. R03-0687, at 34 (mailed June 18, 2003)

(citing Decision No. C84-67). These methodologies were subsequently modified over

the course of several decisions in 1984. Decision No. R03-0687, at 36-38 (mailed

June 18, 2003). The establishment of Public Services administratively determined

avoided cost rate was heavily litigated, and a central point of contention was the need to

take into account the different dispatchability levels of different QFs.

On April 23, 1985, I&S Docket No. 1603 was reopened by the Commission due

to concerns that use of the Commission-approved avoided cost method might result in

capacity payments to Category 3 and Category 4 QFs providing only peak power that

did not reflect the correct avoided capacity cost. Decision No. R03-0687, at 39

(mailed June 18, 2003) (citing Decision No. C85-585). Public Service sought a

moratorium on contracting with affected QFs pending the conclusion of the reopened

docket, and the Commission agreed and imposed the requested moratorium. See

21
Decision No. C86-149 (mailed Feb. 6, 1986). The Commission concluded its inquiry in

reopened I&S Docket No. 1603 in January 1987, and the moratorium was lifted.

Decision No. R03-0687, at 39 (mailed June 18, 2003) (citing Decisions No. C87-10

and No. C87-10-E, as amended by Decision No. C87-147 nunc pro tunc).

On November 4, 1987, Public Service sought another moratorium after receiving

QF offers that were far in excess of system needs. Specifically, Public Service was

expecting to add approximately 490 MW of QF capacity from 1987 to 1995, but received

information from QFs in the first half of 1987 that over 1,100 MW of capacity could come

online by 1991 absent a moratorium. Decision No. C87-1690, at 11-12 (mailed Dec.

16, 1987). The Commission agreed with Public Services request and instituted a

second moratorium, but exempted QF projects under 25 MW and grandfathered certain

Category 4 QFs specifically those that had initiated negotiations with Public Service

prior to the moratorium. These Category 4 QFs were permitted to contract with Public

Service at the avoided costs rates derived from the QF tariffs effective in 1988,

consistent with the findings in I&S Docket No. 1603. See Decision No. C87-1690

(mailed Dec. 16, 1987); Decision No. C88-140 (mailed Feb. 10, 1988).

In June 1988, the Commission, in an emergency rulemaking requested by Pubic

Service, approved a change in the method used to establish avoided costs for capacity

payments to QFs, and decided as part of its continuing duty to implement PURPA that

Public Service should use use a biennial bidding procedure to establish its avoided

costs. In Decision No. C88-726, the Commission stated that a bidding procedure is

necessary to ensure both the reliability and adequacy of Public Services system and

that the customers of Public Service will not over- or under-pay for QF power.

22
Moreover, a bidding procedure will enable Public Service to obtain the lowest-priced QF

power available which will enure to the benefit of its customers.

The Commission adopted integrated resource planning (IRP) rules in

December 1992. The IRP Rules retained biennial QF bidding as a stand-alone process;

however, the results of QF bidding were reflected in the IRP. Decision No. R03-0687, at

50 (mailed June 18, 2003) (citing Decision No. C92-1646). The Commission revisited

the IRP Rules in 1996 in Docket No. 95R-071E. Its effort at this time was sparked by

the nexus of several interrelated factors, including the Commissions efforts to

implement PURPA and the increasing competitiveness of the wholesale power markets

given the evolution of federal regulatory policy. Decision No. C95-1264, at p. 5 (mailed

Dec. 15, 1995). A primary goal was developing a competitive resource acquisition

process that, among other things, would [a]llow the Commission to comply with its

continuing responsibility to implement PURPA. Id. at p. 6 (mailed Dec. 15, 1995).

