When is a Power Purchase Agreement Provider Regulated as a Utility?
By Fred Greguras (Palo Alto)
The June 30, 2010 Arizona Corporation Commission (ACC) decision to permit Solar City to sell electricity under a power purchase agreement (PPA) to government, schools and non-profit customers without being subject to regulation as a public service corporation highlights the state law issue facing PPA providers. The AAC decision does not address whether electricity may be sold by Solar City or other PPA providers to residential and for-profit (commercial) customers. That will be the subject of a separate ACC decision. Solar City’s petition to the ACC only asked for a ruling on government, schools and non-profit customers. The ACC decision ignored the recommendation by an Arizona administrative law judge that such PPA providers be defined as a regulated utility based on the statutory definition.
The PPA structure is an important financing stucture needed to accelerate the pace of deployment of solar energy. Customers of all types like the approach because they pay for electricity as used at a kWh price less than they would pay to a utility. The PPA provider incurs the capital and operating costs for the solar facility and bears the responsibility under the PPA for delivering electricity for a period of 20-25 years.
There are four basic sets of customers that PPA providers target:
- utilities;
- government, schools, and non-profit entities;
- commercial or business customers such as a grocery store and
- residential customers.
Each state's law controls whether a PPA provider may sell electricity in the state. As in Arizona, as a historical matter to protect the public, most states laws have a broad definition of what is a utility and either a public utitities commisssion (PUC) ruling or statutory change is needed in order for a PPA to be used with other than a utility customer. Some states laws may be so broad as to bring a lease arrangement within the definition of a utility. Most if not all states would permit PPAs to be used in a solar project when the purchaser under the PPA is a utility because the utility is between the PPA provider and the general public. Florida, an important solar market, only permits PPAs to be used when selling to utilities. California, Colorado, Hawaii, Nevada and New Jersey permit electricity sales under PPAs to all 4 sets of customers. The legal position of a number of states on this issue is unclear. (survey of the current status under state laws).
PPA providers targeting residential customers must also comply with both federal and state consumer protection laws such as the Song-Beverly Consumer Warranty Act in California.
The U.S. must rapidly speed up the deployment of renewable energy. This requires a portfolio of solutions including solar PPAs. State PUCs need to move into this century and authorize solar PPAs for all types of customers.
