Major utility's about-face is big win for solar power in Iowa

One of Iowa’s major investor-owned utilities has changed a policy that was impeding new solar power projects, Karen Uhlenhuth reported for Midwest Energy News over the weekend. Follow me after the jump for background and details on this excellent news.

Background

The relatively high up-front cost of installing photovoltaic panels has long been a barrier to expanding solar power. Third-party purchasing agreements have become a popular way around that problem. The concept is simple:

A Solar Power Purchase Agreement (SPPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its roof or elsewhere on its property and purchases the system’s electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable, and sometimes lower cost electricity, while the solar services provider or another party acquires valuable financial benefits such as tax credits and income generated from the sale of electricity to the host customer.

Third-party purchasing agreements make solar power attainable for small consumers who don’t have thousands of dollars to spend on the project. They also benefit larger consumers, not only by reducing the up-front investment:

Entities without any tax liability – governments, non-profit institutions, some hospitals and schools, for example – cannot collect tax credits for renewable energy. Hence such third party power-purchase agreements are often crucial to making the finances of rooftop solar work.

In some states, this approach is uncontroversial, and the majority of new solar projects involve third-party financing. But Iowa’s investor-owned utilities fought the model. A solar project in Dubuque sparked a long legal battle:

Eagle Point Solar, based in Dubuque, installed a 175-kilowatt system on top of the Dubuque city building in 2011. Alliant Energy, the electric utility that serves the city, appealed to Dubuque’s city council, then to the state’s utility regulator, claiming that the project would violate the law. Alliant argued that Eagle Point would be functioning as a utility, and thus impinging on the utility’s legal monopoly over electrical service in Dubuque.

Alliant appealed to the Iowa Utilities Board, which found in 2012 that Eagle Point was operating as an illegal utility. The solar installer challenged that board ruling in court. A Polk County District Court determined in 2013 that a third-party purchasing agreement did not make Eagle Point a public utility or electric utility under Iowa law. Alliant appealed, and the Iowa Supreme Court settled the case last summer with a split decision in favor of Eagle Point. Bleeding Heartland covered key points from that ruling here.

Utility companies push back

Having failed to block third-party purchase agreements, Iowa’s two investor-owned utilities opened up a new front in the battle to slow down solar power’s expansion in Iowa. Alliant Energy and MidAmerican Energy “deliver approximately 72 percent of electricity in Iowa” to more than 1.1 million customers. Earlier this year, the companies informed some of those customers that net metering would not be available for solar projects financed through third parties.

The Solar Energy Industries Association explains the net metering concept as follows:

Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. For example, if a residential customer has a PV system on the home’s rooftop, it may generate more electricity than the home uses during daylight hours. If the home is net-metered, the electricity meter will run backwards to provide a credit against what electricity is consumed at night or other periods where the home’s electricity use exceeds the system’s output. Customers are only billed for their “net” energy use.

Net metering reduces the amount of time it takes for consumers to recoup the cost of installing wind turbines or solar panels. Without net metering, the economics of wind and solar power would not work for many consumers, because the “payback” period would be too long. The Iowa Utilities Board adopted rules during the 1980s making net metering available to wind and solar power users in MidAmerican’s and Alliant’s territory.

Karen Uhlenhuth reported for Midwest Energy News in June,

By prohibiting customers from banking excess power for later use, the utilities are making solar projects financially less viable and, in the opinion of some clean-energy advocates, may be violating the [Iowa Supreme] court’s judgment in the case involving Eagle Point Solar, a solar installer based in Dubuque. […]

Alliant is doing this by taking the position that under a third-party ownership structure, net metering would be “reselling” energy, which would be a violation of their rate tariffs. […]

Alliant will “gladly” purchase excess power from those projects, said spokesman Justin Foss, but at a substantially lower price than the net-metering rate, which is basically the retail price for power. […]

MidAmerican Energy takes a similar position: net metering is offered only to customers who buy all of their power direct from MidAmerican, not to people buying at least some of their energy from the owner of the solar panels on their property.

I recommend clicking through to read Uhlenhuth’s whole article, which explains how Alliant’s refusal to net meter forced Eagle Point to scale back plans for a large solar project in Asbury (a suburb of Dubuque).

The utilities’ policy derailed or downsized other planned solar projects too. Eagle Point challenged Alliant’s action at the Iowa Utilities Board, prompting several clean energy advocacy organizations to intervene supporting Eagle Point’s position. (I am an active supporter of the Environmental Law & Policy Center, lead author of the intervention, as well as the Iowa Environmental Council, which signed onto it. I am not involved in drafting legal strategy or documents for those non-profits.)

Pages 5 and 6 of the advocates’ intervention with the Iowa Utilities Board describe how leaders in the Iowa Falls Community School District considered putting solar panels on four school buildings. But after Alliant’s subsidiary in Iowa informed the developer and school district officials “that they did not offer net metering for third-party PPA financed systems,” the district “has delayed further exploration of any solar project.” In addition, Johnson County supervisors scaled back a planned solar array from 140 kilowatts to 87 kW after MidAmerican told county officials that “net metering was prohibited for Johnson County’s project,” because of a third-party financing contract.

