Virginia hearing examiner says renewable energy PPAs are legal, but will the ruling stick?

A third-party PPA made it possible to build this solar facility at the University of Richmond. Appalachian Power Company contends that a project like this would be illegal in its territory.

A third-party PPA made it possible to build this solar facility at the University of Richmond. Appalachian Power Company contends that a project like this would be illegal in its territory.

A hearing examiner for the Virginia State Corporation Commission recommended on August 31 that the SCC reject Appalachian Power Company’s proposed alternative to third-party power purchase agreements (PPAs) for renewable energy, concluding the program is not in the public interest. The parties will have three weeks to comment before the recommendation goes to the Commissioners for a final decision. The case is PUE-2015-00040.

The ruling against APCo’s proposed Rider RGP is less important to customers than the reasoning behind it. In addition to finding a myriad of faults with the proposal, the Hearing Examiner concluded it isn’t needed because PPAs are already legal under the Virginia Code. This is an outcome long sought by the solar industry and environmental groups, and one supported by the Attorney General’s Office of Consumer Counsel.

However, the Hearing Examiner’s report is merely a recommendation. Nothing is final until the Commissioners rule, and they could make a decision about Rider RGP without addressing the current legality of PPAs. Moreover, earlier this year, APCo proposed another program that it clearly hopes will nip in the bud any surge of PPA activity that might result from a decision in the present case. (I’ll get to that in a moment.)

The rejection of Rider RGP won’t disappoint any would-be customers. A long line of witnesses testified at the hearing on September 29, 2015 that APCo’s expensive and convoluted program would find no takers. As the Solar Research Institute summarized it, the proposed Rider RGP “would require a customer interested in a solar PPA to first pay for 100% of their service under the standard tariff, pay for 100% of the solar energy generated, pay a $30 program fee, and receive excess payments back through a Renewable Output Credit.” Oh, and they still wouldn’t be using renewable energy. (Note that although solar energy was the focus of the discussion for participants, the decision applies to other forms of renewable energy as well.)

The SCC staff made some suggestions to improve the program, but the hearing examiner, Deborah Ellenberg, concluded it was really beyond saving. Not only that, but the plain language of the Virginia Code makes third-party PPAs legal in the state already. Thus, there is no need for a utility-sponsored alternative.

Ellenberg pointed to two statutory provisions that support the legality of third-party PPAs. First, Virginia Code §56-577 A 5 provides that customers may purchase renewable energy from third-party sellers if their own utility does not offer a tariff for renewable energy. Specifically, customers may:

[P]urchase electric energy provided 100 percent from renewable energy from any supplier of electric energy licensed to sell retail electric energy within the Commonwealth . . . if the incumbent electric utility serving the exclusive service territory does not offer an approved tariff for electric energy provided 100 percent from renewable energy. . . .

Until now, APCo has offered only a green power program that sells RECs, which the SCC says doesn’t count.

The language of §56-577 sounds clear enough, but APCo and Dominion Power have maintained that this section only allows customers to go elsewhere if the other supplier can provide 100% of their electricity from renewable energy, something that can’t be done with a solar facility or a wind turbine.

This flimsy reading of the statute was the basis on which Dominion challenged a PPA at Washington and Lee University back in 2011. The issue was temporarily resolved two years later when Dominion and the solar industry agreed to a pilot program that now allows a limited number of PPAs in Dominion territory, under tight parameters that exclude residential customers. The program never applied in APCo territory, however—a sore point to customers there. APCo has clung to its reading of §56-577, regardless of the growing clamor for renewable energy in southwestern Virginia.

Ellenberg’s report flatly rejects the utility interpretation. If the SCC adopts her reading, any customer in APCo territory would be free to buy renewable energy from third-party suppliers, until APCo offers a qualifying program.

Ellenberg also cited Virginia’s net metering statute. Virginia Code §56-594 authorizes “customer generators” to enter into behind-the-meter PPAs with third parties that own and operate a renewable facility for the customer. Code §56-594 B defines an eligible customer generator for net metering purposes as “a customer that owns and operates, or contracts with other persons to own or operate, or both, an electrical generating facility that . . . uses as its total source of fuel renewable energy . . .” (emphasis added).

Interpreting this provision takes no special legal talent, surely. It would seem to cover residential and commercial facilities installed and owned by third-party developers, including the familiar no-money-down contract offered to residential customers by Solar City. But again, APCo and Dominion Virginia Power claim the Code doesn’t mean what it says. For more than five years they’ve backed up their position with threats of lawsuits, creating the kind of uncertainty that is toxic to development deals.

