Opinion ID: 2575983
Heading Depth: 1
Heading Rank: 6

Heading: the commission's refusal to base avoided costs on wholesale market prices is supported by substantial evidence and is consistent with purpa

Text: ¶ 25 Appellants contend that if PSO is required to purchase Lawton's power at the avoided cost rates ordered by the Commission, ratepayers will be subjected to unnecessary and costly rate increases. Appellants argue that the Commission made a critical error by refusing to calculate avoided costs in accordance with the evidence PSO tendered establishing the availability of low cost electrical power for purchase in the wholesale electricity market and by opting instead to base avoided costs on the addition to PSO's system of a hypothetical generating unit. ¶ 26 PSO witnesses testified that for the foreseeable future its resource plan is to purchase any needed capacity in the market rather than to build new generating plants. PSO witnesses also testified that the utility intends to supply its energy needs with purchases whenever that option is more economical than operating its own generating units. In support of this plan, appellants offered evidence that there is a glut of energy in the market resulting in market prices that are lower than the costs PSO would incur if it were to build and operate a plant of its own. Several witnesses testified that the chance of prices rising significantly in the next five to ten years is remote because it will take that long to work off the market surplus, making PSO's planned reliance on market purchases both sensible and prudent. ¶ 27 Accordingly, PSO proposed that its avoided capacity costs should be calculated based on market prices, which would be determined through a competitive bidding process overseen by the Commission or from offers PSO had already received from market participants. PSO also proposed that its avoided energy costs be tied to market prices obtained from industry publications that provide forecasts of energy prices several years into the future. PSO advocated a contract term of no more than five years, corresponding to its prediction that market prices will remain the least cost alternative for at least that period of time. ¶ 28 The Commission's Staff witness testified that he could neither support nor refute the claim that market prices would remain low for three to five years, but testified that markets are volatile in both price and power availability. He further testified that it is inappropriate and risky for a utility to rely on purchases at projected wholesale market prices for a significant portion of its resource needs without locking in a price and ensuring availability through a contract or other binding agreement. Although the Staff witness recommended using market prices to establish avoided costs for the first three to five years of the power sales agreement, he told the Commission that relying on the market for more than six to twelve months into the future is dangerous. A PSO witness agreed that energy markets are subject to significant uncertainty and variability. ¶ 29 The Commission found PSO's reliance on market purchases for its resource plan to be an unacceptable means of providing for its future generation needs. The Commission criticized PSO for failing to offer any specific long-range strategy in the way of planned generation assets ... other than simply further reliance upon purchased power. The Commission found that the market is volatile and that PSO's reliance on market purchases is short-sighted and risky. With regard to the offers PSO received, the Commission found them to be unreliable evidence of future market prices and insufficiently detailed to be useful. [59] The Commission also rejected competitive bidding as a method for determining market prices, concluding that there are numerous unresolved problems with instituting such a process. [60] While rejecting the recommendation of its own staff witness to base avoided costs on the market for the first few years of the power sales agreement, the Commission was clearly persuaded by that witness's testimony regarding the inadequacy of PSO's resource plan and the volatility of the market. ¶ 30 We are presented here with highly conflicting evidence in a matter within the Commission's expertise. Much of the evidence consists of conflicting opinions by experts as to the volatility of the electricity market and what effect market volatility should have on the Commission's evaluation of PSO's resource plan and its view of the market's usefulness in determining avoided costs. While we might also have viewed a different outcome as supported by substantial evidence, we cannot say that the Commission's decision to reject the market as the basis for PSO's avoided costs does not rest on a substantial evidentiary basis. Qualified experts having a rational basis for their view offered evidence that supports the Commission's decision. It is not for this court to re-weigh the proof and substitute its judgment for that of the Commission as to where the weightier evidence lies. The Commission's view of the electricity market and of its own ability to oversee a market-based procedure for determining avoided costs is within the Commission's special knowledge as regulators in this field and we will not reverse its decision in the absence of a compelling reason to do so. ¶ 31 Finally, we do not agree with PSO that PURPA requires the Commission to use wholesale market prices to determine avoided costs. FERC has stated that: there is no requirement in our regulations that avoided costs be established through competitive bidding or other competitive procurement mechanisms. Our existing regulations permit avoided cost to be established administratively, so long as all alternative sources of electric energy, i.e., all resource technologies and all types of sellers (QF and non-QF), are taken into account. [61] ¶ 32 The FERC's proviso that all alternative sources should be taken into account does not mean that every alternative source proposed by one party or another must be utilized in determining avoided costs. A source may be taken into account by dismissing it as inappropriate. In other words, state regulatory authorities retain discretion to determine what sources of capacity and energy should be considered in determining avoided costs. [62]