HOW TO DO THIRD PARTY
POWER PURCHASE
AGREEMENTS IN INDIANA
Jennifer Washburn - Seminar in Public Regulation and
Deregulation - Professor Mullett - Nov. 21, 2013
Ind. Code § 8-1-2-1(a)
Definition of a Public Utility
“Public utility” means every corporation,
company, partnership, limited liability
company, individual, association of
individuals, their lessees, trustees, or receivers
appointed by a court, that may own, operate,
manage, or control any plant or equipment
within the state for the:
(1) conveyance of telegraph or telephone
messages;
(2) production, transmission, delivery, or
furnishing of heat, light, water, or power; or
(3) collection, treatment, purification, and
disposal in a sanitary manner of liquid and
solid waste, sewage, night soil, and industrial
waste.
The term does not include a municipality that
may acquire, own, or operate any of the
foregoing facilities.
Ind. Code § 8-1-2.3-2
Definition of an Electricity Supplier
“Electricity supplier” means a public utility, a
local district rural electric membership
corporation, or a municipally owned electric
utility which furnishes retail electric service to
the public.
Indiana Code § 8-1-2.3-4
Service Area Rights Act
Language of Statute (emphasis added):
Service Area Rights. (a) As long as an electricity supplier continues to provide adequate retail
service, it shall have the sole right to furnish retail electric service to each present and future
consumer within the boundaries of its assigned service area and no other electricity supplier
shall render or extend retail electric service within its assigned service area unless the electricity
supplier with the sole right consents thereto in writing and the commission approves. This
subsection does not prevent the commission from exercising its authority under IC 8-1-2-69.
(b) If an electricity supplier unlawfully renders or extends retail electric service within the
assigned service area of another electricity supplier, the electricity supplier which has the sole
right to furnish retail electric service in that assigned service area may bring an action in the
circuit or superior court of the county where such assigned service area is located to enjoin
the other electricity supplier from rendering or extending such unlawful retail electric service.
If a violation is proved, the violator shall pay to the aggrieved electricity supplier the gross
revenues derived by the violator from the sale of electric service within the assigned service
area of the aggrieved electricity supplier, all witness fees, court costs and reasonable
attorneys' fees incurred in any litigation brought to enforce this section. Payment of damages,
fees and costs does not entitle a violator to furnish retail electric service in such assigned service
area. All such actions or proceedings must be brought within three (3) years after the violation
occurs.
Legislative Intent of
Service Area Rights Act
Legislative Intent
It is declared to be in the public interest that, in order to
encourage the orderly development of coordinated
statewide electric service at retail, to eliminate or avoid
unnecessary duplication of electric utility facilities, to
prevent the waste of material and resources, and to
promote economical, efficient, and adequate electric
service to the public, the currently unincorporated areas
of Indiana shall be divided into designated geographic
areas within which an assigned electricity supplier has the
sole right to furnish retail electric service to customers.
Ind. Code Ann. § 8-1-2.3-1
U.S. Steel Corp. v. Northern Indiana Public Service Co.,
951 N.E.2d 542 (Ind. Ct. App. 2011)
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Steel producer delivered electricity to competitor following parties' swap of facilities for
competitor to use at producer's former facility located within producer's industrial complex.
Did not act as an “electricity supplier” under Service Area Assignments Act. Was neither
a local district rural electric membership corporation nor a municipally-owned electric utility,
and was not acting as a public utility with respect to provision of electricity.
Any attempt to impress public utility status upon private property not dedicated to public
use constitutes a taking thereof for public use without just compensation in violation of the
Fourteenth Amendment. Producers Transportation Co. v. Railroad Commission (1920), 251
U.S. 228, 230–231, 40 S.Ct. 131, 132, 64 L.Ed. 239. When a statute may be construed to
support its constitutionality, such construction must be adopted. Miller v. State (1983),
Ind.App., 449 N.E.2d 1119, 1121. The PSC Act passes constitutional muster in this regard
only if the omitted language is read back into the amended “public utility” definition.
Thus, the definition of “public utility” is read to include the requirement that the power be
transmitted directly or indirectly to or for the public.
BP Products North America, Inc. v. Indiana Office of Utility
Consumer Counselor, 947 N.E.2d 471 (Ind. Ct. App. 2011)
Key Facts
Oil refinery entered into private contracts to provide the excess utility services it created through its refinery process to
adjacent property owners and/or providers of services within the refinery business. This occurred within the designated
exclusive sales territory of NIPSCO.
