A New Front in PG&E's Bankruptcy Case: Small Solar Power Projects

Greentech MediaOctober 25, 2019702

Summary:

State policy squabbles over small-scale solar energy contracts. This week several small solar companies, filed a complaint in the bankruptcy case alleging the utility and California regulations have violated the Public Utility Regulatory Policies Act (PURPA).

Main Article:

A New Front in PG&E's Bankruptcy Case: Small Solar Power Projects

State policy squabbles over small-scale solar energy contracts have officially gotten ensnared in the ongoing Chapter 11 bankruptcy proceeding for California’s largest utility, Pacific Gas & Electric. 

This week several small solar companies, all tied to New York-based developer Allco Renewable Energy Limited, filed a complaint in the bankruptcy case alleging the utility and California regulations have violated the Public Utility Regulatory Policies Act (PURPA) for years by capping the amount of energy it buys from small producers. Thomas Melone, Allco’s CEO, wrote in an email to Greentech Media that PG&E “wrongfully refused” to offer contracts at the proper fixed rate to 58 of the companies’ solar power facilities, all under 2 megawatts.

Under PURPA’s broad federal standards, investor-owned utilities must buy power from those small, “qualifying facilities.” States generally fill in the details on rates and regulations for executing that mandate, but California’s regulations have for years been caught up in litigation about the program’s design. 

How the case plays out could shed light on what possible future bankruptcies mean for sources of renewable energy projects developed through PURPA, a policy that’s added substantial solar power development in certain states like North Carolina but remained a small segment of the market in others, including California.

“In terms of how bankruptcy code and PURPA interact, it hasn’t come up all that often,” said Brian S. Biering, a partner at law firm Ellison Schneider Harris & Donlan who focuses on energy regulation and compliance but who is not involved in this case.

Though it has the potential to add a significant sum to PG&E's payouts, the bankruptcy court's decision on the matter may have a somewhat muted impact within the larger solar energy market. PURPA’s influence on new development has already waned in recent years, as utilities have lobbied to tighten restrictions on what facilities qualify and for how long.

Though many developers rely on the law, it could continue losing relevance: The Federal Energy Regulatory Commission recently proposed significant changes to PURPA, which commissioner Richard Glick argued in a dissent “would effectively gut” it. 

Allco solar companies Winding Creek Solar, Foothill Solar, Hollister Solar, Vintner Solar and Bear Creek Solar filed their complaint ahead of the October 21 “bar date” deadline, the cutoff for parties to file claims through PG&E’s bankruptcy process. In their complaint, the companies claim revenue from lost electricity sales exceeds $600 million. They’re asking PG&E to pay those costs or enter into the contracts at the rates they allege the law requires. The disagreement dates back to 2013 when the companies first sought the contracts.

PG&E will “respond to this complaint through the bankruptcy process,” spokesperson Lynsey Paulo told Greentech Media via email. 

One of the complainants, Winding Creek Solar, has challenged California’s interpretation of PURPA on numerous occasions. In July, the Ninth District Court of Appeals affirmed a 2017 ruling that one of California’s programs for implementing the law, the Renewable Market Adjusting Tariff or Re-MAT program, doesn’t comply with PURPA. Now, the California Public Utilities Commission is in the midst of a rulemaking to redesign its implementation.  

“Winding Creek Solar was successful in that litigation,” said Biering. 

But the court shied away from offering Winding Creek everything it wanted, namely a PURPA contract for a 1-megawatt facility planned for Lodi, California at a base rate of $89.23 per megawatt-hour (a price well above that of large-scale PPAs executed today, which generally sit at or below the mid-$20s per megawatt-hour). Now that PG&E is embroiled in bankruptcy, Winding Creek and its cohorts are taking their case to that court. 

“Anything the bankruptcy court does, they’re essentially stopping litigation that’s happening in all of these other forums,” said Biering. “It’s one of those things that makes this a very complex bankruptcy.” 

PG&E's renewable questions, and promises

Allco currently has eight PURPA projects in California, according to Melone, with others in Georgia, Indiana, Minnesota, Connecticut and Vermont. PURPA projects make up the bulk of the company's portfolio and Allco itself has developed more than 60 megawatts of solar power projects according to Wood Mackenzie Power & Renewables. But none of the projects named in the complaint have been built yet because they need a contract to move forward, according to Melone.

Qualifying facilities usually favor long-term contracts that can help them secure financing. Within the CPUC’s ongoing PURPA rulemaking, investor-owned utilities have suggested contract lengths that max out at three years while Winding Creek has called for contracts with a minimum 20-year term. A document regulators published on Tuesday shows that executed solar contracts filed with the CPUC between January 2016 and September 2019 range from 10 to 22 years.

Small solar companies are not alone in pinning the fate of their projects to PG&E’s bankruptcy case. The utility is on the line for $42 billion in power contracts, many of which are for sources of renewable energy projects. Several solar companies, including Canadian Solar-subsidiary Recurrent Energy, storage developer mNOC and Hummingbird Energy Storage, have already taken voluntary pay cuts on solar panel and solar energy storage projects in the state to provide financing certainty and smooth their development. 

Biering said the complaint from small-scale solar power producers may indicate those companies feel their allegations are unrelated to questions about PG&E’s other, existing sources of renewable energy contracts.

Despite its dire financial straits, PG&E has repeatedly pledged to honor its renewables contracts, most recently in a reorganization plan filed in September. The possibility that PG&E would dump those projects has prompted concerns about California reaching its goal of 100 percent clean solar electricity by 2045, though the utility said it remains a partner in those efforts.

“PG&E recognizes its important role in supporting the state’s clean energy initiatives and remains committed to continuing to help California achieve its bold clean energy goals,” said Paulo. “PG&E supports a low-carbon and clean energy future.” 

Several publications have categorized PG&E’s predicament as a “climate change bankruptcy.” In a world shaped by worsening climate impacts, it’s unclear how many more companies and specifically how many utilities may face similar dilemmas (the utility has also been connected to climate denial in the past).

But threats of climate change are only growing. In their complaint, the Allco companies argue that requiring PG&E to enter into the contracts is in the public interest due to the “urgent need for the world to transition its energy systems away from fossil fuels” and to act on climate.

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