Issues were raised in the docket regarding whether recent FERC decisions preempted

the proposed revisions to the IRP Rules. The Commission rejected these arguments

and held as follows:

We note that the SCE 1 and SCE 2 cases interpret PURPA requirements
as related to QF purchases only; the cases do not apply to other electric
resources obtained by utilities. As such the holdings in those decisions are
limited. In addition, we understand these cases, generally, to stand for two
propositions: First, in setting avoided costs for QF purchases, the state
process must reflect prices available from all sources, and if avoided costs
are established through bidding, the bidding cannot be limited to Q[F]s. All
potential sellers must be permitted to bid. Second, a purchasing utility
cannot be required to pay a QF more than its avoided costs. The rules
adopted in this decision do utilize bidding to establish avoided costs.
However, the rules do not limit any bidding, including under the
segmented approach, to any particular supplier (e.g., Q[F]s). Instead, all
potential sellers will be permitted to bid. We also note that the rules will not
compel utilities to pay QFs more than avoided costs. Therefore, the

23
 planning and resource acquisition process approved in the adopted rules
are not inconsistent with PURPA, as interpreted by FERC in the SCE 1
and SCE 2 decisions. We conclude that PURPA does not preempt any of
the adopted rules.

Decision No. C95-1264, at pp. 13-14 (mailed Dec. 15, 1995).21 The IRP Rules with one

bidding procedure therefore superseded the biennial QF bidding process previously in

place. 22

These IRP Rules remained in effect through the end of 2002. In 2002, the

Commission revisited the IRP Rules and made certain amendments to the competitive

bidding rules. The Commission stated in pertinent part as follows in approving the

amended IRP Rules: Rule 3610(b) will allow a utility to propose a method, other than

competitive bidding, to acquire resources. In order to use such an alternative, the utility

must receive Commission approval of the alternative method. To justify such an

alternative, the utility must provide a cost/benefit analysis, and, in addition, must explain

how the alternative to bidding complies with PURPA. We believe that these provisions

are consistent with PURPA requirements. At this time, we do not believe that we must

modify our PURPA rules, either in the current form or as proposed in the electric

rulemaking proceeding, Docket No. 02R-279E, in order to accommodate the exemption

21
SCE 1 and SCE 2 refer respectively, to Southern California Edison Company, 70 FERC 61,215
(1995), order on requests for reconsideration, 71 FERC 61,269 (1995). In SCE 1, the FERC stated that:
As the electric utility industry becomes increasingly competitive, the need to ensure that
the States are using procedures which ensure that QF rates do not exceed avided cost
becomes more critical. This is because QF rates that exceed avoided cost will, by
definition, give QFs an unfair advantage over other market particpants (non-QFs). This in
turn, will hinder the development of competitive markets and hurt ratepayers, a result
clearly at odds with ensuring the just and reasonable rates required by PURPA section
210(b).
70 FERC at 61,675-76 (footnotes omitted).
22
Also in the mid-1990s timeframe, the Commission as part of its PURPA implementation examined a
number of QF jurisdictional issues in response to concerns regarding the avoided cost prices that QFs
were being paid. A number of parties participated in this proceeding. It resulted in the issuance of
Decision No. C95-1209 (mailed December 5, 1995).

24
contained in Rule 3610(b). Accordingly, competitive bidding remained central to the

Colorado PURPA compliance scheme.

All of this occurred prior to the rulemaking referenced by sPower in 2005. The

notion that the current rule was adopted without Commission deliberation based on a

mere suggestion of Public Service is unfounded and inaccurate. It ignores that this

Commission has previously grappled with situations where QFs were seeking to put

more power to Public Service at the then effective administratively determined avoided

cost rate than it could easily absorb on its system. And it further ignores thirty years of

history before this Commission and the fact that bidding was carefully and deliberately

adopted to effectuate PURPA compliance for the state of Colorado by this Commission.

B. sPowers Requested PURPA Put prior to the Phase II Solicitation and

Associated Regulatory Complexities

In addition to requesting that the Commission waive Rule 3902(c), sPower

recommends that the Commission require that Public Service purchase power from

QFs at an administratively determined avoided cost rate to be determined during Phase

I of this proceeding. sPower further requests that Public Service be required to make

these purchases prior to conducting any solicitation in Phase II of this ERP process.

Given the magnitude of sPowers requested put of power to Public Service, the effect

may be to completely eliminate the need for the Phase II solicitation in this proceeding.

This result would not be beneficial to Public Services customers and, for reasons

stated above, there is no reason for the Commission to require it. Further, there are a

number of significant issues that the Commission would then need to consider and

decide before modifying its PURPA rules to rely on administratively determined avoided

costs instead of competitive bidding to determine applicable avoided cost rates.

