Power Purchase Agreements

Practical and Legal Issues

Presented byM. Ryan Hurley

What is a PPA

• Solar Provider offers installation, maintenance, financing and ownership of system

• Customer purchases power generated by system at a fixed rate for a fixed term

Benefits of a PPA• Customer avoids most or all up-front costs

associated with system• Customer avoids maintenance and

installation issues• Fixes electricity costs for term of PPA• Provider retains all ownership benefits

– Tax credits– Depreciation– Utility Rebates/Incentive Payments/REC’s

Typical PPA Characteristics• Provider offers a package of services

– Finances, installs, owns, maintains and operates– Obtains regulatory approvals and secures appropriate

Utility agreements– Analysis of electricity load and needs– Designs system– Provides all generated electricity to Customer– Monetizes tax credits

Typical PPA Characteristics• The Customer:

– Provides exclusive right to roof space or other location

– Purchases all generated electricity– Pays a single per KwH rate for term of agreement– Provides necessary easements, access, etc. and

signs all agreements with utility– Remains connected to utility grid

Important Issues: Price• Price should be negotiated based on:

– Cost of Infrastructure and installation, including administrative time (i.e. regulatory approvals utility agreements etc.)

– Surface area required on customer premises– Efficiency and output of system (orientation and tilt)– Present rate of electricity from utility and anticipated

future increases– Actual or anticipated value of RECs– End of term options

Important Issues: Quantity• PPA should provide:

– Estimate of electricity production– No limitation on amount purchased– Remedies for lack of production or failure to maintain

Important Issues: Installation & Maintenance

• Customer approval rights– Plans and schedule

• Licensed and Bonded--adequate insurance• Indemnity/hold harmless• Access and easements• No guarantee of output--maintain in good

(commercially reasonable) working order

Important Issues: Default and Remedies

• Default– Different cure periods for different defaults

• Force Majeure• Remedies

– Suspension– Termination– Removal– Liquidated Damages—no penalty

Important Issues: Miscellaneous

• Assignment• Customer credit• Zoning• Retention of tax and environmental

benefits• ACC REGULATION??

ACC Regulation?• Potential threat to the PPA model• Arizona Constitution gives broad jurisdiction to

the ACC to regulate “public service corporation”• Should the owner in a PPA be considered a

public utility because it is selling electricity?• ACC has yet to determine this definitively

ACC Regulation?• Kempley Letter:

– Former Chief Counsel at ACC provided a letter stating that the ACC Staff is unlikely to pursue a determination that a PPA owner is a “public service corporation”

• Limited authority; non-binding—ACC may still decide to regulate.

ACC Regulation?• Ongoing Solar Alliance Request:

– Group of solar companies seeking a determination from the ACC whether typical PPAs will be regulated

– Staff opinion suggests possible regulation and requests a hearing on the matter

– Commission is pro-solar and may be hesitant to regulate if they are convinced this will slow adoption

– Staff suggested a leasing arrangement or a PPA with a end of term purchase option would be less likely to be regulated

Final Thoughts• PPAs are complex and site specific and each

one should be carefully drafted and reviewed by attorneys on both sides

• Carefully consider the risks of possible ACC regulation and attempt to draft PPA provisions to deal with this possibility

Issues for Utility-Scale Solar Farms

• Location Location Location!– Proximity to transmission capacity and load demand– Water rights and availability– Zoning issues

• Often overlooked but very important• Many jurisdictions have not clarified the

requirements

– Development agreements?

Issues for Utility-Scale Solar Farms

• ACC Line-siting and FERC regulation– Can add years to the approval process– FERC regulation triggers Federal environmental

jurisdiction• NEPA—EIS/EA; 404 permitting; ESA issues

– Acceptance of Federal Stimulus Funds/Loans likely also triggers Federal environmental jurisdiction

– Can escape ACC and FERC regulation with a small capacity plant < 20MW

QUESTIONS??

M. Ryan Hurleywww.roselawgroup.com