Energy Law Alert: California Public Utilities Commission Rejects Finavera-PG&E Wave Energy Contract


11/3/2008

In an October 16 Resolution (E-4196), the California Public Utilities Commission rejected the power purchase agreement (PPA) between Pacific Gas & Electric (PG&E) and Finavera Renewables, Inc. for the output of Finavera's proposed 2 MW wave project in Humboldt County, California. The rejection was based on the Commission's determination that the project is not viable, that the developer's bid does not compare favorably with other bids submitted in the resource solicitation, and that the PPA price is not reasonable. Deliveries under the PPA were expected to be approximately 4 GWh annually, with an online date of December 1, 2012.

Although the details of the analyses behind the Commission's determinations remain confidential and not publicly available, the Resolution provided some information regarding the Commission's thinking. Regarding viability, the Commission stated that "the wave energy industry is in a nascent stage" and that the technology for the proposed project is "pre-commercial," noting the sinking of a Finavera prototype buoy midway through a test in 2007. The Commission also discussed PG&E's separate application regarding its proposed "WaveConnect" projects that are intended to accelerate the cost-effective development of wave energy in California. The Commission stated that the application in that case (A.07-07-015) "confirms that there is no industry consensus on the most optimal or most commercially viable wave energy technologies." With regard to pricing, the Commission stated that the PPA price exceeds the 2006 Market Price Referent (MPR) ($84.21/MWh) and would require above-MPR funds, and concluded that the PPA "does not, on balance, provide enough value to justify the contract price." (The MPR is a projected market price established by the Commission, above which requires special cost recovery for the utility.)

The Commission's decision is not binding on public utility commissions in other states, such as Oregon and Washington. However, the Resolution makes it clear that for PPAs between wave energy developers and California utilities, projects that are competitively priced and that use generating technology that has been successfully tested in the ocean in the United States or elsewhere will have a better chance of securing Commission approval. Taking into account the principles laid down in the resolution, commercial-scale projects that use demonstrated technology may have a pricing and reliability advantage over smaller wave demonstration projects that involve both greater technology risk and higher costs relative to installed capacity.

If you have further questions, please contact:

Cherise Oram at (206) 386-7622 or cmoram@stoel.com

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