25
 1. Key regulatory considerations in any move to administratively determined
avoided costs

Initially, if the Commission were to to retain the use of bidding in part to satisfy

the must offer requirement of PURPA, it would have to evaluate the interplay between

the bidding process and any alternative approach for purchasing from QFs. In this

connection, the FERC in the Bidding NOPR indicated that a utility could meet its

purchase obligation to a QF that was not selected to provide capacity through a bid by
23
purchasing energy. While Rule 3902(c) contemplates that a QF must win a bid to

supply capacity or energy, one approach the Commission might consider would be to

require that a QF wanting to sell capacity and energy win a bid, but modify the rule so

that a QF could enter into an energy-only sale between ERP Phase II solicitations.

As another significant issue, the Commission would need to determine the

appropriate methodology for setting an administratively determined avoided cost rate.

Several factors must be taken into account in setting an appropriate rate, including the

ability of a utility to dispatch a QF and expected or demonstrated reliability of the QFs.

See 18 C.F.R. 292.304(e) (listing the factors that, to the extent practicable, must be

considered in determining avoided costs). As noted above, some of the key factors that

led to the contentiousness of the I&S Docket No. 1603 proceeding were the

disagreements regarding what level of dispatchability a QF should have to receive the

highest avoided cost capacity rate. Many of the proposed sPower units, for example,

will be located in transmission-constrained areas of the Public Service system (i.e., the

San Luis Valley), making it difficult or even impossible to use electricity generated by

those units to serve Public Services primary load centers on the Front Range. Part of

23
FERC Statutes and Regulations 32,455, 32,021 (1988).

26
the process of setting an administratively determined avoided cost rate will be to

determine how to take such locational issues into account.

While sPower proposes that Public Service use the differential revenue

requirement method of determining avoided costs, the Commission should be cautious

about approving any single administrative method absent a thorough review of the

advantages and disadvantages of different methods of administratively determining

avoided costs. sPower appears to request that the Commission order a specific

approach without such a review. The differential revenue requirement methodology that

sPower advocates is only one of several recognized approaches and is one that is data-

intensive and requires many assumptions and careful modeling. In addition, the

differential approach can produce avoided cost estimates for small projects that diverge

significantly from avoided cost estimates for similar projects that are an order of

magnitude larger. Instead, a proxy plant method or other simplified method may be

preferable, should the Commission decide to explore administrative methodologies for

setting QF prices. For example, the Commission has recently approved methods for

determining rates for small QFs and the avoided costs of Renewable*Connect facilities

that do not utilize a full-blown differential revenue requirements method. If the

Commission were to depart from its present reliance on bidding to establish avoided

cost pricing and select QFs, it would thoroughly need to review and consider alternative

methods for determining avoided costs carefully.

2. Additional issues with sPowers requested relief

If the Commission does decide to allow for QFs to put power to utilities such as

Public Service at administratively determined avoided cost rates, there are at least two

27
important issues that it will need to address. First, it will need to decide the length of the

contract a QF can request. The FERC regulations do not require that any particular
24
length contract be required. Second and very significantly, the Commission would

have to determine at what point a QF developer would be entitled to a LEO. sPower

seems to assume that it is entitled to a LEO at this point in time, 25 but as Public Service

indicated in its letter in response to sPowers letter requesting a LEO, it is for the states

to determine when a LEO may be formed. Motion Attachment B. This issue is not

presently addressed in Commission Rules because the use of competitive bidding

makes it unnecessary. However, where a QF may establish a LEO by seeking to put

power at an administratively determined avoided cost rate, it is necessary to determine

at what stage of development it should be entitled to a LEO. A LEO is not supposed to

be binding simply on a utility, but also on the QF. For that reason, many state

commissions require that QFs be at an advanced stage of development before they

may establish a LEO in order to provide some assurance that they will actually be able

to deliver energy from their facility at the requested avoided cost rate. See e.g.,

Whitehall Wind, LLC. V. the Montana Public Service Commission, 347 P.3d 1273, 1276

(Mont. 2015). As Public Service has noted, sPower has not indicated at what stage of

development its projects are in, and for that reason, sPower is not in a position to

assume that it is entitled to a LEO. There are sound policy reasons why this

Commission should not allow a LEO until it is apparent that a QF will in fact be able to

develop and deliver power to a utility. To allow otherwise would enable a QF to demand

24
Public Service notes that, among other things, the minimum length of a PURPA contract has been
raised in ongoing FERC Docket No. AD16-16-000, but FERC has not yet made, and may not make in the
future, any determination as to that issue.
25
sPower Motion at 12, n. 34.

