INTERVIEW: Nevada PUC explains approval of NV Energy's fifth amended IRP

Looking further into the fifth amendment approval for NV Energy’s Integrated Resource Plan (IRP), the Public Utilities Commission of Nevada (PUCN) explained some of the PPA decisions and other requirements on projects moving forward.

Peter Kostes, spokesperson for the PUCN, told NPM that the decision for NV Energy to base Sierra Solar paired project’s metrics on its Boulder Solar III’s (BS3) PPA came from staff recommendations and because the utility failed to adequately defend its own cost overrun calculations.

Kostes pointed to the approved fifth amendment order, filed March 1, starting out with issues that the PUCN took over the proposed self-build, Sierra Solar.

The project is the most expensive ever proposed to be built or owned by NV Energy. Even with the project’s price tag of USD 1.536bn, actual costs remain unknown. Roughly USD 734m is planned for the PV portion and USD 731m for the battery energy storage system (BESS) portion but excludes O&M costs.

“NV Energy could not and would not provide any final cost estimate for the project and when asked at hearing if there was any upper limit of cost that NV Energy could agree to not overrun, (they) would not commit to any upper limit number,” Kostes pointed out in the filing.

Though NV Energy acknowledged that the project is costly and may not be cheaper than a PPA-style project, it told the PUCN that “if you’re looking at purely price and price is your number one concern, don’t approve a company-owned asset.”

The utility argued other factors that would benefit ratepayers that it wanted the PUCN to consider when looking at Sierra Solar, including reliability and sustainability. However, the filing stated there was a “limited explanation and no quantification of those benefits” in the docket.

While the PUCN acknowledged that these are potential benefits, the utility did not quantify them or provide evidence for how they weigh or offset project costs. The utility also failed to explain why a company-owned PPA-style resource would not provide the same operational control benefits as the rate-base proposal or why the terms of the PPA with a third party could not include provisions that enable equivalent operational flexibility to a rate-base project.

PUCN staff pointed to the Greenlink project as a recent example of approving a rate-based project at an estimated cost, understanding that the costs would affect rates, and then watching the project price tag increase past the estimate to “potentially be recovered by captive ratepayers.” That project is overbudget, in excess of USD 400m.

Kostes pointed to the docket that showed that the PUCN agreed with this and that the Sierra Solar project “will face cost overruns” and that it is unknown if the Sierra Solar project costs will absorb these unexpected costs during development.

Rather, the PUCN noted several renewable resource projects such as Southern Bighorn Solar, Chuckwalla Solar, and BS3 which are currently facing delays, shortfalls, or cancelations due to various market conditions surrounding the PV and BESS markets.

An example of this using in the filing were Primergy’s Iron Point and Hot Pot PV and BESS projects that were scheduled to be in operation December 2023 and 2024 but failed to achieve development milestones that affected the ability to meet contractual cost and operational commitments.

NPM reached out to Primergy for comment, and an update on the projects, but did not hear back.

So far, NV Energy has completed Sierra Solar’s land purchase, LGIA, and master supply agreement with solar panel modular supplier to mitigate delays and cost overruns but the PUCN said that these steps may not prevent these sorts of issues.

Additionally, the PUCN found that NV Energy’s self-development projects that are rate-based like Sierra Solar shift all risk of cost overruns, underperformance, and delays from a third-party developer to ratepayers. There is no mechanism like canceling a contract or reconsidering whether the pricing is reasonable.

While the PUCN accepted and approved staff recommendations for limiting a prudency determination to the estimated costs supporting Sierra Solar, it noted that NV Energy “could have structured the cost recovery of the project with PPA pricing but chose not to do so.”

Kostes also pointed to the filing where the PUCN expressed concern with the model proposed and found staff recommend cost protects afford ratepayers the same cost certainty and protections when NV Energy signs a renewable PPA or when the utility develops an NRS 704.752 facility. The PUCN said it will still review the project costs in the appropriate general rate case.

Conditions and Limits

The PCUN approved the project but established conditions and limits on the planned costs:

· The cost to construct Sierra Solar is capped at USD 1.53bn and the O&M amount is capped at the amount included in calculations of the LCOE and PWRR

· NV Energy will credit ratepayers with daily damages if the PV or BESS are not online as scheduled and will credit ratepayers with liquidated damages if the storage availability is not maintained or if there are energy shortfalls.

· The approval did not include any decommissioning remediation.

These conditions pulled from the PS3 PPA. The first condition of cost protection, capping capital and O&M costs came from that PPA which stated that the cost per MWh and per MW-month were fixed prices and did not contain a clause that they may be adjusted upward to account for any cost overruns or unexpected maintenance incurred in development or operation.

These cost caps include an approximate 9% to 15% contingency built in for cost overruns.

“The PUCN disagreed with NV Energy assertions that 20% or 24% is an appropriate band for cost cap for potential cost overruns,” the filing read.

The second cost protection also comes from the PS3 PPA where daily delay damages will be credited to ratepayers if the PV or BESS are not online as scheduled. For each day that BS3 is not commercially operational past its contracted COD, NV Energy and its ratepayers are afforded daily delay damages.

Finally, the PUCN also issued a compliance requiring NV Energy to calculate storage availability for liquidated damages and renewable energy and PEC shortfall replacement costs for the project in according to BS3’s PPA. This is expected to be used as a template for Sierra Solar.

The BS3 PPA was approved in December 2020 in a separate docket.

Meanwhile, when asked about the 704.6546 waiver, Kostes said that this was requested by NV Energy for the use of separate-entity method by utility members to pass through customers with full benefit of the ITC for Sierra Solar. The project is eligible for tax credits under the IRA, which provides 30% ITC for BESS projects.

PUCN staff said that the waiver would allow the full benefit of the ITC for the project and lower cost to ratepayers for the BESS by creating a regulatory liability account offsetting the rate base impact of the project.

However, the PUCN did not approve the waiver for a Valmy BESS project.

*This story was originally published exclusively for NPM subscribers last month.

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