If the SCC’s final order endorses the hearing examiner’s finding that PPAs are currently legal, the result could be to open up the Virginia solar (and wind) market to large amounts of private investment statewide.

However, Ellenberg’s finding that PPAs are currently legal appears in her discussion but not in her recommendations to the commissioners; her recommendations are limited to the actions she proposes (rejecting or modifying the tariff). The SCC does not have to rule on the question of PPA legality in order to decide this case. Surely, though, it would be strange if it were to duck the opportunity now that the issue has been fully briefed. With solar a hot commodity across the state, the current legal limbo has become a significant economic drag that the SCC ought not to ignore.

As I mentioned, though, APCo still has one card up its sleeve. This spring it proposed a new tariff to offer its customers 100% renewable energy derived from existing wind, solar and hydro projects. The product appears to meet the condition of §56-577. If approved, it would slam shut the door that the Hearing Examiner just opened (or rather, that she said was open all along, if you had dared to go through it into the toxic miasma where gray-suited lawyers lay in wait). APCo’s request for approval of the tariff (PUE-2016-00051) is scheduled to be heard by the SCC on November 15, with comments due by November 8.

Solar advocates take a dim view of APCo’s move. The new tariff won’t build any new facilities; it simply shifts the burden of paying for existing renewable energy projects onto volunteers, at a significant premium. In today’s market, third-party developers can offer electricity generated by new solar projects at competitive prices. So APCo’s tariff looks less like an accommodation to its eco-conscious customers, and more like a maneuver to prevent anyone from building solar on its turf.

It’s high time the SCC put a stop to this anti-competitive behavior and let Virginians build solar projects with their own money. The Commissioners can follow the Hearing Examiner’s advice, or they can take a pragmatic approach and recognize that PPAs are really just a way to finance projects. They don’t turn solar developers into utilities, and APCo should stop wasting everyone’s time and money blocking private investment in a part of the Commonwealth that desperately needs it.

13 thoughts on “Virginia hearing examiner says renewable energy PPAs are legal, but will the ruling stick?

  1. You rock Ivy.

    Buzz

    Mark (Buzz) Belleville

    Appalachian School of Law

    Associate Professor of Law

    Director, Natural Resources Law Center

    540-449-1139

  2. The Hearing Examiner’s interpretation that PPAs are legal statewide is great progress. If this is upheld by the SCC, solar advocates and companies could then:

    a) test the solar PPA market under VA conditions – i.e., w/o SRECs or the like (most of you know I don’t think it–or any TPO–will be the savior it is touted to be), and
    b) save scarce advocacy resources for this perennial ask!!

    But to discuss policy needs re: PPAs and leases, residential and non-residential, we need clarity and accuracy in our discussion of terms and vocabulary.

    We need to determine – Does the PPA code in Virginia, and these related rulings, apply to residential solar leases? There is some nuance to this question, so bear with me –

    We need to remember that leases are much more typically used for residential solar than are PPAs. This is for several reasons, including, lease contracts are more standardized, reducing overhead (esp. legal); and lease agreements are much clearer and simpler for residential customers than the custom PPAs necessary for non-res.

    I’ve previously asked if MDV-SEIA’s policy pursuits re PPAs were also necessary for, and/or would apply to, the solar industry lease structure common nationwide.

    Francis seemed to believe the policy needs for PPAs were also necessary for these “Solar-City type” leases*.

    (We should remember that true-lease of equipment for solar projects is indeed already provided for in law in Virginia. For example, this outfit works primarily with LLC structures without tax appetite otherwise. Clean View Capital)

    So it seems that a residential solar lease company, whose interests are affected, needs to do the legal work to determine if further policy needs in VA are necessary to provide for standard residential solar leases.

    If not – if the typical residential solar lease model is already legal here in Virginia – we need to ask ourselves tough questions on why the companies who know what they’re doing haven’t gone in to this market.

    And then redirect our energies towards other ways of promoting solar for Virginians who want it.

    * I’m unclear on some of the distinctions – there are ‘capital’ leases and ‘operating’ leases; the ‘operating’ lease requires transfer at Fair Market Value at end of term; the ‘capital’ allows discounted terms incl. $1 transfer, but capital leases charge more per month.

    I welcome comment!

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  5. Okay Dominion currently has a pilot program for PPAs when I was looking into it> It has 50 MW available with less than 1 MW being utilized. So I don’t think this is currently an issue.
    But I do think that the silent threat of a utility coming after an investor is more the problem (i.e. Washington & Lee)> The utility’s legal fees go into their cost of doing business, which sets their rate base, as a regulated monopoly there is a guarnateed rate of return, not so for the developer of the PPA

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