Arlington Creates Legal Authority for Solar-on-Schools Power Purchase Agreements; Plans October RFP

By Will Driscoll

Clearing a legal hurdle that may affect other Virginia school systems, Arlington Public Schools has created a new type of purchasing authority so it may enter into power purchase agreements (PPAs) for solar power.

Arlington’s School Board created that authority by amending its purchasing resolution at its April 20, 2017 meeting, by unanimous vote.  The school system staff plans to issue a request for proposals (RFP) for solar power in October, and complete its first PPA project by September 2018, according to a draft timetable.

 
The Arlington School Board voted unanimously to create the authority to enter into solar power purchasing agreements, on April 20, 2017.  From left: Tannia Talento, Barbara Kanninen, Nancy Van Doren, James Lander, and Reid Goldstein.  (Photo credit: author)

Arlington officials concluded that the previous version of its purchasing resolution, which satisfied the requirements of the Virginia Public Procurement Act, did not permit procuring construction or capital projects through “alternate methods” such as power purchase agreements (PPAs).

Arlington Public Schools (APS) officials determined that such alternate methods of procurement must meet the requirements of Virginia’s Public-Private Educational Facilities and Infrastructure Act of 2002 (PPEA).

Specifically, according to the approved amendment, “Section 56-575.16 of the PPEA requires that APS may not consider any Unsolicited PPEA Proposal nor solicit PPEA Bids or Proposals for a Qualifying Project until APS has adopted and made publicly available guidelines that are sufficient to enable APS to comply with the PPEA.  These Guidelines are adopted by the [School] Board for the purpose of satisfying that requirement.”

APS purchasing office staff and legal counsel prepared the proposed amendment, modeling it on procedures outlined in the PPEA.  The new provisions, now incorporated in the APS Purchasing Resolution, call for competitive bidding on any PPA project, and require School Board approval before any PPA agreement is signed.

“This is a really big deal for us,” said school board member Barbara Kanninen.  “We are opening up the opportunity to have solar power for Arlington Public Schools.  That’s really forward thinking, it’s smart energy use and I’m fully supportive of this.”

School board member James Lander noted the opportunity “to walk the walk that we talk when we talk about being a progressive environment, a forward-thinking community.” He added that solar on schools “will allow instructional opportunities for our students.”

In public comments prior to the vote, Tim Whitehouse, executive director of Chesapeake Physicians for Social Responsibility, said that the group’s 150 members in Arlington “strongly support the effort of the Arlington School Board to enter into power purchase agreements for solar.”  He added, “We’ve seen in schools where this happens, children get interested in renewable energy and the school systems develop programs that help educate the kids.”  Will Driscoll (author of this article) of Arlington 350 noted that prices for installed commercial solar declined 20 percent in 2016, creating an opportunity for the school district to save money with solar.  Noting that the school board must approve any PPA agreement before it may be signed, and could reject any agreement they find unsatisfactory, he said “we have nothing to lose, and much to gain.”

The new provisions provide an opportunity for solar contractors to submit an unsolicited proposal to APS, along with a proposal review fee of $2,500.  Any such proposal may prompt the school district to undertake a solar project, in which case the school district would solicit competing bids, in accordance with PPEA guidelines.

The provisions call for APS to hire “qualified professionals” from outside the APS staff to review all solicited proposals.  These professionals may include an architect, professional engineer, or certified public accountant.  APS will also hold a public hearing prior to entering into any PPA agreement.

To date, Arlington has installed a 497 kilowatt solar system on Discovery Elementary School and a 90 kilowatt system on Wakefield High School, both through outright purchase during the construction phase for each school.

Direct Energy wins right to sell renewable energy in Virginia, but there’s a catch

Direct Energy may have just won a Pyrrhic victory in its bid to sell renewable energy to Virginia residents. The State Corporation Commission ruled last week that the company can market 100% renewable electricity to Virginia customers of Dominion Virginia Power and Appalachian Power, but only as long as the utilities aren’t offering it themselves. Once they do, Direct Energy can continue to serve existing customers but won’t be able to sign up new ones.

The ruling makes it harder for Direct Energy to enter the residential market in Virginia. On the other hand, Direct Energy appears to have won a round on a second issue involving sales to large (over 5 megawatts in demand) commercial and industrial customers. The SCC ruled that these customers don’t have to give five years’ notice before they can switch back to their utility from a renewable energy provider like Direct Energy, as they would have to do if they were not buying renewable energy.

This is a significant win for Direct Energy’s ability to offer renewable energy to large customers, since Dominion’s position on the five-year notice requirement could scare off customers worried about being left without a supplier if Direct Energy were to leave the market. However, that part of the SCC’s order is under review in response to a motion for reconsideration filed by Dominion on Tuesday, so I won’t address that further here.

Direct Energy is a Delaware-based company currently licensed to sell natural gas in Virginia as a competitive service provider. Last August the company filed a petition for declaratory judgment (PUE-2016-00094) asking the SCC to clarify its rights under Virginia law to sell renewable energy to customers of Dominion Virginia Power. The SCC brought in Dominion and Appalachian Power, and Southern Environmental Law Center (SELC) intervened on behalf of environmental groups Appalachian Voices and Chesapeake Climate Action Network.

Section 56-577 (A)(5) of the Virginia Code explicitly allows sellers of 100% renewable energy into the territories of the state’s monopoly utilities if those utilities themselves aren’t offering renewable energy to their customers. Currently, neither Dominion nor Appalachian Power offer a tariff for renewable energy. That means the door is wide open for anyone else to do so.

But that open door is merely a tease, as the Commission’s order just confirmed. All Dominion or APCo has to do is jump in with its own product, and the door shuts in the face of the interloper. Once the SCC approves a utility’s program, Direct Energy can continue selling to any customers it has already signed up, but it won’t be able to sign up any new customers.

