Dive Brief:

• The Arizona Corporation Commission (ACC) on Wednesday adopted an 18-year minimum contract term length for qualifying facilities (QFs) under the Public Utility Regulatory Policies Act (PURPA), saying that the lengthened period would provide these facilities with the opportunity to build capital from investors.

• The decision comes despite requests from the Arizona Public Service Electric (APS) and other utilities to shorten PURPA contract terms to two years, which APS said would prevent customers from overpaying for something "they don't need in the first place."

• Sierra Club said the decision would give renewables developers enough time to access the necessary financing for their projects. In a written statement, APS said the decision is "disappointing."

Dive Insight:

Under PURPA, utilities have to purchase power from QFs at an avoided cost rate that's fixed by regulators. The law is currently a point of contention at the Federal Energy Regulatory Commission, which proposed a series of changes to it in September that are supported by utilities, but criticized by renewables groups.

In 2016, APS filed an application with the ACC requesting that PURPA contracts be limited to two years. The utility noted that the act — which requires it to buy energy from QFs even if that capacity is cheaper in the competitive wholesale market —​ could lead to customers paying more for their energy.

"It is one thing to pay an avoided cost forecasted over 2 years. It is an entirely different thing to pay that avoided cost forecasted over 20 years," APS said in the application.

But the amendment approved by the ACC noted that an 18-year contract term would better align with PURPA's purpose, which is to grow renewable energy development.

The commission's decision requires APS to provide QFs with a capacity of more than 100 kW with a minimum 18-year contract term, at a rate based on the utility's long-term avoided cost. The utility is also required to submit data on the timing and capacity of QFs to the commission every three years along with its integrated resource planning filing.

The ACC did not specify a contract term when it adopted PURPA in 1981, Adam Stafford, staff attorney in Arizona for Western Resource Advocates' Clean Energy Program, told Utility Dive. But after conducting a hearing following APS' application, the commission found that renewable projects require a 15-year term to get financed, he added. 

The development is a "huge step" for the state's renewables sector, according to Stafford, but developers in the state will still face challenges, especially as the Investment Tax Credits begin to ratchet down at the end of the year.

Sierra Club praised the decision in a press release, saying that a two-year contract term would be too financially risky for renewables projects even though they can be billions of dollars cheaper than coal. Long-term contracts would "give renewable energy developers a reasonable opportunity to secure financing for these projects," the organization said.

"The frustrating reality is that our utilities keep clinging to dirty, over-priced fossil fuels despite all the potential for low cost solar here in the state, but this decision makes it harder for them to keep delaying our clean energy future," Sandy Bahr, director of Sierra Club's Grand Canyon Chapter, said in the press release.

The ACC's decision ignores evidence presented during the hearings that demonstrated extending QF contracts would saddle ratepayers with additional long-term costs, APS spokeswoman Suzanne Treviño told Utility Dive in an email.

"Development costs continue to decline for renewable energy resources, and this contract length will reduce our flexibility to respond to changes in technology and energy markets," she said. "APS is committed to delivering affordable, clean and reliable power to our customers, and we are reviewing next steps."