28
binding assurances from a utility, while at the same time permitting the QF to

subsequently decide to abandon its project without any consequences.

Relatedly, the Commision would also have to decide whether QFs, such as those

proposed by sPower that provide energy on an intermittent basis, are even entitled to a

LEO with pricing set at projected avoided costs. As noted above, in Exelon Wind 1, LLC

v. Nelson, it was determined that a state commission properly concluded that a QF must

be able to provide firm power in order to form a LEO.

3. Fairness issues with sPowers requested relief

Finally, sPowers Motion and requested relief raises fundamental questions of

fairness. As detailed above, Colorado has provided for the use of competitive bidding in

some form to set avoided cost rates since 1988, most recently through Rule 3902(c),

which has been in effect since 2005. If the Commission wishes to modify its rules to

effectively permit another form of selecting QFs, it should do so through a rulemaking,

which will give sufficient time for all developers to plan and propose projects

accordingly.

However, ongoing developments surrounding PURPA implementation at the

national level counsel against the Commission conducting any kind of extensive

examination of these issues at this time. First, the FERC is presently considering a

number of PURPA implementation issues in Implementation Issues Under the Public

Utility Regulatory Policies Act of 1978, Docket No. AD16-16-000, where it has invited

post-technical conference comments. Second, the National Association of Regulatory

Utility Commissioners (NARUC) has just passed a resolution that underscores the

need to give states continuing deference to implement PURPA (included as Attachment

29
A), particularly in light of the significant growth of renewable generation. Accordingly,

PURPA is receiving an increasing amount of attention at the FERC and in the regulatory

policy community, and it would be appropriate to wait to see how some issues play out

at the FERC before expending limited resources in Colorado addressing them.

IV. CONCLUSION

In summary, the essence of sPowers argument is that it should be given a

preference over any other potential supplier prior to the Phase II solicitation to be

conducted in this proceeding after the determination of resource need. It recommends

that the Commission use Phase I of this ERP case to determine a methodology to

establish an administratively set avoided cost rate pursuant to which it would sell to

Public Service. At that point, and in advance of any Phase II bid, sPower proposes that

it should be allowed to put power to Public Service under PURPA. Again, this would

occur outside of and in advance of the planned Phase II resource solicitation.

sPower has not made any representation that it cannot participate in that

solicitation and have its proposed 880 MW of solar capacity compete on an even footing

with other potential projects. Accordingly, it appears that sPowers request for relief is

motivated by the fact that it simply does not want to take a risk that it may not be

selected in the solicitation. As explained herein, PURPA does not require that sPower

be given such a preference to make a sale to Public Service on that basis, and such a

result is inconsistent with the Colorado QF implementation rules.

Dated this 18th day of November, 2016.

30
Respectfully submitted,

By: /s/ William M. Dudley

William M. Dudley, #26735
Assistant General Counsel - Lead
Christopher M. Irby, #35778
Assistant General Counsel
Xcel Energy Services Inc.
1800 Larimer Street, Suite 1100
Denver, Colorado 80202-1414
Telephone:
Dudley: (303) 294-2842
Irby: (303) 294-2504
Fax: (303) 294-2988
Email:
Dudley : bill.dudley@xcelenergy.com
Irby : christopher.m.irby@xcelenergy.com

and

Gregory E. Sopkin, #20997

Matthew S. Larson, #41305
Wilkinson Barker Knauer LLP
1755 Blake Street, Suite 470
Denver, Colorado 80202-3160
Telephone: (303) 626-2350
Fax: (303) 626-2351
E-mail: gsopkin@wbklaw.com
mlarson@wbklaw.com