It can take months or years of marketing for a third-party supplier to build up enough of a customer base to make the whole effort worthwhile, so the SCC’s ruling makes the Virginia residential market much less attractive.

Direct Energy and the environmental groups had argued that once a competitive service provider got approval to sell 100% renewable electricity in Virginia, it ought to be able to continue signing up new customers, even once the SCC had approved a competing product from the incumbent utility. As the company explained in its Petition:

It would be illogical for the Virginia General Assembly to prohibit Direct Energy or any competitive service provider from continuing to market and serve additional customers once Dominion Virginia Power begins to offer a 100% renewable energy tariff. No retail business can survive if it cannot do business with new customers. This is certainly true in the retail energy market, in which customers move on and off a system with regularity, reacting to price signals and relocating in and out of utility service territories. Consequently, it is most reasonable to interpret Virginia Code § 56-577 (A) (5) (b) to allow Direct Energy to continue to serve additional customers to the class of customers to which it is marketing at the time that the Commission approves a Dominion Virginia Power 100% renewable energy tariff.

Unfortunately for Direct Energy, the Code was written to protect Virginia utilities from competition to the greatest extent possible consistent with also making them look good. What is logical and reasonable to anyone running a business doesn’t enter into it; nor, for that matter, does the best interest of the buying public.

The SCC’s order is a win for Dominion and APCo, but a loss for customers who have waited ten years for their utilities to offer them renewable energy. Both Dominion and APCo offer what they call “green power” but are simply sales of renewable energy certificates as an add-on to regular “brown” power.* Even if the utilities now gin up a their own renewable energy product, consumers would be better off having choices.

After all, the Virginia Code doesn’t say a utility program has to be better or cheaper than the one offered by a competitive service provider like Direct Energy. Indeed, some consumers have already expressed concern Dominion might close the door on Direct Energy with a product that meets the Virginia Code’s broad definition of renewable energy but is distinctly inferior.

“My worry is that Dominion will offer a “100% renewable” program that is biomass, hydro and other things that aren’t really zero carbon, but still slide by,” says Ruth Amundsen, a solar advocate in Norfolk. “And then Direct Energy would be out.”


*Legislation passed this year will allow customers to buy electricity generated from solar facilities from their utilities. The program is styled “community solar,” but it looks like it would satisfy the statutory definition of a sale of electricity generated from 100% renewable energy. However, a provision of the bill, added at the behest of SELC, states that it will not be considered such a product.

Why, you might ask, would Dominion agree to a provision that says their solar option isn’t a tariff for 100% renewable energy, especially with the Direct Energy petition outstanding? I have an answer, but first a word of caution: you are now getting deep in the weeds. Carry tick repellant.

Recall that the fight over third party power-purchase agreements (PPAs) involves two provisions of the Virginia code, including § 56-577 (A) (5)—the one we’re talking about here. Companies that want to help customers install on-site solar facilities by using PPAs have argued that this section clearly permits customers to buy solar electricity from third party suppliers when their utility doesn’t offer a renewable energy tariff. No green tariff, no bar to a PPA.

But the utilities argue that this kind of electricity sale doesn’t meet the statutory requirement, because although a solar facility is 100% renewable, it does not serve 100% of the customer’s load. A strange reading, yes; and wrong, too, according to an SCC hearing examiner who looked at the question back when APCo put together its own renewable energy product. APCo decided to withdraw its product rather than risk the SCC confirming the hearing examiner’s reading. That action meant the utilities could keep their reading of the statute as a live threat against any company that wants to offer a PPA under terms that don’t meet the terms of the pilot program Dominion negotiated a few years ago.

Apparently, preserving that argument mattered more to Dominion than chasing off would-be competitors like Direct Energy. The gamble will have paid off if Direct Energy drops its Virginia effort in light of the SCC’s ruling last week.

 

Update, April 7. Ron Cerniglia, Director of Corporate & Regulatory Affairs for Direct Energy, provided the company’s view of the SCC’s ruling for us. His note reads:

In its ruling on Direct Energy’s Petition for Declaratory Judgment, the State Corporation Commission (SCC) agreed with Direct Energy on two of the three major points on which Direct Energy sought clarification.  The SCC did not agree that a retailer could continue to provide 100% renewable service to residential and small (<5 MW) individual customers, including new customers, after the utility (e.g., APCo or Virginia Electric and Power Company) receives approval of their own 100% renewable tariff.  However, residential customers and individualized non-residential customers who sign-up with a retailer do not immediately return to utility service when and if a utility receives approval of their 100% renewable tariff.  Instead, the customer remains with the retailer for the term of the customer agreement.  
The SCC agreed with Direct Energy that a retailer may continue to offer 100% renewable service to large customers (>5 MW) or to customers aggregating to >5 MW even if such sales are no longer permitted because the utility  is offering its own 100% renewable tariff.  The SCC also agreed with Direct Energy that if a retailer is providing 100% renewable service to a large customer that several  conditions and limitation  do not apply.  That includes the requirement of  that 5 year advance notice must be given before a retailer’s customer can return to the utility for service.  It is on this last point that Dominion has filed a Petition for Reconsideration.  This week, the SCC granted Dominion’s petition without ruling up or down on its substance. 
We do not believe that Dominion has raised any issue that the SCC has not already considered. We are very appreciative of the SSC’s actions to date and are hopeful that it will make short work of the petition, and quickly enter another Order denying Dominion the relief it is requesting.  Direct Energy is excited to open up the Virginia market to competition with a 100% renewable product. Once the uncertainty has been addressed, we believe that Virginians will have the choice to choose a renewable power supply solution.