Oklahoma AG opinion on third party PPAs and leases

Posted by Laura Arnold  /   August 13, 2018  /   Posted in Uncategorized  /   No Comments

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Oklahoma attorney general opinion energizes solar enthusiasts

by JACK MONEY, Published: Sun, August 12, 2018 5:00 AM

A crew installs solar panels on the roof of Mayflower Congregational Church UCC in Oklahoma City in 2016. State officials are working on issues that could expand the technology's use within Oklahoma. [hoto by Chris Landsberger, The Oklahoman Archives]
A crew installs solar panels on the roof of Mayflower Congregational Church UCC in Oklahoma City in 2016. State officials are working on issues that could expand the technology's use within Oklahoma. [hoto by Chris Landsberger, The Oklahoman Archives]

Sustainable energy enthusiasts are energized by an Oklahoma attorney general's opinion that sheds additional light on regulatory issues involving rooftop solar systems installed on homes and businesses in the state.

They believe Oklahomans finally could have an opportunity to join other people across the nation who are able to economically obtain the systems using power purchase agreements that include lease-to-own terms.

They and Mike Teague, Oklahoma's Secretary of Energy and Environment, note such deals are extremely popular on the nation's West Coast and in parts of the Northeast, where retail electricity rates offered by utilities are quite high.

But because the questions the opinion addresses are quite technical in nature, it might be a while before similar agreements are offered here.

Nevertheless, local solar enthusiasts are juiced.

"It has been viewed forever and ever that you couldn't offer (those types of agreements) in Oklahoma," said Tyson R. Taussig, president of the Oklahoma Renewable Energy Council.

"I view it as casting a glimmer of sunlight on this issue," Taussig said. "If the opinion gets backed up, it will be a huge development because it will allow motivated, creditworthy individuals in our state to buy their own rooftop solar systems at a really reasonable price. It would open up a whole new market."

In other states

Questions addressed by the attorney general's opinion specifically dealt with the legality of third-party ownership of power production.

That's because in most other states where rooftop solar has thrived, electricity and its retail costs effectively have served as the metric owners of homes and businesses evaluate before choosing whether or not to invest in the technology.

"The electricity cost is the currency of the agreement," Teague explained.

Typically, agreements elsewhere between property owners and solar companies are power purchase agreements that include lease-to-own arrangements with long-enough terms to keep monthly payments lower than what the property owner had been paying to buy their grid-delivered power.

As part of the deal, the solar installer becomes the property owner's power provider. The solar installer also typically is paid by the utility for any excess power the system generates that is put back on to the grid, usually at the retail rate other customers pay for the energy.

Taussig said the property owner, meanwhile, gets power from the rooftop system he is buying at a savings.

"So you end up being net cash positive," Taussig said.

Jim Roth, an attorney who is the dean of Oklahoma City University's School of Law and a former member of the Oklahoma Corporation Commission, agrees that the business model thrives in other parts of the nation.

About 72 percent of the rooftop solar panels installed across America last year involved third-party power purchase agreements with lease-to-own terms, he noted.

"And you have got these developers now who are providing warranties that last the life of the lease, so they really have removed a lot of the homeowner's risk."

In Oklahoma

Here in the Sooner State, the business hasn't yet truly emerged from the shadows.

 Clark Wheeler, the general counsel of Francis Renewable Energy, a firm that sells and installs rooftop solar systems in Oklahoma and Texas, said the opinion helps.

At issue is existing state law and other rules and regulations.

First, power providers in Oklahoma that are regulated either by the Corporation Commission or Legislature have statute-certified monopolistic service territories.

Would power purchase agreements with lease-to-own provisions violate that law?

Second, would the solar installers have to be regulated as a utility?

The opinion states such agreements couldn't be executed in electric cooperatives' service territories, but would be permissible within incorporated areas of the state.

It also states that solar companies wouldn't have to be regulated by the Corporation Commission as a third-party power provider.

The opinion does not, however, address Oklahoma's existing rules that involve excess power generated by renewable sources such as a rooftop solar system that gets put back into the power grid.

Currently, a property owner who uses rooftop solar in Oklahoma gets compensated for that additional power, but only up to a point to where his costs for a given billing period are zeroed out.

The property owner isn't compensated for extra power beyond that amount that's fed back into the grid, and he can't carry a credit for that extra generated power from one billing period to the next.

As for market costs for such systems, Wheeler said rooftop solar systems start at under $10,000 for people who buy their systems outright.

Under power purchase agreements involving lease-to-own arrangements executed elsewhere, a typical homeowner enters into agreements covering 20 to 25 years that enables the person to replace their utility payments with lower loan/lease payments as a hedge against future increases in retail rates for electricity.At the end of that period, the system belongs to the homeowner.

"Ambiguity has been something that has held back the solar business in Oklahoma, because a lot of customers don't have the cash up front to buy a solar electric system for their home or office building," Wheeler said.

Still, "it is an advisory opinion that provides a pretty clear cut legal analysis," he continued.

"In any incorporated area, it states it is legal to engage in that business and not contravene the utilities' territories, and it states solar leasing companies can't be regulated as a utility. It significantly frees up that line of business," he said.

More work needed

Under Teague's leadership, a task force involving regulated power providers, solar installers and other interested parties has been evaluating these issues, and more.

Teague said the group seeks to implement the technology and its potential benefits in the right way, noting that other states that have allowed it have been grappling with resulting problems involving utilities and homeowners.

Utilities, he said, have lost money elsewhere because of reduced sales and increased costs (having to buy excess power at retail rates), while homeowners in some states have seen their agreements shattered by changed regulatory rules.

He and others noted any Oklahoman who desires a rooftop solar system using a power purchase agreement with a lease-to-own provision might have difficulty finding such a deal.

In part, he said that's because solar companies wouldn't see the attractiveness in deals where they couldn't get paid for the excess power generated by the systems they sold.

Also, "the thing that holds it back more than anything is, our electricity is really, really cheap," Teague said. "That means it would take you a long time to pay your system off."

Beyond that, consumer protection issues need addressed. Should building codes and insurance requirements be updated, or should solar installers be required to be certified?

And, what should the state do to help train firefighters and other emergency officials on how to deal with rooftop solar installations when they respond to locations where it is used?

"Our goal is to find the right ways to do this," Teague said, adding that the task force deliberately includes all interested parties in an attempt to avoid future legal entanglements or other issues. He said he expects its work to continue for years.

"This is how you get progress without turning it into a fight, and I think that is what we need," he said.

 Download a copy of the Oklahoma AG Opinion HERE:

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