Photo credit Matt Ruscio, Secure Futures LLC
Appalachian Power Company (APCo) has spent the past two years ducking its Virginia customers who want the ability to buy solar power from third-party providers. This spring it finally unveiled what it claims will be the answer to their prayers: a bizarre, convoluted “Experimental Rider R.G.P.,” available only to certain larger customers like colleges and universities.
Under this proposal, a customer can arrange to have solar panels installed and owned by a third party developer but won’t be allowed to use the electricity or take advantage of net metering, as it would if it owned the system itself. The customer will have to continue buying dirty electricity from APCo, while the solar electricity the customer is also paying for is sold onto the grid, and the customer credited for its value according to a complicated and unfriendly formula. Instead of breaking even or saving money on electricity bills by going solar, the customer will pay substantially more.
By contrast, normally a customer who installs solar uses the solar electricity “behind the meter,” reducing the use of dirty electricity from the grid and saving money, especially if it had been paying high demand charges to its utility, as many institutions do.*
The limitations and poor economics of APCo’s proposal has would-be customers and solar advocates crying foul. According to an analysis by Professor Mark “Buzz” Belleville of the Appalachian School of Law in Grundy, VA, the program is so expensive that it’s not likely to get any takers. Worse, he concludes, “The [State Corporation Commission’s] approval of the proposal would actually be counterproductive to solar deployment in Virginia.”
That’s because “APCo will be able to claim that they made a [Power Purchase Agreement] program available, and the fact no one signed up shows that there is simply not a demand for PPAs in SW Virginia. Moreover, the SCC’s approval may strengthen APCo’s argument that PPAs are not legally permissible in APCo territory unless they are entered into pursuant to its SCC-approved program, and it will lay the groundwork for utilities to argue that a customer who has a PPA is not eligible for net metering under Va. Code §56-594.”
Understanding what’s at stake here requires a short history lesson. Back in 2011, a solar developer out of Staunton, Virginia, called Secure Futures LLC installed a solar array on a rooftop at Washington & Lee University. The parties used a popular financing approach known as a third-party power purchase agreement (PPA), which can let a customer go solar with no money down by having the developer keep ownership of the solar panels and sell the electricity they produce to the customer.
Federal tax rules make PPAs especially important for tax-exempt entities like colleges that can’t use the 30% federal tax credit for renewable energy facilities. When a for-profit solar developer owns a facility, however, it can take the tax credit and pass on the savings to the customer.
PPAs appeared to be explicitly authorized under Virginia law, but when Dominion Virginia Power got wind of the arrangement at Washington & Lee it moved quickly to block it, claiming a violation of its monopoly on the sale of electricity within its territory. Dominion’s weak legal position didn’t matter; the mere threat that the utility giant would unleash its army of lawyers was enough to stop the PPA in its tracks. The university completed its solar installation using an alternative, non-PPA approach.
Dominion had won the skirmish, but at a price. The utility took such a drubbing in the court of public opinion that it eventually acceded to legislation in 2013 establishing a limited “pilot program” under which not-for-profit entities and some commercial businesses can use PPAs, at least through the end of 2015. Secure Futures has gone on to develop additional solar projects in Virginia under the legislation, including at the University of Richmond and, under a just-announced deal, at six Albermarle County schools.
APCo, however, didn’t participate in the pilot program, and it has steadfastly resisted efforts to bring it into the fold, even in the face of mounting criticism. As Belleville pointed out in a Roanoke Times op-ed in March of 2014, the failure to extend the PPA law to residents of APCo territory put southwest Virginia at an economic disadvantage, closing it off to business opportunities that are available elsewhere in the state. Yet utility lobbying successfully defeated legislation this year that would have made PPAs explicitly legal statewide.
So southwest Virginia’s state of limbo persists, with many legal experts advising that PPAs are legal there under Virginia law, but most developers and customers unwilling to expose themselves to prolonged and expensive litigation to find out for sure. This state of affairs suits APCo very well. No doubt it calculates that the worst that can happen now is that the SCC rejects its rider and prolongs the state of limbo. Then the utility’s lobbyists will tell legislators it did its best to help customers but was prevented from doing so by that darned SCC.
APCo’s actions are those of a rational monopolist facing the threat of competition; it is easier to keep a competitor out of your market than it is to improve your product. But its efforts to throw roadblocks in the way of solar also reflect the suspicion, shared by many American utilities, that distributed solar generation benefits only the customer who installs it, at the expense of the utility and other customers. They believe this justifies them in making solar more expensive, even if it means preventing projects from being developed altogether.
This is a textbook example of cutting off your nose to spite your face, given the need for a rapid build-out of distributed solar generation to fight climate change and strengthen grid security. These are not considerations that hold much sway with Virginia’s SCC, however, so let’s confine ourselves to the cost argument.