Key Legal Considerations
BP was not a “public utility” subject to jurisdiction of IURC; because refinery served a defined, privileged, and limited
group of companies, a special class of entities that did not make up the indefinite public, it was engaged in a private
activity, not the provision of services directly or indirectly to the public. [Compare to BP acting as a “public utility”
when it sold low pressure raw service water to city, which city then treated and distributed to its customers; refinery's
contract with city provided for the provision of water to an entity that was a mere conduit serving the undifferentiated
public, at least indirectly. ]
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Accordingly, an entity listed in the statute cannot be a “public utility” unless it produces, transmits, delivers, or
furnishes heat, light, water, or power “ ‘either directly or indirectly’ to the public.” See U.S. Steel Corp. v. Northern
Ind. Pub. Serv. Co
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We noted that “[u]pon dedication of a business to a public use, it is established that such business is under a
common law duty to serve all who apply so long as facilities are available without discrimination.”
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At the very minimum, “[i]tis an essential requirement that a business or enterprise must in some way be impressed
with public interest before it may become a public utility.” Id. at 506. We further noted that whether a given
business is a public utility “depends on whether or not the service rendered by it is of a public character and of
public consequence and concern, which is a question necessarily dependent on the facts of the particular
case.” Id.
BP was not an “electricity supplier” and, thus, was not in violation of statute governing service area rights.
Recent Case from IOWA
SZ Enterprises, LLC d/b/a Eagle Point Solar v. Iowa Utilities Board
Key Facts
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Eagle Point Solar asked for a declaratory ruling (based on hypothetical facts) to declare
whether it would be designated a “public utility” and “electric utility” under Iowa law and if so,
whether it would be prohibited from constructing a solar facility to serve City of Dubuque
within utility’s exclusive service area.
City of Dubuque trying to develop RE but various impediments including technical and financial
risk, upfront costs, and inability to utilize tax credits or incentives.
City seeks to enter into a special form of long-term financing agreement with Eagle Point (aka
third-party power purchase agreement)
Eagle Point would finance, install, own, operate and maintain on-site PV located on City’s
premises to supply a PORTION of City’s electricity needs.
Iowa Utility Board prohibited Eagle Point after utility complained that they project violated
exclusive right to provide electricity to City.
But the Polk County District Court found that it would not be acting as a utility, so it can sign PPA
with City! Now in the Iowa Supreme Court.
Recent Case from IOWA
SZ Enterprises, LLC d/b/a Eagle Point Solar v. Iowa Utilities Board
Key Legal and Policy Considerations
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Factors in determining whether an entity is a public utility: (1) what the corporation
actually does, (2) a dedication to public use, (3) articles of incorporation, authorization,
and purposes; (4) dealing with the service of a commodity in which the public has been
generally held to have an interest; (5) monopolizing or intending to monopolize the
territory with a public service commodity, (6) acceptance of substantially all requests for
service, (7) service under contracts and reserving the right to discriminate is not always
controlling, and (8) actual or potential competition with other corporations whose business
is clothed with public interest.
Eagle Point would not be able or required to meet all requests for service and it would
not be competing with the utility or creating a monopoly of its own.
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 the Company. 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.
Hypothetical
University in IOU’s exclusive electric service territory would like to
install solar PV generation on its premises. However, the university
does not have enough upfront capital and cannot take advantage of
any tax breaks or incentives because it is not a for-profit entity.
University would like to contract with a for-profit renewable energy
developer called SecondSolar to install and own solar PV generation
on its site.
What options does the university have in Indiana?
Third-Party PPA Model
from Technical Report NREL/TP-6A2-46723
Third-party PPA model where a customer interested in hosting solar panels signs a PPA with a project developer who
builds, owns, and operates a solar energy system on the customer’s site, also known as the host site. The developer then
sells the electricity back to the customer via the long-term PPA. In effect, this allows the customer to have the benefits of
solar power while transferring the up-front capital costs to an entity designed to capture available tax benefits (with a
potentially lower cost of capital) and foregoing the logistics of financing, building, and maintaining the system.
Establish that the Third Party Developer
is Not a Public Utility
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Would SecondSolar be a Public Utility?
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Not directly or indirectly serving public—just the school, so merely a private activity
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Instead, would be serving a defined, privileged, and limited group—would not make up
the indefinite public.
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Persuasive Authority Consider the Eagle Point Factors in determining whether an entity is
a public utility: (1) what the corporation actually does, (2) a dedication to public use, (3)
articles of incorporation, authorization, and purposes; (4) dealing with the service of a
commodity in which the public has been generally held to have an interest; (5)
monopolizing or intending to monopolize the territory with a public service commodity, (6)
acceptance of substantially all requests for service, (7) service under contracts and
reserving the right to discriminate is not always controlling, and (8) actual or potential
competition with other corporations whose business is clothed with public interest.
