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Microsoft Gains Direct Access to Renewable Energy in Washington

April 17, 2017 posted by Eric Christensen

Settlement Opens the Door to Wider Direct Access
For Larger Customers of Washington’s Investor-Owned Utilities

On April 11, Microsoft and Puget Sound Energy (“PSE”) filed a settlement with the Washington Utilities & Transportation Commission (“UTC”) resolving their ongoing dispute over Microsoft’s ability to obtain direct access to carbon-free energy from the wholesale market.  The dispute is an outgrowth of Microsoft’s sustainability policy, which includes aggressive goals for acquisition of renewable energy.  To meet these goals, Microsoft determined that it could not be tied to PSE’s energy portfolio, which still includes a substantial percentage of energy from carbon-intensive resources, and therefore needed to obtain renewable energy directly for its own use.  The settlement includes provision for a new UTC proceeding to determine whether other large utility customers should be granted direct access.  Hence, the settlement may represent the leading edge of major shake-up in Washington’s utility world.

Microsoft’s efforts to obtain energy from resources with a better sustainability profile than those typically available from traditional utilities is representative of broader efforts across corporate America to improve the sustainability of corporate practices.  These efforts include a coordinated national effort to obtain broader access to renewable energy resources using a variety of contract and regulatory models.  Hence, there is little doubt that PSE and other traditional utilities will continue to face pressure for direct access to renewable resources from an array of large customers. 

Under the settlement, that pressure will now be felt in a new rulemaking proceeding to be launched by the UTC staff.  According to the settlement, the rulemaking will address “retail wheeling for industrial and certain commercial customers” of Washington’s investor-owned utilities, and staff will request that the rulemaking be completed by June 29, 2018.  The settlement also provides some indication of what an open access rule may look like, or at least the issues that such a rule is likely to address.  These include:

  • Transition Fee:  The settlement provides that Microsoft will pay a $23,685,000 transition fee, which is intended to hold PSE’s other customers harmless from Microsoft’s decision to remove itself from the ranks of PSE’s retail power customers.  Those costs consist largely of the investments incurred by PSE to purchase a portfolio of power resources sufficient to serve its retail customer base, which are “stranded” by Microsoft’s decision to reject ordinary retail service from PSE.  The transition fee was a major point of contention in the UTC proceedings leading up to the settlement, with Microsoft claiming that its decision to leave PSE retail service would actually provide benefits to PSE of $15 to $35 million.  Under the settlement, Microsoft will pay the full transition fee demanded by PSE. 

  • Access Mechanism:  Under the settlement, Microsoft will operate under a “special contract” allowing it to acquire its own renewable resources.  Microsoft will acquire 25% of its needs from 2018 through 2020.  After that, the percentage will jump to 40 percent for the remainder of the contract’s term, which will run through 2035, with optional five-year add-ons.  The special contract replaces the direct access tariff initially proposed to the UTC.

  • Distribution Wheeling:  Microsoft will be responsible for moving power from its generation resources across the regional transmission system using access rights under FERC-mandated Open Access Transmission Tariffs, and will pay PSE to move power from wholesale delivery points on PSE’s system across the PSE distribution system. 

  • Conservation Funding:  Microsoft will continue to make full payments under Schedule 120, PSE’s electric conservation service rider, which provides for surcharges that PSE customers pay to fund energy conservation programs.

  • Low-Income Support and Weatherization:  Microsoft will also continue to make full payments for PSE’s Home Energy Lifeline Program, which provides assistance to low-income customers for paying energy bills, and Microsoft will also make a one-time payment to PSE’s Low-Income Weatherization program.

  • Colstrip:  The settlement does not resolve whatever liability Microsoft may have arising from closure of the aging Colstrip Generating Station in Montana.  PSE has already agreed to shutter Colstrip Units 1 & 2 by 2022 and the remaining units face significant economic pressure.  PSE also faces tens of millions of dollars in costs to decommission and remediate the plant site once the plants are closed, and there may be significant exposure related to accelerated depreciation if the plants are closed early. 

The Microsoft settlement represents a crack in the wall of the vertically-integrated utility system in Washington.  The crack is likely to grow wider as large customers continue to exert pressure for greater access to renewable energy and the UTC examines direct access issues over the coming year.