The problem for APCo is that the notion that distributed solar increases costs for other ratepayers is mere conjecture, and neither APCo nor Dominion has offered any hard data to support it. Indeed, the only evidence from Virginia points the other way, according to Secure Futures CEO Tony Smith.
Since his company’s skirmish with Dominion, Smith has worked with a municipal utility, Harrisonburg Electric Commission (HEC), to study the financial impacts to the utility of Secure Futures’ first Virginia PPA project, a 104-kilowatt array installed in 2010 at Eastern Mennonite University in Harrisonburg (outside of Dominion territory).
The case study measured only the energy and capacity-related impacts of the solar array on the utility, ignoring the wide range of other benefits often considered in “value of solar” analyses. Analyzing three years’ worth of data, Smith found that the EMU array provided an average net benefit to the utility of $22.78 per kilowatt per year. The full technical analysis is available here. In an article soon to be published in the May/June issue of Solar Today, Smith writes:
Using a net benefit model developed in consultation with HEC management, we find that in the case of the EMU solar installation, the benefits to HEC outweigh the costs . . . Our net benefit results suggest that within HEC territory, solar installed for a commercial customer with demand exceeding 1,000 kW benefits all municipal utility stakeholders, including non-participants.
Certainly it would be interesting to repeat the analysis with data from more Virginia projects, including ones in APCo’s territory. But first, those projects have to get built. Right now that isn’t happening due to the PPA limbo. If APCo’s Experimental Rider gets approved—well, the projects still won’t get built, because no one will sign up.
Flip a coin: heads APCo wins, tails customers lose.
The SCC case is No. PUE-2015-00040. An evidentiary hearing is scheduled for September 29 at the SCC offices in Richmond, Virginia.
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*Residential customers don’t pay demand charges, making this an unfamiliar concept to many people. Demand charges (KW) are fees over and above the cost of energy usage (kWh) that are assessed according to a customer’s peak power requirements, measured as the highest peak demand in a given 30-minute period during the month. For many institutions, demand charges can exceed the cost of energy usage, and using solar electricity to reduce peak demand is often a compelling reason to look at solar in the first place.
Power for the People VA 
I only learned last year that APCo is a subsidiary of the ginormous American Electric Power. So now when I see news on AEP fighting DG solar, I know what kind of lobbying and rulemaking-fighting resources APCo is drawing on.
Had to chuckle at TASC (The Alliance for Solar Choice) messaging: “AEP: Overcharging you for electricity so they can buy politicians to kill competition.”
How can we be more effective in pressuring the SCC to stop babying the energy utilities? It’s obvious both APCo and Dominion have deep pockets to fund their legal posturing pretty much forever, hoping to baffle and obfuscate long enough to wear down solar advocates and the SCC commissioners to assure rulings that are favorable to them, rulings that allow them to extract as much flesh from the public as they can. Nothing’s going to change until the commissioners start feeling some heat. And as long as I’ve been tracking this, their course doesn’t seem to have changed a bit.
I’m giving benefit to the Commission, but losing patience. Is the SCC simply corrupt and in bed with the utilities?
Doug, I don’t think the SCC is corrupt, but their top staff people are on the far right politically, and they seem to call the shots over there.
Thank you so much, Ivy, for your always informative postings!
Excellent blog! FYI, the VA PPA pilot program in Dominion territory does not sunset in 2015. The legislation charges the SCC staff with providing a report to the Legislature by end of 2015 on how the pilot program is doing.
Good point, Tony, thanks.
With the growth of distributed generation (DG) utility companies will be in need of a new business model. I wrote my Master’s thesis: A Path to a Renewable Energy System, A Financing and Regulatory Model, based upon the growth of renewables, DG was a main part of the research and analysis. Under this purview, I looked at Community-Based Energy Development (CBED), Microgrids, Vehicle to Grid (V2G) and Smart Grids. More in-depth work on this subject, specifically looking at various new business models for utility companies. With the growth of distributed generation, utilities will need to redo their business model (or models). Also changes will need to be made at the regulatory level to accommodate these changes. I believe that a market-based solution is the path forward for utilities embracing DG
Some areas covered but not limited to would be:
1) Distribution system operations coordinator
2) Provider of reliability and standby power services
3) Integrator of large-scale distributed generation (Wind & Solar Farms)
4) Cost shifting , as more customer go to DG
5) Stranded assets
6) Federal investment in utility infrastructure
7) Loans to homeowners or businesses for site DG (repaid in utility bills)
8) Leasing of DG by utility companies
A thorough study would involve a full scale economic workup and compare various forms of financial structures and incentives and contrast these to investments in future power plants. Such as, Georgia Power investment in two new nuclear power plants, with a risk analysis of these various scenarios. There have been a lot of articles written on this subject but I could not find any in- depth study of the financials. It would be necessary to show how utility companies can maintain profitability while decoupling services. For example Dominion Power (here in Virginia) currently provides all the services: generation, transmission, distribution and retail. Currently many utility companies oppose the creation of renewable power, due to the fact, their infrastructure investment and the length of time for their return on investment (ROI). If renewables are to overcome the resistance of these vested interests, a new economic and regulatory model needs to be adopted. As we move into the era of decentralization, large scale blackouts could be eliminated. As we have seen in the recent attack on the Metcalfe Power Plant in California, the vulnerability of these huge power centers.
