State Policies for Power Purchase Agreements

Jesse Heibel and Jocelyn Durkay 7/10/2015

Power purchase agreements, or PPAs, are contracts between a provider—typically an independent electricity generator or system owner—and a buyer that are used to finance and implement renewable energy installations. These agreements also assist in utility scale projects by ensuring stable, long-term revenue streams that are critical to financing renewable energy projects. PPAs, offered by third-party solar providers, also have been a driving force behind the expansion of rooftop solar power in many states. PPAs are attractive to states because they facilitate the delivery of predictable, lower cost energy, as well as renewable energy certificates and tax credits, without large upfront costs.

Sunflowers-windWhile PPAs are typically regulated by the Federal Energy Regulatory Commission, states are also involved in the regulatory process both through agency rule-making and legislative action. Although a majority of states have statutes mentioning or defining PPAs, 15 have enacted substantive legislation to authorize and regulate these agreements.

When it comes to authorization to operate third-party solar PPAs, this usually lies within the definition of an electric utility in state statutes, case law or regulations. Authorization also has been created by public utility commission decisions or in state incentive program rules. 

  • To promote PPAs, usually to help meet a state’s Renewable Portfolio Standard or allow third-party rooftop solar providers to operate, most legislation gives the public utility commission the power to direct or allow local utility companies to enter PPAs with qualifying independent generators. Examples of this can be seen in Connecticut, Hawaii, Oregon and Rhode Island.
  • The second type of state legislation addresses the length of PPAs. Because  one of the biggest obstacles to successfully negotiating a PPA are the long-term contracts and leases, states such as Michigan and Washington have both passed legislation requiring commission approval for utilities entering PPAs longer than a designated length of time.
  • The third type of PPA legislation addresses interconnection issues by directing utilities to facilitate the transmission of electricity from third-party generators directly to individual customers, similar to the Iowa statute below.

Power Purchase Agreement Statutes 

Arkansas

Ark. Stat. Ann. §23-18-108 (House Bill 1633, 2015)

Authorizes utilities to enter into power purchase agreements. Prohibits a utility from entering into a power purchase agreement longer than five years or recover cost of PPA in rates unless the commission finds that 1) the cost is reasonable, 2) the agreement would provide savings for retail customers, 3) it is required by public necessity, 4) it is necessary to the amount necessary to ensure incremental supply to rectify shortage.

Colorado

Colo. Rev. Stat. §40-2-123

Allows a utility, with approval from the commission, to enter into a power purchase agreement with the owner of an “integrated gasification combined cycle” or IGCC. Public utility costs associated with the power purchase agreement can be recovered through a rate adjustment clause.

Connecticut

Conn. Gen. Stat. Ann. §16a-3f

Gives the commissioner of Energy and Environmental Protection the authority to solicit proposals from renewable energy sources and, if found to be in the interest of ratepayers, select proposals to meet up to 4 percent of state’s load distribution. The commissioner can also direct electric distribution companies to enter in to Power Purchase Agreements for energy, capacity and environmental attributes for terms less than 20 years. These agreements must be approved by the Public Utilities Regulatory Authority and costs incurred by the distribution companies can be recovered through electric rates for the distributor’s customers.

Conn. Gen. Stat. Ann. §16a-3g

Gives the commissioner the power to solicit proposals from verifiable large-scale hydropower. The commissioner may select proposals to meet up to 5 percent of load distributed by state’s electric distribution companies. The commissioner may direct the electric distribution companies to enter into power purchase agreements for energy, capacity and any environmental attributes.

Conn. Gen. Stat. Ann. §16a-3h

Gives the commissioner power to solicit proposals from providers of run-of-the-river hydropower, landfill methane gas or biomass to meet up to 4 percent of the load distributed by the state’s electric distribution companies. The commissioner may direct the electric distribution companies to enter into power purchase agreements for energy, capacity and environmental attributes for no more than 10 years.

Conn. Gen. Stat. Ann. §16a-3i

If electric suppliers or distribution companies fail to meet the state’s renewable portfolio standards and trigger “alternative compliance payments,” there is a presumption that there is an insufficient supply of Class I renewable energy sources for electric suppliers and distribution companies. In the event of such presumption, the commissioner must solicit, select, and direct electric distribution companies to enter into power purchase agreements with providers of Class I renewable energy sources up to the amount necessary to ensure incremental supply to rectify shortage.

Delaware

Del. Code Ann. tit. 29, §8057(d)(1)(a)

Allows for cash grants from the state’s “Green Energy Fund” to be paid to customers that have executed a power purchase agreement for renewable energy technology and have placed such renewable energy technology in service.

Hawaii

Hawaii Rev. Stat. §269-16.22

Allows an electric utility company to recover all costs arising out of an approved power purchase agreement. The recovery comes from the utility’s customer base through one or more adjustable surcharges that are established by the public utilities commission.

Hawaii Rev. Stat. §269-27.2

Gives the public utilities commission the power to direct public utilities to acquire electricity generated from available nonfossil fuel sources.

Iowa

Iowa Code Ann. §476.6A

Requires that the owner of “alternative energy production facilities” who have not entered into a power purchase agreement with a public utility and will be or are attached to electric transmission or distribution lines give notice to the public utility prior to construction or alteration.

