Wednesday, February 15, 2012

Staunton Solar Firm Faced Utility Challenge

When Washington and Lee University flipped the switch on the second of its two solar arrays late last month, renewable energy advocates in the Commonwealth celebrated.

Tony Smith, president and CEO of Secure Futures LLC in Staunton

The 450-kilowatt solar installation is the largest in the state and converts sunlight into about 3 percent of the university's energy needs, the equivalent of powering 44 area homes.

The project, with more than 1,500 photovoltaic panels, is so popular that Lexington City Council unanimously passed a 20-year tax exemption on solar equipment to make the project more economically feasible. University officials consider it vital for recruiting new students and meeting sustainability goals.

It seemed like a win-win for everyone involved, including the Staunton-based firm, Secure Futures, that put together a complex deal for project, anchored by a power-purchase agreement to sell the energy to the university for the next 20 years at a fixed rate.

But as the project neared completion, Secure Futures received cease and desist letters from Dominion Virginia Power demanding the project be halted. According to the power company's interpretation of state regulatory rules, the project was illegal.

"A project like the one at Washington and Lee University cannot happen going forward," said CEO of Secure Futures Tony Smith.

"(This) is new territory. We didn't really want to stop the project, we just wanted to stop the arrangement," said Dianne Corsello, manager of customer solutions for Dominion. "That particular arrangement does not comply with the law."

Because electricity providers are regulated by the Virginia State Corporation Commission, they are given exclusive rights to supply power in their territories. There is an exception for third-party power suppliers like Secure Futures if they can provide 100 percent renewable energy, but what exactly that means is unclear.

Dominion argues that third-party suppliers must provide enough renewable energy to meet all of a customer's energy needs to meet the exemption requirements. Secure Futures' interpretation is that all the energy provided by the third party supplier must come from a renewable source, even if the customer uses other sources of energy.

"Dominion argued that the arrangement between Secure Futures and Washington and Lee did not provide for 100 percent of their energy needs," said Ken Schrad, spokesman for the State Corporation Commission.

"This case was not just about code, it's about the language of the tariffs. We never got to the point of deciding whether their interpretation of the language was correct because the petition went away," he said.

Secure Futures, facing legal costs of up to a quarter of a million dollars, decided not to challenge Dominion's interpretation through the commission.

To avoid litigation, Secure Futures and Washington and Lee instead changed the terms of their agreement from a power-purchase agreement, in which Secure Futures sells the power to the university, to a rental equipment agreement in which the university rents the equipment and generates their own power.

But this arrangement will likely dampen third-party investors' enthusiasm for renewable energy projects going forward. Without a power-purchase agreement, third parties will not qualify for federal tax incentives that make the projects financially viable, especially for nonprofit institutions like universities that don't qualify for the tax credits themselves.

Secure Futures has already had to put projects on hold, including a 2 1/2 megawatt project that will have generated more than five times the power as the Washington and Lee installation, Smith said.

"What it translates to is we won't have the benefit of private investment in renewable energy if we can't get this tax credit (through power-purchase agreements)," Smith said.

One Virginia lawmaker has introduced a bill that would allow power-purchase agreements in the state. Delegate Terry Kilgore, R- Gate City, has introduced House Bill 129, which will make Virginia the 21st state to allow power-purchase agreements.

"It's our number one legislative priority," said Ken Hutcheson of the Virginia Alternative and Renewable Energy Association, which counts Dominion among its member organizations. "It's really about helping those that want these systems to be able to finance them. Federal tax money is going to these other states (that allow power-purchase agreements) and we think using tax money collected from Virginians to finance projects here in Virginia is just good policy."

HB129 passed the House Special Subcommittee on Energy on Thursday by a unanimous vote and is expected to be debated in the House Labor and Commerce Committee next week.

"I certainly think there is a good shot that 129 will get out of full committee," Hutcheson said.

From there it would need the support of both houses and have to be signed by the Governor to become law, a prospect diminished by Dominion and others' opposition to the bill.

"We're certainly willing to talk to (third-party energy suppliers) and try to work out a solution," said Dominion spokesman Dan Genest. "We don't believe the solution is House Bill 129, however."


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