Commissioner Honorable Statement October 20, 2016 Docket Nos. EL16-43-000 and QF16-259-001 Item No. E-9

Concurring Statement on Bright Light Capital QF Waiver Request

“In today’s order, the Commission directed Bright Light to refund the time value of the revenues collected during periods of Bright Light’s noncompliance with the Commission’s QF requirements, consistent with the Commission’s long-standing policy. I support that policy because it encourages timely compliance, but write separately to express concern with how time value refunds are calculated for generation resources.

“Although I agree with the Commission’s decision today, I believe it is appropriate to revisit how we establish a refund floor for time value refunds. The Commission establishes a refund floor for time value refunds to protect entities by ensuring that they will not be forced to operate at a loss. For generation resources, the Commission determines this floor by considering only variable operation and maintenance (O&M) costs. Thus, a generation resource is responsible to make time value refunds only to the extent such refunds would not recoup the resource’s variable O&M costs. The Commission has taken a different approach in establishing refund floors for non-generation resources. In Opinion No. 540, the Commission explained the reason for the different approaches:¹

The Commission distinguished between the time value refund methodology that applies in cases involving power sales . . . in which the utility typically incurs substantial fuel and other O&M costs that vary with the amount of energy produced or transmitted, and the time value refund methodology that has been used and accepted in numerous generator interconnection and transmission line ownership cases, where the costs incurred are sunk investment in the transmission system or fixed O&M costs that do not vary depending on the amount of energy produced or transmitted . . .

“As a result, the Commission’s time value refund methodology does not distinguish between thermal and non-thermal generation resources (e.g., renewable resources), even though, as discussed below, non-thermal generation resources have levels of variable and fixed O&M costs more akin to that of interconnection customers and transmission owners.

“The levels of variable and fixed O&M costs for renewable resources, including the wind resources at issue here, are more similar to that of interconnection customers and transmission owners than thermal generation resources. For example, according to a 2013 EIA report, an onshore wind resource generally has $0.00/MWh variable O&M costs and $39.55/kW-year fixed O&M costs.² In contrast, a conventional natural gas combined-cycle generator generally has $3.60/MWh variable O&M costs (excluding fuel) and $13.17/kW-year fixed O&M costs. Adding fuel to the natural gas-fired generator’s variable O&M costs, which the Commission uses to determine a refund floor, would further increase the variable O&M figure.³

“Although not specifically at issue today, I remain sensitive to concerns that our policies with respect to generation resources might result in entities with higher fixed costs having to pay larger refunds because of the nature of their cost structure and not their conduct. Our industry has seen tremendous evolution and renewable generation resources have been reliably supplying electricity for many years. We must continually evaluate our policies to ensure they keep pace with changes in the markets we regulate. The Commission has properly considered fixed costs in the transmission context. I believe we should stand ready to apply those principles to similarly situated entities.

“Accordingly, I respectfully concur.”

¹ Opinion No. 540, 153 FERC ¶ 61,185, at P57 (2015).

² See https://www.eia.gov/forecasts/capitalcost/pdf/updated_capcost.pdf at Table 1.

³ See https://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf at Table 1b..