Richard 0. Hutto 600 North 18th Street Vice President Post Office Box 2641 Regulatory Affairs Birmingham, Alabama 35291 Tel 205 257.2941 Fax 205 257 .1OBB ALABAMA A. POWER February 21 , 2017 A SOUTHERN COMPANY BY ELECTRONIC FILING Alabama Public Service Commission RSA Union Building 100 North Union Street, Suite 850 Montgomery, Alabama 36130 Attention: Mr. Walter L. Thomas, Jr. Secretary Subject: Rate CPE - Contract for Purchased Energy Dear Mr. Thomas: In accordance with Alabama Code§ 37-1-81, Alabama Power Company is filing the enclosed new rate schedule, Rate CPE - Contract for Purchased Energy ("Rate CPE"). As explained more fully below, this rate schedule and its accompanying form contracts set forth the standard terms and conditions that would be applicable to purchases by Alabama Power - consistent with the requirements of the Public Utility Regulatory Policies Act of 1978 ("PURPA") and its implementing regulations - from a Qualifying Facility havin9 a maximum net power production capacity greater than 100 kilowatts ac. Alabama Power proposes that Rate CPE be effective beginning with March 2017 billings. Background As the Alabama Public Service Commission ("Commission") is aware, PURPA is a federal law that grew from the energy crisis experienced by the country in the late 1970s.1 Among PURPA's various provisions is a directive to the Federal Energy Regulatory Commission ("FERC") to promulgate rules to encourage the development of cogeneration and small power production facilities (collectively "Qualifying Facilities"),2 including rules requiring utilities such as Alabama Power to purchase electricity from such facilities. 3 FERC enacted such rules,4 and they remain applicable today.5 Chief among these rules is the 1 See FERC v. Mississippi, 456 U.S. 742, 74546 (1982). 2 A cogeneration facility is equipment used to produce electric energy and forms of useful thermal energy (such as heat or steam), used for industrial, commercial, heating, or cooling purposes, through the sequential use of energy. A small power production facility is a generating facility of 80 MW or less whose primary energy source is renewable (hydro, wind or solar), biomass, waste, or geothermal resources. 3 See id. at 750-51; see also 16 U.S.C. § B24a-3; Report and Order of the Commission, Docket No. 18005 (March 12, 1981). 4 See Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, Order No. 69, 45 Fed. Reg.~ 12214 (Feb. 25, 1980). 5 See generally 18 C.F.R. Part 292. Alabama Public Service Commission February 21, 2017 Page 13 with Qualifying Facilities-both cogeneration and small power production-will promote the orderly and efficient implementation and administration of such agreements, consistent with Congress's original goals for PURPA, as implemented by FERC. Design of Rate CPE and the Form Contracts Rate CPE sets forth the general requirements applicable to contracts between Alabama Power and Qualifying Facilities. Among the notable general provisions is the responsibility of the Qualifying Facility for delivery and interconnection costs. In addition, the rate states that the Qualifying Facility will receive compensation based on the Company's avoided costs. In this respect, Alabama Power would note the distinct summer and non­ summer periods. These time frames are reflective of the Company's experience with loads on its system, the significance of those loads on operations, and the corresponding value that Qualifying Facility production may deliver during those times. If approved, Rate CPE contemplates that execution of a form contract with a Qualifying Facility would not require separate Commission approval. Given that PURPA obligates the Company to purchase the output delivered to it from Qualifying Facilities, the Company believes that the Commission can and should authorize the Company to use the form contracts included with the rate without having to obtain prior approval in every instance. This would reduce the administrative burden on the Commission as well as the Company.10 To ensure adherence to this requirement, Rate CPE calls for the Company to inform Commission Staff whenever an agreement is reached with a Qualifying Facility, so that Staff can confirm that the agreement is consistent with the forms provided under the rate. Lastly, as to the form contracts themselves, the Company at this time has included two options .with Rate CP.E. Tl.le .first contract ~Attachment A) AS f.or use by any Qualifying Facility that seeks to sell its total output to Alabama Power Company {less any production consumed on site for station service or similar reasons). In essence, this arrangement is for a facility, likely a photovoltaic solar facility, whose sole purpose is to generate energy