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Court sides with Iowa solar installer in dispute with utility

dubuque solar

Solar panels installed by Eagle Point Solar atop Dubuque’s municipal building. (Photo courtesy Eagle Point Solar)

Editor’s note: This story was updated to include a response from Alliant Energy.

An Iowa district court ruling March 29 could be a “landmark decision” for solar development in the state, in Eagle Point Solar President Barry Shear’s words, by allowing the company to sell electricity directly to the Dubuque city government to power the municipal building where the panels are located.

Previously, the Iowa Utility Board had prohibited Eagle Point from selling electricity to Dubuque from the rooftop installation. The utility board ruling came after the local utility, Alliant Energy, had complained to the Dubuque City Council in summer 2011 that the then-in-the-works project violated their exclusive right to provide electricity to the city.

The utility argued that Eagle Point would be acting as a utility and encroaching on Alliant’s monopoly territory by selling electricity from its panels to power the building. The Utility Board agreed with Alliant in a March 2012 ruling.

But the Polk County District Court found that Eagle Point would not be acting as a utility, so the company can sign what is known as a third-party power purchase agreement (PPA) with Dubuque to sell the city electricity from the panels, which are owned by an investor and managed by Eagle Point.

Experts consider the ruling crucial to the development of solar installations on the rooftops or grounds of city buildings, universities, churches, hospitals and other non-profit institutions in Iowa.

That’s because non-profit institutions can’t take advantage of the tax breaks considered key to making solar financially viable for many property owners. However, a for-profit solar developer can install panels on a non-profit institution’s property, reaping the tax benefits and recouping its costs plus a profit by selling electricity directly to the institution.

Supporters of such arrangements stress that the electricity transaction takes place “behind the meter” — the solar company is not sending electricity back to the grid or competing with the utility in selling to other customers.

“Third party PPAs are a legitimate financial structure for selling renewable energy systems to nontaxable entities to monetize the statutory incentive structures available to taxable entities,” said Shear.

“Prior to this decision in Iowa we have not had a legally and economically viable structure to permit municipalities, schools, universities and churches and other nontaxable entities to be able to economically afford renewable energy systems,” he added. “Now that this decision has come down, Eagle Point and other solar installers will be pursuing renewable energy systems for nontaxable entities with great vigor.”

A third party PPA removes the risk and high upfront costs that a non-profit institution would face if they installed the panels themselves. Typically, the non-profit entity buys solar power at an agreed upon price per kilowatt hour when the sun is shining, and they buys the rest of their electricity from the utility.

Legal precedent

The Iowa utility board could appeal to the Iowa State Supreme Court. But if there is no appeal or if the Supreme Court upholds the district court ruling, solar advocates and legal experts say the ruling will set legal precedent in Iowa.

Josh Mandelbaum, a staff attorney in the Environmental Law and Policy Center’s Des Moines office, was a lead attorney for the Solar Coalition, a group of clean energy organizations and solar companies who joined together as intervenors in the utility board case.

He noted that in her ruling, district court judge Carla T. Schemmel specified that while this was a declaratory judgment focused on one case, it has broader significance in terms of what test is used to determine whether an entity is acting as a “public utility” or not.

The ruling emphasized that since there is no state statute defining what it means to sell to the public, the utility board should have relied on a decision in a 1968 Iowa case involving the state commerce commission and a natural gas company. Based on a series of tests outlined in that case and actually drawn from a previous Arizona case involving a natural gas company, the court decided that Eagle Point would not meet the definition of either a “public utility” or an “electric utility.”

Among other things, Schemmel noted, Eagle Point would not be able or required to meet all requests for service and it would not be competing with Alliant or creating a monopoly of its own.

Schemmel also pointed out that the solar panels would not meet all of the building’s electricity needs, hence the building would still be hooked up to the grid and buying electricity from Alliant. The building’s demand for electricity from the grid would be reduced, but this would be equivalent to the demand reduction created by energy efficiency measures like weatherization, Schemmel found.

“The judge said the utility board didn’t apply the right test to determine whether a third party PPA was a public utility,” explained Mandelbaum, referring to the factors outlined in the Iowa State Commerce Commission versus Northern Natural Gas Company case cited in the ruling. “When you apply the right standard, it means the third party PPA is not a public utility. So if you have any similar set of facts with a third party PPA, you would end up with the same conclusion. This precedent is really important.”

Alliant Energy spokesman Justin Foss said the company still opposes Eagle Point’s being able to act as a third party PPA, and the company is considering the implications of the ruling and its legal options. Foss said the company doesn’t believe the ruling will have any implications beyond Eagle Point.

He also said that while the company wants to “work with our customers” to promote renewable energy, he thinks a proliferation of third party PPA arrangements would threaten the “reliability and safety” of the grid because it might reduce demand from utilities enough that less infrastructure would be built.

Wider implications

After the court ruling the California non-profit clean energy group Vote Solar declared Iowa the 23rd state to officially allow third party PPAs for solar installations.

The Database of State Incentives for Renewables & Efficiency (DSIRE) maintains a map and database of the complicated mosaic of state laws and policies — or lack thereof — regarding third party PPAs. The utility board ruling placed Iowa among just a handful of states with laws and policies that essentially outlawed third party PPAs, according to DSIRE. Others include Florida, Oklahoma, Georgia, Kentucky and North Carolina.

Other states lack a clear stand on third party PPAs, a negative condition for solar developers because of the uncertainty and the likelihood that utility boards will interpret challenges like the Iowa situation in a utility company’s favor.

Solar advocates hope that the Iowa court decision will influence the ongoing debate over legislation to support third party PPAs in other states including Florida, Washington and Minnesota, where a recently introduced omnibus energy bill would allow third party PPAs.

“This is a very important step forward,” said Nathaniel Baer, energy program director of the Iowa Environmental Council. “If you look at solar development in Iowa it’s been slow for a number of years, but it’s picking up quickly, so this is the perfect time to add a new option to the table. And it’s important when you look at regions that there is consistency (in policy) across states.”

In Wisconsin, legislators and solar advocates are also pushing for legislation that would allow third-party ownership of solar panels in a situation like Eagle Point’s; supporters say such legislation would spur development of solar panels not only at the site of non-profit institutions but also private businesses like department stores.

“I think we’re getting closer to a tipping point on this issue, especially as the solar market matures,” said Chicago-based ELPC staff attorney Brad Klein. “That’s why so many stakeholders on both sides of the issue were watching the Iowa legal proceedings so carefully. You know it’s not a garden-variety case when so many regional and national groups intervene together in an Iowa Utility Board proceeding.”

The ELPC and Iowa Environmental Council are members of RE-AMP, which also publishes Midwest Energy News.

Comments (1)

This is great news for the renewable folks in Iowa, and we bet it will help us contest the current North Carolina prohibition on 3rd party sales. Another way to allow non-profit and government entities to utilize on-site renewable generation systems is for the third party owner to lease the equipment to the non-profit; the lessor can then utilize its output. Also, a flip ownership structure is possible.

By Lisa Lee Morgan on Apr 22, 2013