Pacific Power’s legal concerns threaten to end Oregon’s solar boom 

Oregon’s solar boom – a cornerstone of hope for renewable energy – may go bust over concerns raised by utility Pacific Power.

Solar developments have multiplied throughout the Northwest because they receive government tax breaks. But now Pacific Power questions the roles played by participants in solar energy deals.

If state utility regulators decide that the solar deals run afoul of utility law, as much as 80 percent of the commercial solar projects in the works could be in jeopardy.

“It could stop projects cold,” said Kacia Brockman, solar program manager for the Energy Trust of Oregon, which promotes renewable energy through grants and other aid.

The challenge has thrown the solar-energy community into a state of high anxiety and put intense pressure on the Oregon Public Utility Commission to rule as quickly as possible. It also has exposed the volatile nature of an emerging industry fed by a mix of tax subsidies, public sentiment, politics and market demand.

Here’s the core of the problem: Cities and counties, because they do not pay taxes, cannot enjoy the tax breaks offered by federal and state government for renewable energy development. But there’s no shortage of eager partners among private businesses that want to shave their payments to the IRS.

And that’s the match that concerns Pacific Power. It’s called the “third party” deal – where a private company generates power a city couldn’t and sells it to the city for distribution to customers.

Such tax incentives are behind the surge in solar installations. The tax breaks, along with grants from the Energy Trust, can cut payback periods for multimillion-dollar projects to five years, even less.

Third-party deals have allowed tax-exempt entities to put in solar panels – on rooftops or on the ground – and transfer the tax credits to outside parties. These deals come in a variety of forms, but under the most-used arrangement, the investor builds and owns the project, then sells the power to the public entity at a negotiated rate similar to the rate charged by the utility. Typically, the contract is good for 20 years.

The investor gets all the tax credits and the public entity gets clean energy at a predictable rate.

Utility raises concerns

Pacific Power has supported the state’s push into renewable energy. Earlier this year, it backed an expansion of utility rules that allowed commercial-scale solar projects to receive credit for any surplus energy fed into the grid.

Yet, the utility is now questioning whether projects associated with third-party deals can take advantage of the grid linkup, known as “net metering.” That’s because the law assumes the entity that owns and generates the power is also the entity using the power.

“We hate to be seen as the bad guy in all this,” said Scott Bolton, a PacifiCorp lobbyist. “We need clarity on how to treat our customers.”

Pacific Power’s questions are outlined in a petition submitted to the Public Utility Commission last month. The commission is expected to rule in one to two months.

Solar energy advocates say the uncertainty couldn’t come at a worse time. Federal tax credits will expire at year’s end, and pending projects need to be completed by then to qualify for the write-offs.

“If we don’t have a clear green light in the next 60 days, it will go from an extremely chilling effect to a freezing effect,” said Joseph Reinhart, executive director of Oregon Solar Energy Industries Association.

Portland General Electric, Oregon’s largest utility, hasn’t joined Pacific Power in its petition.

“We haven’t and don’t intend to raise the same kind of concerns,” said Steve Corson, a PGE spokesman.

Pending projects

One of the big third-party players is Honeywell Energy Services, a subsidiary of Honeywell International. It has signed up to finance solar projects for Hillsboro, Medford, Lewis & Clark College and Pendleton.

A 100-kilowatt project at Pendleton’s water-treatment plant is the only one operating at this point. But others should soon follow, said Fritz Feiten, an account executive with Honeywell Energy Services.

“We’ve elected to go full speed ahead,” said Feiten.

The company will re-evaluate its projects if regulators decide to prohibit the net-metering arrangements, a Honeywell spokesman said.

Pendleton City Manager Larry Lehman said the city plans to do two more solar projects, but needs the likes of Honeywell to make them work.

If net metering is disallowed “we’re in trouble,” he said.

Other third-party projects involve the cities of Portland, Gresham, Corvallis and Bend, Multnomah County and Mt. Hood Community College.

The Energy Trust said more than 80 percent of the commercial solar projects seeking state incentives involve third-party investors. That’s 22 projects in all.

Solar energy remains a small part of the state’s overall electric power mix. A single gas-fired power plant, for example, typically carries a capacity for 400 megawatts.

Gail Kinsey Hill

The Oregonian

12 June 2008