to sell to a utility. As such, the arrangement is more detailed, containing the requisite provisions to ensure a seamless integration with the Company's operations. The second contract {Attachment B) is for use by any retail electric customer of Alabama Power that operates a Qualifying Facility greater than 100 kW {cogeneration or small power production facility) for the purpose of serving a portion of its retail electric needs with any excess output sold to the Company on an intermittent basis. This arrangement, which will be appended to the existing contracts for electric service with the given customer, is reflective of the ongoing service relationship that the customer will have with the Company. The form contracts that the Company is including with Rate CPE satisfy the applicable requirements of PURPA and FERC's implementing regulations. The pricing under the agreements will be based on the Company's current avoided cost data, wilh ils 10 There may be potential situations where the type of Qualifying Facility seeking to integrate with Alabama Power's electric system and make sales to the Company warrants changes to a standard form contract. For example, the Attachment A contract is generally structured as if the contracting Qualifying Facility were a solar facility (although it is readily adaptable to other technology and fuel types). The Attachment B contract likewise contemplates a customer with on-site generation intermittently having excess output that it wishes to sell to the Company. Jn any case, the Company would undertake the appropriate modifications and present it to Commission Staff so that it could make an independent determination as to whether any modification is material enough to require separate Commission approval. Alabama Public Service Commission February 21, 2017 Page 12 requirement that a utility be willing to purchase energy from Qualifying Facilities at rates based on its avoided costs.6 In the decades since PURPA's enactment, the Commission has taken a number of actions as contemplated by the legislation. Relative to this filing, the Commission in March 1981 approved Rate PAE - Purchase of Alternate Energy, the rate schedule governing purchases of energy from Qualifying Facilities with a design capacity of 100 kilowatts ac or less.7 As required by the Commission, the Company updates Rate PAE annually so that the rate paid for energy sold reflects the Company's updated avoided cost data. The Company also has from time to time amended Rate PAE and its associated special rules. Rate PAE continues to apply, however, only to Qualifying Facilities not greater than 100 kilowatts ac. For larger Qualifying Facilities (i.e., those with a design capacity greater than 100 kilowatts ac) seeking to avail themselves of rights afforded by PURPA and sell their output to the Company, Alabama Power historically has relied on individual agreements. While reflective of the applicable PURPA and FERC requirements, including pricing based on updated avoided cost data, these agreements were tailored to the particular circumstances surrounding their inception. Specifically, these agreements typically accompanied the execution of a new electric service contract with a customer of Alabama Power, and were presented to the Commission for approval contemporaneously with its review of the underlying electric service contract. Thus, the individual terms and conditions of the PURPA agreements, while generally consistent on matters related to the purchase of excess energy, contain some variance regarding the specific terms for electric service. Impetus for Rate CPE In recent years, Alabama Power has seen increasing interest by Qualifying Facilities wishing to sell output to the Company. For example, the utilization of cogeneration (also referred to as combined heat and power, or CHP) again has become an apparent economic option for certain customers whose particular operation requires the production of thermal energy and who view the deployment of cogeneration as an efficient means of serving that need. While the promotion of cogeneration long has been a policy in the State of Alabama and this Commission, 8 the continued prevalence of low natural gas prices appears to be enhancing customer interest in this area. Small power production facilities also are becoming more prevalent, particularly photovoltaic solar generation, as the cost of the underlying equipment has decreased and federal subsidies continue to facilitate development. In addition, Alabama Power recently completed the request for proposals as required by the certificate order In Docket No. 32382. 9 More than 200 responses were received, indicating a significant interest among small power production facilities