Solar project at W&L hits regulatory hurdle
- March 28, 2012
The forecast for solar power-purchase agreements in Virginia calls for cloudy skies with a chance of dampened investor enthusiasm.
Staunton-based Secure Futures signed an agreement with Washington and Lee University in August to install a solar-power system on the Lexington campus capable of producing nearly 450 kilowatts of electricity. School officials pursued the project as part of W&L’s growing emphasis on sustainability and because of its unique financial structure, which allows the university to purchase electricity generated from the panels from Secure Futures at a fixed rate over 20 years.
In late September, however, Secure Futures received the first of two cease-and-desist notices from the state’s largest power company, Richmond-based Dominion Virginia Power, claiming the financial arrangement was illegal. “They were selling kilowatt hours of electricity to W&L,” says Dianne Corsello, Dominion’s manager of customer solutions and new technologies. “They were acting like a utility, but they were not being regulated like a utility. That’s against the law in Virginia.”
In exchange for being regulated by the commonwealth, Dominion has exclusive rights to supply power in its territories. “We have spent a great deal of money on infrastructure in these areas,” Corsello says. “Our customers pay for that. If another provider were to come in and divide things up, it would spread those costs over fewer customers. It’s a matter of fairness.”
Secure Futures, however, points to a provision of the Virginia Code that allows suppliers of “100 percent renewable electricity” to sell that electricity to customers within the service area of an incumbent utility. “Our intention and understanding was that we were operating perfectly legally and within our rights,” says Secure Futures CEO Tony Smith.
The company took its case to the State Corporation Commission, where Dominion’s legal team argued that third-party suppliers of renewable energy must meet all of a customer’s energy needs in order to qualify for the exemption. The W&L installation, despite being the largest solar project of its kind thus far in Virginia, accounts for only about 3 percent of the university’s needs.
Facing mounting legal costs, Secure Futures withdrew its request for a declaratory judgment action in January. “We had a narrow window in which to complete the project,” Smith says. Not wanting to create a financial burden for W&L, Secure Futures reworked the agreement to lease the equipment to the university and allow the school to generate its own solar power.
“We took a haircut on this,” Smith said. “The lease arrangement did not enable us to take advantage of accelerated depreciation. So we’re left with a project that is far more costly than we had initially anticipated.”
In addition, the arrangement likely will dampen third-party investors’ enthusiasm for renewable energy projects in Virginia, he says. Without a power-purchase agreement, third parties, especially the public and nonprofit institutions on which Secure Futures’ business model is based, will not qualify for federal tax incentives that make such projects financially viable, he says.
Del. Terry Kilgore, R-Gate City, introduced legislation in the General Assembly this year that would have allowed power-purchase agreements in the commonwealth. The bill, which had the backing of the Virginia Alternative and Renewable Energy Association, passed the House but was tabled in the Senate Commerce & Labor Committee.