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Sending Up a Flare, Washington UTC Provides Guidance on Jurisdiction for Third-Party Solar Leases

August 01, 2014 posted by Eric Christensen

This week, the Washington Utilities & Transportation Commission ("UTC") issued its long-awaited policy statement concerning UTC jurisdiction over third-party owners of net-metered electric facilities, such as roof-top solar systems. The Interpretive Statement indicates that the UTC likely would assert at least limited jurisdiction over third-party owners of rooftop systems who contract with ordinary homeowners. Much of the Interpretive Statement, however, is a cry for help addressed to the Washington legislature, urging it to enact legislation addressing the unique jurisdictional and regulatory issues arising in this unique context. As noted here, the UTC last year concluded that Washington's net metering statute allows for third-party ownership of rooftop solar systems, opening the door to innovative financing structures that have allowed rapid growth of distributed solar power in other states. However, the UTC left open one critical legal question -- whether the third-party owners of net metered systems operating under such leasing structures would be subject to UTC jurisdiction, and therefore potentially subject to the full range of utility-style regulation. While the Interpretive Statement is likely to disappoint those looking for a definitive statement from the UTC, it provides useful guidance both as to the UTC's concerns with third-party financing arrangements and the type of regulation the UTC likely would impose in those situations where it asserts jurisdiction. While not definitive, the Interpretive Statement, along with Washington's lucrative incentives for solar development and a recent change in the state's building code reducing upfront engineering costs, should spur development of distributed generation in the state. The Interpretative Statement makes clear that the UTC's primary concern in this area is consumer protection. Based on experience in other states where third-party leasing contracts are more common, the UTC lists concerns ranging from deceptive sales practices to poor equipment quality and damage to customers' homes. Against this backdrop, the Interpretive Statement addresses the critical jurisdictional question -- whether third-party distributed generation owners are "public service companies" subject to UTC regulation. The Interpretive Statement reaches the rather equivocal conclusion that, "[b]ased on our analysis of variants in the third-party ownership model, we conclude that solar providers, depending on specific facts, likely would be subject to Commission jurisdiction." The Interpretive Statement also suggests that, if the consumer protection concerns are ameliorated by the facts of a specific case, it might reach a different conclusion. For example, the Interpretative Statement rejects the conclusion of the Iowa Supreme Court, which recently found that third-party owners of solar roof-top generators are not subject to the Iowa Public Utilities Board. Noting that the Iowa case involved a lease that was negotiated at arms-length between sophisticated parties, the UTC concluded that the Iowa court's conclusions should not be extended to situations involving form contracts developed by third-party owners and signed by ordinary consumers. This suggests that the UTC might limit its assertion of jurisdiction where businesses, municipalities, or other sophisticated parties negotiate leases with third-party owners to allow construction of distributed generation facilities. In addition, should it assert jurisdiction in those situations, the Interpretive Statement indicates the UTC would limit regulation to consumer protection issues, and would not subject third-party owners to utility-style economic regulation. Economic regulation is not desirable in this situation, the UTC makes clear, because competition among multiple market participants should be sufficient to keep the market in check. The Interpretive Statement provides detailed recommendations for legislation that would clarify the UTC's jurisdiction over third-party owners of distributed generation. Consistent with the UTC's concerns about consumer protection, the legislation would be focused on ensuring that consumers are not subject to the kinds of abuses and risks identified by the Commission, although this would require limited regulation: "Companies would simply register with the Commission and publicly post their prices and contracts." In addition, the Attorney General would be authorized to prosecute consumer abuses, and third-party owners would be required to plainly disclose a number of specific terms of the lease, including, for example, the term, the monthly payment, and the disposition of the generating system once the lease ends. Notably, the UTC recommends that the market should be open to "[a]ll market players, from incumbent utilities to newer investor-owned companies," to ensure robust competition, with the UTC's role limited to defining market rules. If the Legislature does not act in its 2015 session, the UTC promises that it "will consider acting" to "propose and adopt rules that would further clarify our jurisdiction over third-party owners of net metering systems and describe how we would regulate such companies." At least for the time being, then, the Interpretive Statement is the best indication of how the UTC will handle jurisdictional questions related to third-party ownership of distributed generation. If you have any questions about Washington's net metering law, UTC jurisdiction, energy finance, or other matters involving energy or environmental law, please contact a member of GTH's Energy, Telecommunications, and Utilities or Environment & Natural Resources practice groups. We're proud that our partner Jim Waldo was recently named 2013 Lawyer of the Year for Energy and Natural Resources Law, and six practice members were recently recognized as Washington Super Lawyers.