Would SecondSolar be an Electric Utility?
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If not a public utility, then not an electric utility.
Would SecondSolar be violating the Service Area Rights Act?
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If it is not a public utility and thus not an electric utility, it would not be violating the Act.
Interconnection Issues
(170 IAC 4-4.3)
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Interconnection standards are the
legal rules and procedures for
plugging a RE system into the grid,
which includes technical and
contractual terms that both system
owners and utilities must follow.
Three levels of interconnection to
customer-generators.
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Level 1 for up to 10kW
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Level 2 for up to 2MW
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Level 3 for above 2MW.
Any disputes between customers and
utilities will be settled according to
the IURC's consumer-complaint rules.
Issues:
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If signed interconnection agreement not
promptly returned to customer, lag to customer
if wanting to sell SRECs/RECs. [Related net
metering rule silent as to who gets the RECs,
although some utilities allow customers to retain
these.]
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Utility’s discretion for external disconnect
switch.
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Relying on utility to install equipment such as
bi-directional meters on a timely basis.
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Possibility that utility will require installation of
updated (or unnecessary) power supply lines
and transformers even for insubstantial
amounts of DG power.
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Changing quotes—might start off as “free” to
hook up to grid, but then required several
thousand dollar charge to do so. Then, tried to
require a “Minimum Use” contract before utility
would install service.
Tariff Issues
(170 IAC 4-4.2)
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Net metering rule (170 IAC 4-4.2 et seq) is a floor, not a ceiling.
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Retail rate credit to customer’s bill with indefinite carryover into subsequent billing periods.
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Possible impediments under rule:
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If different meters, different customers, or not customer-owned and operated
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If over 1MW, then have to go to sell to the utility at PURPA’s avoided cost rate rather than credited
at retail rate
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Interconnection Issues
If a utility so chooses, it could revise its utility-specific Net Metering Tariff to provide better options for its
customers rather than the floor of the Net Metering Rule:
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Third Party Financing—allow customers to have a leasing agreement with a third party to finance the
operation and still be eligible to net meter
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Third party leasing arrangements are part of a few utilities’ FIT programs now, including NIPSCO
and IPL.
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Aggregate Net Metering—allows customer to apply net excess generation over multiple meters on
contiguous parcels of land owned by customers (e.g. school system or group of muni buildings)
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Community Net Metering—allows different customers with their own meters but contiguous properties in
a neighborhood to apply net excess generation amongst several customers
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Virtual Net Metering—allows net metering amongst non-contiguous properties of the same customers,
such as chain of restaurants or gas stations.
Possible Solution #2: If Public Utility,
Could Ask for Declination of Commission Jurisdiction.
Under Ind. Code §8-1-2.5-5, public utility can ask Commission to
decline to exercise any jurisdiction to regulate, under Ind. Code 8-1-2.
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Pro: It has been done before.
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43851 Liberty Green Renewables, 43882 Bioenergy LLC, 43068 Benton County
Wind Farm, 43678 Meadow Lake Wind Farm, 43740 Lakefield Wind Project,
44336 Lake County Solar, 44358 Headwaters Wind Farm, 44299 NextEra
Energy Bluff Point, 44304 Sunrise Energy Ventures, 44246 St. Joseph Energy
Center, 44335 Wildcat Wind Farms
Con: Not a standard offer, so would have to go project-by-project
to Commission, which requires legal fees, etc. to do this.
Possible Solution #3: Revise the Alternative
Regulatory Statutes (Ind. Code §8-1-2.5-4)
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Indiana Industrial Energy
Consumers, Inc., Position Paper
which was provided to State
legislators points out the onesidedness of AUR.
Energy utility may propose a
form of alternative regulation
that deviates from traditional
utility law, but no other party
can. And if the IURC modifies
the plan, the utility can withdraw
the proposal.
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INDIEC suggesting:
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AUR Act should be amended to
permit parties other than energy
utilities (i.e. consumers) to
propose alternative regulatory
plans for approval by the
Commission
Amending the AUR Act to permit
other interested parties to
propose alternative regulatory
plans, without providing the utility
with veto power over any
resulting Commission order, would
restore balance to the statutory
mechanism and would permit the
Commission to consider
alternative proposals, such as a
pilot program for electric choice.
THANK YOU!