ATTORNEYS FOR PUBLIC SERVICE

COMPANY OF COLORADO

31
 Attachment A
Page 1 of 3

FINAL RESOLUTIONS
ADOPTED BY THE

NARUC COMMITTEE OF THE WHOLE

2016 ANNUAL MEETING
RESOLUTIONS
OF THE
Colorado PUC E-Filings System

NATIONAL ASSOCIATION OF
REGULATORY UTILITY COMMISSIONERS

(UPDATED: NOVEMBER 16, 2016)

 Attachment A
Page 2 of 3

EL-2 Resolution Regarding the Enforcement of PURPA Standards and Regulations

WHEREAS, In 1978 Congress enacted the Public Utility Regulatory Policies Act (PURPA) in
response to a national energy crisis; and

WHEREAS, PURPAs purpose was to lessen the countrys dependence on foreign oil and to
encourage the promotion and development of renewable energy and cogeneration technologies; and

WHEREAS, PURPA requires electric utilities to purchase power produced by qualifying facilities
(QFs), referred to as a mandatory purchase obligation; and

WHEREAS, PURPA requires that the power from QFs be purchased by utilities at avoided cost
rates that are just and reasonable to a utilitys ratepayers, in the public interest, and not discriminatory
to the QFs; and

WHEREAS, PURPA mandates power sales at a utilitys avoided cost, but otherwise creates a broad
and flexible framework for the sale of QF power by leaving the details to be worked out by State
regulatory commissions; and

WHEREAS, There are significant differences among electric market structures and the penetration
of renewable generation throughout the country and, therefore, significant differences in PURPA
implementation; and

WHEREAS, Since PURPA was enacted, there has been tremendous growth in renewable
generation, both inside and outside the mandates of PURPA; and

WHEREAS, Because of the significant growth in various forms of renewable generation, PURPAs
mandatory purchase obligation has created unintended consequences in some jurisdictions,
including: PURPA generation that is not needed to serve loads; long-term fixed-price PURPA
contracts that have resulted in avoided costs detrimental to retail ratepayers; large amounts of
intermittent generation that require standby generation; operating and reliability concerns; and
planning uncertainties because of the unexpected and unpredictable addition of PURPA projects;
and

WHEREAS, Such unintended consequences have been compounded by some QF developers that
have been able to work around the Federal Energy Regulatory Commissions (FERC) small
renewable QF criteria by disaggregating their projects into multiple smaller projects, thereby availing
themselves of more advantageous avoided cost calculations to the detriment of retail ratepayers; and

WHEREAS, A number of State regulatory commissions have recently been devoting an inordinate
amount of time attempting to discern the intent and assess the impact of PURPA, the meaning of
FERC regulations, and the parameters of State discretion; and

WHEREAS, In light of these developments and concern within a number of States, members of
Congress recently asked FERC to conduct a comprehensive review of PURPA Section 210; and

8
 Attachment A
Page 3 of 3

WHEREAS, FERC conducted a technical conference on June 29, 2016, regarding issues associated
with State commission implementation of PURPA and particularly focused on the mandatory
purchase obligation and determination of avoided costs; and

WHEREAS, NARUC, through President Travis Kavulla, along with various other State regulatory
and energy commissions, participated in the technical conference and submitted comments; and

WHEREAS, NARUC and its members have a long history of successfully implementing PURPA
and encouraging renewable development that is consistent with FERC regulations and that is in the
public interest of each respective State regulatory jurisdiction; and

WHEREAS, The availability, practicality, need for, and cost effectiveness of PURPA renewable
and cogeneration power supply sources varies from region to region and from State to State; and

WHEREAS, Because the ability to efficiently acquire and manage renewable resources varies from
region to region, the States are in the best position to analyze the need for, and the availability,
practicality, and cost effectiveness of new renewable and cogeneration resources; and

WHEREAS, The States are uniquely qualified to measure whether unexpected, large-scale
intermittent resources can be added to the electric system without compromising reliability; now,
therefore be it