Although the investor-owned utilities claim that their rate tariffs (set by the Iowa Utilities Board) prohibit net metering for third-party financed solar projects, the renewable energy advocates dispute that legal argument (pages 3-4 and 6 of the intervention):

The utilities are unilaterally limiting that [Iowa Supreme Court] decision through tariff interpretations that are unsupported by the plain language of the tariffs. This continues a pattern of the utilities limiting customers’ ability to finance distributed generation in multiple venues. In Eagle Point, the Iowa Supreme Court rejected the utilities’ arguments in a case that started in 2011, but the utilities are still limiting the use of third-party PPAs [power purchase agreements]. In the meantime, the federal investment tax credit is set to expire at the end of 2016. Further delay will only cause Iowa consumers to potentially lose out on an important federal benefit. [..]

The plain meaning of the utility tariffs as currently written do not provide a basis for prohibiting net metering when a distributed generation system is financed through a third- party PPA. To the extent that the utility tariffs are ambiguous on the issue of net metering for third-party PPA financed systems, the tariffs should be construed against the utility/drafter and in favor of the customer. […]

Even if the utility tariffs can be interpreted to prohibit net metering for third-party PPA financed systems, such a reading of the tariffs is inconsistent with Iowa’s net metering rule that states: “Each utility shall offer to operate in parallel through net metering … with an AEP facility, provided that the facility complies with any applicable standards established in accordance with these rules.” 199 Iowa Administrative Code 15.11(5). The Board’s language “shall offer” is a requirement for utilities to net meter and does not include an exception for financing options. When there is “a conflict between a tariff provision and the Board’s rules, the rules are generally controlling.”

Alliant’s about-face

Regardless of how the Iowa Utilities Board dealt with Eagle Point’s latest complaint, the dispute over net metering appeared likely to end up in court.

But on August 8, Uhlenhuth reported an unexpected turn of events:

After informing a few institutional customers and at least one solar installer over the past few months that it would not allow them to net meter their third-party funded projects, one of Iowa’s major power companies has reversed course. […]

In an e-mail earlier this week, an Alliant employee told a member of the Cresco [Howard County] city council that the utility will allow the city to net meter some solar arrays that it is considering on three city-owned buildings. […]

Justin Foss, a spokesman for Alliant Energy, said that the company had one policy – a no net-metering policy – when the third-party issue was strictly hypothetical. Once interconnection applications started to arrive at the company’s office this summer, Alliant looked at it differently, he said.

“The policy changed once we actually got something to review from our customers,” he said.

“Strictly hypothetical”? Not only did Alliant force Asbury to downsize its solar plans, the utility company informed the would-be developer of the Iowa Falls project way back in February, “Any party that enters into a 3rd party PPA (regardless of profit or non-profit) can offset their load but any excess kWh generation received by Alliant Energy is not credited to the customer.”

I have a different hypothesis: after realizing they were on shaky legal ground, Alliant’s leaders decided to save money on attorney’s fees by giving up this fight sooner rather than later.

I am seeking comment from MidAmerican and will update this post when I have more information on whether that investor-owned utility will follow Alliant’s lead.

I asked Johnson County Supervisor Mike Carberry whether it was too late for the county to go back to its original plans for a 140 kW solar array. Carberry has been promoting renewable energy in Iowa on behalf of various environmental organizations since long before he was elected county supervisor last year. He told me,

Johnson County did have to downsize our original solar array after not getting a net metering agreement with MidAmerican Energy. It’s too late for that particular project but we have many more solar projects we will move forward on that we would desire a net metering agreement with MidAmerican.

We hope to not have to downsize any more of these future projects.

Maybe MidAmerican Energy can see the light that their fellow Investor Owned Utility has shone upon this matter.

Uhlenhuth noted, “The policy change on the part of Alliant could have major repercussions” for Iowa entities that aren’t eligible to use tax credits for solar power. School districts and institutions of local and county government should look seriously at this path to reduce future energy costs.

UPDATE: For now, MidAmerican Energy is sticking to its position of not net metering solar projects financed through third parties. Ruth Comer provided Bleeding Heartland with this comment on behalf of the utility:

MidAmerican Energy has no plans to request any changes to our electric tariff at this time. Under our tariff, solar generation systems owned by third parties may qualify to interconnect with MidAmerican Energy at the Cogeneration and Small Power Production Facilities rate. This rate provides for the purchase of energy at a rate generally consistent with MidAmerican Energy’s cost of producing energy.

The Iowa Utilities Board has initiated a Notice of Inquiry (NOI) proceeding to consider the technical and policy issues surrounding distributed generation, including the issue of net metering. We are participating in this process and believe the information received will assist in the development of sound policies that will position the state for any additional growth of distributed generation.

Since MidAmerican’s cost of producing electricity is lower than the retail rate that applies in net metering arrangements, MidAmerican’s policy will reduce the financial viability of large solar arrays, which produce excess energy during peak daylight hours.

“Distributed generation” refers to small-scale renewable energy projects.

Speaking to Ryan Foley of the Associated Press,

Alliant spokesman Justin Foss said the company “revised our stance” after receiving the first formal applications for interconnection from customers entering into such arrangements.

“Since this is a relatively new issue, we adjusted to find the most customer-focused solution,” Foss said.

Joshua Mandelbaum, an attorney with the Environmental Law and Policy Center in Des Moines, called that explanation disingenuous, noting Alliant hadn’t received other applications because customers were told earlier in the process that net metering wouldn’t be allowed. […]

“I’m still puzzled why it took so long for Alliant to come around to this position. Nothing has changed on the ground in the last year,” he said.

Foley’s story points out that Alliant’s new stance on net metering applies only to government or school buildings that are charged “general service” rates for electricity. Cresco City Council member Amy Bouska “praised Alliant’s change but noted the utility still won’t allow net metering at buildings classified as large industrial users, such as the city’s fitness center and wastewater treatment plant.”

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