Ed Kelly M.Sc Principal Shenandoah Energy Services Edinburg VA
After 4 years working on my thesis I have come to the conclusion that we must use the capitalist system to change our economy from carbon based to renewables. Taking on but our economic system and our energy system is a losing battle and a non started
Ivy, thanks much fro your very informative blogs
I don’t think any power company in the U.S. is against anyone purchasing, setting up, and operating their own renewable energy system. As an example why doesn’t anyone purchase and install collectors for charging their very own electric car? When you figure that out you will have your answer. Why is it no one talks about the “dirty footprint” of producing and maintaining solar panels? If renewables are such a great idea why isn’t the financial district flocking to this industry? I think our main problems exsist at the amount of energy our end users are consuming. Conservation, learning to live with less, is the bulk of our delima.
I’m glad to get the view from AEP here, so thanks for weighing in, Darrell. But, seriously? Most power companies are against their customers producing their own energy, for the simple reason that it decreases the utility’s profit. I disagree with your other statements as well and suggest you do a little research to catch up. But I do agree with your last statement that conservation is important an we should encourage energy efficiency–but customers have less control over that than policy makers who set building codes, appliance standards, etc. Some states have laws requiring utilities to invest in energy efficiency programs, with good results, but not Virginia, thanks to opposition from Dominion and APCo.
First off I am not AEP. I am an hourly employee that has a light bill like anyone else. Secondly we do make a profit and work really hard to make it. Surely you are not against companies making profits?
( Not to mention that we are regulated by the SCC) If renewables were profitable we would be into them. We have led the nation in new ways to make and transmit energy. I have been living here all my life and have seen the conservation programs come to my mail box many times from AEP. You said so yourself that Virginia has no laws to force them to do that so why were they doing it? The company is very interested in it’s customers cutting back and conserving because generation plants are a pain to build and maintain. The nation has abandoned hydro power and neuclear R&D.That only leaves carbon fuels and I think they are the best bang for the buck. What has happened to onsite fuel-cell generators. Why aren’t the M.I.T.s of this country pumping out ideas. The large grids make us vunerable to the nuts in this world. So by my needing to “read up on” renewables are you telling me that collectors and batteries are a clean industry?
Justifying the burning 0f fossil fuels because it’s “the best bang for the buck” is like saying high fructose corn syrup is a better sweetener because it’s cheaper to produce. Or that fast food is better than healthy food because it’s cheaper. Sure, they’re cheap. But both “cheap” solutions lead to terrible health problems that ultimately cost us much more than preventing the problems they cause in the first place. So this argument is simply short-sighted nonsense. We can invest in our future now or wait until the future comes crashing down to then scramble to try and fix what we’ve done.
Utility energy producers are not into renewable energy because it threatens their hundred year old centralized energy business model. Plain and simple. They want to keep that gravy train rolling as long as they can.
M.I.T is not specifically in the business of energy production. Utilities are. So why aren’t the energy utilities of this country pumping out ideas? Let me tell you why. It’s because they operate in a monopolistic bubble, and want to maintain those guaranteed high profits. The only ideas they have are how to best thwart the progress of renewable energy, while appearing to act in the public good. That’s not progressive thinking. That’s obstructionist and deceitful.
Let’s take the American Indian for example. They lived here for hundreds of years and when the Europeans showed up on their shore lines the forest were prestine and the rivers were clean. I say we all start living like they did and nature should heal it’s self in a few decades. Of course we’ll have to draw straws to see who goes back to Europe. There are just too many people here now to have the forest resume their natural state.
I am not against technological advances to producing electrical energy. I believe in 75 to a 100 years from now that large transmission grids and distribution systems will exsist in old photographs alone. I’ts simply a waste of resourses to do what we are doing now. To expect a corporation of men who are schooled to produce electrical energy the way we have since it’s inception is like expection BIG government to fix everything. I believe things are going to eventually fix themselves and when they do we will find ourselves living more like our native forefathers. No airconditioned homes at the push of a button. No trips to the minute market for a loaf of bread. No 20-30-40-60 minute commutes to our jobs. No freshly laundered clothes everyday. 3 minute not 30 minute showers. Hair blow dryers, a thing of the past. Grapes and apples from South America? I don’t think so Tim. Until our natural resourses have played themselves out we will continue to live as we do. It’s human nature. Open your eyes and read your history books.
If you really feel that the power companies are evil money hording conglomerates then by all means make a bee line to the side of your home and remove the meter and stop supporting such activity.
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