RESOLVED, That the National Association of Regulatory Utility Commissioners, convened at its
128th Annual Meeting in La Quinta, California, concludes that:

x The State commissions must remain the appropriate bodies to make mandatory purchase and
avoided cost determinations, not only because PURPA Section 210 specifies that the State
commissions are to implement PURPA and FERC rules, but also because those
determinations are subject to local conditions best known at the regional and local level by
State commissions;
x The State commissions should continue to be afforded the authority to select an appropriate
methodology for calculating avoided costs;
x PURPAs goal of promoting QF development must be balanced with the States interest in
just and reasonable rates;
x FERC should establish criteria that assists States in evaluating whether a project developer
has disaggregated a large project into multiple smaller projects in an effort to circumvent
FERCs size limitations and undermine PURPA regulations to the retail ratepayers
detriment; and
x Each State should retain the full authority and discretion to determine, consistent with the
lawful implementation of PURPA, the process by which QFs become entitled to PURPA
contracts; the scope of such contracts; the extent to which QFs with a design capacity larger
than 100 kilowatts are entitled to standard avoided cost rates; and other necessary and proper
terms and conditions to ensure that each PURPA contract is consistent with and protects the
States public interest, does not adversely impact retail ratepayers, and fairly calculates the
rates paid to the QFs.
________________________________
9
ATTACHMENT B
December 29, 2016 Via Email and US Mail

William Dudley
Christopher Irby
Xcel Energy, Inc.
1800 Larimer St., Suite 1100
Denver, CO 80202

RE: Request for Avoided Cost Pricing and Contracts for Proposed Wind Qualifying
Facilities in Public Service Company of Colorados Service Territory

Dear Mr. Dudley and Mr. Irby,

This letter follows up on our earlier correspondence sent to your attention on December 308,
2016 in which we notified you that our client, Sustainable Power Group, LLC (sPower) intended
to make energy and capacity available from 11 Qualifying Facilities (QFs) using solar
photovoltaic technology at Public Service Company of Colorados (Public Service) long-term
avoided cost.

As you know, the federal Public Utility Regulatory Policies Act of 1978 (PURPA) requires a
utility, such as Public Service, to purchase QF capacity and energy at the utilitys avoided cost.
16 U.S.C. 824a-3(a)(2) (requiring utilities to purchase from QFs); 18 C.F.R. 292.303
(obligation to purchase energy and capacity); FERC Order No. 69, 45 Fed. Reg. 12,214 at 12,219
(Feb. 25, 1980) (The [Federal Energy Regulatory] Commission interprets this provision to
impose on electric utilities an obligation to purchase all electric energy and capacity made
available from qualifying facilities with which the electric utility is directly or indirectly
interconnected, except during periods [of] system emergencies.)

This letter serves as sPowers notification to Public Service that it plans to make energy and
capacity available to Public Service from additional wind QFs that will be developed by sPower.
Pursuant to PURPA, sPower requests long-term contracts from Public Service for the purchase
of energy and capacity from these QFs. Specifically, sPower intends to make energy and
capacity available to Public Service from the following QFs:

Front Range Wind Phase 1; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 2; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 3; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 4; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 5; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 6; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 7; 80 MW; December 30, 2019 COD; GI-2016-27
Front Range Wind Phase 8; 80 MW; December 30, 2019 COD; GI-2016-27

1580 Lincoln St. Suite 880 | Denver, CO 80203 | Telephone 720-216-1184

Each of the projects listed above will be powered by wind energy. The list above includes the
commercial operation date (COD) that each project will begin delivering energy and capacity to
Public Service, as well as the projects queue number in Public Services OASIS system. Each
project will be certified with the Federal Energy Regulatory Commission (FERC) as a QF.

Pursuant to 18 C.F.R. 292.304(d)(2)(ii), sPower opts to enter into a contract or other legally
enforceable obligation with Public Service over a specified term and to establish the avoided cost
rate at which Public Service will purchase energy and capacity from each of the above projects at
the time the obligation is incurred. Pursuant to the Commissions Rule 3656(f)(III), the term of
the contract must be a minimum of 20 years. In order to begin construction and interconnect the
QF projects listed above by the dates specified, sPower seeks to determine the avoided cost rate
through negotiations with Public Service within 30 days of the date of this letter.

Thank you for your prompt attention to this matter. We look forward to hearing from you.

Very truly yours,

__/s/ Kevin Fox____________________

Kevin Fox

__/s/ Scott Dunbar__________________

Scott Dunbar

1580 Lincoln St. Suite 880 | Denver, CO 80203 | Telephone 720-216-1184