Michigan

Mich. Comp. Laws Ann. §460.60

Directs public utilities with more than 500,000 customers in the state to enter into power purchase agreements for the purchase of capacity and energy from resource recovery facilities that incinerate qualified landfill gas, solid waste scrap tires. This statute does not apply after 120 megawatts of capacity in a utility service territory have been contracted or more than 30 megawatts of scrap tire fueled capacity in the state has been contracted and is in commercial operation.

Mich. Comp. Laws Ann. §460.6s

Electric utilities proposing a power purchase agreement for a period of six years or longer must submit an application to the commission seeking a certificate of necessity that: 1) The terms of the power purchase agreement represent the most reasonable and prudent means of meeting that power need OR 2) the price specified in the power purchase agreement will be recovered in rates from the electric utility’s customers.

The commission must grant the application if it determines that: 1) The electric utility has demonstrated a need for the power that would be supplied, 2) information indicates the facility will comply with all state and federal environmental standards, 3) the price of power in the proposed power purchase agreement is reasonable and the result of competitive solicitation and (4) the proposed power purchase agreement represents the most reasonable means of meeting the power needs.

Once the power purchase agreement is used, the commission shall include all reasonable costs for which a certificate of necessity has been granted in the utility’s retail rates. The commission cannot bar recovery of the power purchase agreement costs for which a certificate of necessity has been granted. The statute also mandates that the utility shall file annually reports to commission regarding the status of power purchase agreement, including cost and schedule of that project.

Montana

Mont. Code Ann. §69-8-419

Orders the commission to adopt rules that establish minimum filing requirements and standards for evaluating the reasonableness of power purchase agreements.

Mont. Code Ann. §69-8-421

Establishes a 180-day deadline for the commission to rule on applications for approval of a power purchase agreement from an existing generation resource.

Establishes a 270-day deadline for the commission to rule on an application for approval of a power purchase agreement that would result in new electric generating resources.

Gives the commission the authority to inquire into a public utility’s management of a power purchase agreement and to disallow rate recovery for costs resulting from failure to reasonably manage electricity resources consistent with statutes and commission rules.

Nebraska

Neb. Rev. Stat. § 70-1904


Authorizes C-BED project developers and electric supplier to negotiate mutually agreeable power purchase agreement terms. Declares that C-BED projects operating under a power purchase agreement are not eligible for any net energy billing. Electric suppliers are defined as a public power district, a public power and irrigation district, an individual municipality or group of municipalities, an electric membership association or a cooperative.

New Hampshire

N.H. Rev. Stat. Ann. §362-A:4-c

Mandates the commission to independently and expeditiously consider all power purchase agreement regardless of the status of any other such pending renegotiations.

New Jersey

N.J. Stat. Ann. §48:3-61

Permits electric public utilities to recover stranded costs related to long-term and short-term power purchase contracts with other utilities and nonutility generators through “market transition charges” to all customers. It also authorizes the board to approve “buyout or buydown” of power purchase agreements with nonutility generator or new power purchase agreements that result from renegotiation, restructuring, or termination of previous power purchase plans if it determines it will result in reduction of a utilities stranded costs.

Oregon

Or. Rev. Stat. §758.525

Orders electric utilities to offer to purchase energy or capacity from “cogeneration facilities or a small power production facilities.” Establishes that the price for a purchase cannot be below the utility’s avoided costs.

Or. Rev. Stat. §758.535

Orders the public utility commission to establish terms and conditions for a public utility’s purchase of energy or capacity from a “small power production facility.” Those terms and conditions need to be adopted by electric cooperative or people’s utility and establish safety and operating requirements to protect electric utility and qualifying facility.

Rhode island

R.I. Gen. Laws §39-26.6-11

Electric-distribution companies are not be required to enter into power purchase agreements for procurement of the state’s renewable energy distributed-generation capacity requirements under its Renewable Energy Growth Program.

Virginia

Va. Code §56-594

Upon written request from “customer-generator,” the electric supplier that serves them shall enter into a power purchase agreement consistent with minimum contract requirements established by the commission. The power purchase agreement must obligate supplier to purchase excess electricity at the rate provided for in a net metering standard contract or tariff approved by commission. When entering into a power purchase agreement the statue gives the customer-generator a “one-time option” to sell any renewable energy certificates to its supplier at an amount established by the commission.

If the supplier has a commission-approved RPS plan, all costs incurred by the supplier to purchase excess electricity and renewable energy certificates can be recoverable through its Renewable Energy Portfolio Standard rate adjustment clause. If not, then all costs can be recoverable through the supplier's fuel adjustment clause. Suppliers are obligated to enter into PPAs until the rated generating capacity owned and operated by customer-generators reaches 1 percent of each electric distribution company's adjusted Virginia peak-load forecast for the previous year.

Washington

Wash. Rev. Code §80.04.570

Power purchase agreements for “coal transit power” must be approved by the commission in an adjudicative proceeding. All agreements must provide for modification in the event of new or revised emissions performance standards from state or federal law. Commission must approve only if terms provide adequate protection to ratepayers and electrical company, the resource is needed to serve its ratepayers and resource is cost-effective. It also establishes a mechanism to set recovery costs in rate setting.

Wash. Rev. Code §80.80.060

No electrical company may enter into long-term financial commitment unless base load electrical generation under commitment complies with greenhouse gas performance standards.

Once an electrical company has applied to the commission, they shall determine whether the decision to enter into a power purchase agreement complies with the greenhouse gas emissions standards established under 80.80.040. The commission cannot decide issues based on the actual cost or recovery of costs.