by Kari Lydersen / Energy News Network, Wisconsin Watch
Wisconsin solar advocates want regulators to look to Iowa’s example as they consider the latest skirmish over how solar projects are financed in the state.
The Wisconsin Public Service Commission is considering two petitions seeking authorization for third-party-owned solar projects, in which the entity that owns the array is different from the property owner that will use the electricity.
The financing mechanism makes solar viable for many cities, schools, and nonprofits, as well as residential customers who can’t afford the upfront cost of a solar array. It’s also been the subject of a long legal and regulatory battle between solar advocates and Wisconsin utilities that see it as a threat.
That was once true in Iowa, too, until 2014 when the Iowa Supreme Court affirmed that a third party can own a solar array and sell the power, or make lease payments, to the owner of the property without becoming a public utility. In the eight years since then, experts and advocates say utilities’ fears over such ownership opening the door for “deregulation” or other negative impacts have not materialized.
“Iowa is still very much a utility-dominated state with a vertically integrated utility structure, and with less than 2% of generation from distributed resources,” said Karl Rábago, an energy consultant based at Pace University School of Law, testifying on behalf of the advocacy group Vote Solar in one of the pending cases. “Moreover, since the 2014 court decision, I am not aware of movement in the state toward deregulation or retail choice.”
(Rábago also provides occasional editorial feedback to the Energy News Network as a member of a reader advisory committee. See the Energy News Network’s code of ethics for more information.)
Iowa’s court decision resulted from Dubuque, Iowa-based developer Eagle Point’s lawsuit challenging Alliant Energy’s refusal to interconnect a third-party-owned array to the grid. Eagle Point has also been central to the standoff in Wisconsin, after utility We Energies refused to interconnect solar co-owned by Eagle Point and the city of Milwaukee.
Wisconsin regulatory challenge
The latest petitions related to third-party solar in Wisconsin were filed in May. Vote Solar asks that the Wisconsin Public Service Commission allow a Stevens Point family to enter a third-party ownership arrangement for an 8.6-kilowatt system. The petition notes the energy savings would help them pay for college for their two teenage children, and a third-party structure is necessary to avoid upfront costs. That family lives in territory served by the Wisconsin Public Service Corporation, which like We Energies is a subsidiary of utility company WEPCO.
The Midwest Renewable Energy Association petition asks the commission for a declaratory ruling clarifying that third-party solar is legal, and notes that it would be too expensive and difficult for every customer who wants the arrangement to file their own petitions.
“There is simply no reason to believe that Wisconsin’s experience with third-party-financed distributed energy systems would track any differently than what we’ve seen in Iowa,” said Michael Vickerman, program and policy director for Renew Wisconsin.
“Third-party financing will not usher in mass defections from the grid, nor will it, by itself, push energy rates higher. But it would certainly broaden the customer base that Wisconsin solar contractors would serve, including low- to moderate-income households who will have less success accessing federal tax credits than their more affluent counterparts.”
Iowans see energy savings
A 2021 report by Iowa’s state auditor showed that a total of 80 public entities had installed solar, mostly since the 2014 court decision, saving an average of over $26,000 a year on energy as a result. The report noted that schools have hired an extra teacher, avoided closing and otherwise benefited from the savings.
Since the Iowa ruling, Eagle Point has developed dozens of third-party-owned installations for Iowa schools and municipalities, including recent arrays installed on the fire station and water treatment plant in the city of Hills, Iowa, and a 300-kilowatt array for Upper Iowa University.
Eagle Point CEO Jim Pullen said the company has signed about 20 contracts with municipalities just this fall.
“It’s not that complicated,” Pullen said. “By and large I don’t believe the utilities have made any statements about (third-party ownership having) deregulated the market or destabilized the market. They treat a third-party project exactly the same as a customer-owned project. There’s no difference from our perspective when we’re interconnecting, and they don’t seem to care anymore.”
The utilities that had opposed third-party ownership in Iowa — Alliant Energy and MidAmerican Energy — did not respond to questions about their past opposition to third-party financing or its current impact. Spokespeople for both utilities said the companies support renewable energy and offer options for customers to access renewables, including an Alliant program wherein the utility pays customers to place utility-owned solar on their rooftops.
“Alliant Energy focuses on making renewable energy accessible for everyone — in order to keep it affordable for everyone,” Alliant said in a statement. “We support energy policies that ensure a fair, affordable and reliable energy network for all customers and communities. … We support our customers’ interests in solar through a variety of mechanisms, including utility-scale solar, community-based solar and interconnection of customer-owned systems.”
The Iowa state auditor’s report notes that Iowa has 99 counties and 330 school districts. “If each county, each county seat, and each school district created a solar installation of the average size of these installations (already developed with third-party ownership), over the installations’ lifetimes Iowa taxpayers could expect to net over $375 million in savings,” the report says.
The Iowa state auditor also surveyed schools and cities about public reaction, and found significant public support. The Bennett Community School District, for example, credited its $53,000 energy savings for helping to keep the school open to its 88 enrolled students. The city of Cedar Rapids received feedback that its panels — developed with Eagle Point — were unattractive, and planted trees to improve the view.
“At a high level, third-party ownership is doing exactly what we thought it would do” in Iowa, said Josh Mandelbaum, a senior attorney with the Environmental Law & Policy Center: “Providing greater choice and flexibility for individuals and organizations that want to pursue solar.”
We Energies’ opposition
We Energies and other utilities have argued that third-party ownership undermines the utility’s ability to keep up the grid and serve its customers, since the third-party owner is essentially competing with the utility and the customer is paying less to the utility.
The Wisconsin Utilities Association offered expert testimony during the petition proceedings — including from a former California utility commissioner — regarding the negative impacts of net metering and solar proliferation.
But Environmental Law & Policy Center senior attorney Brad Klein argued that this “cost-shifting” argument, often made by utilities nationwide, is separate from the legal question of whether a third-party owner is functioning as a utility.
“Some of the arguments you see are not specific to the legal question regarding whether providing financing options creates a public utility; they are more broadside attacks on distributed energy resources generally,” Klein said. “We saw that in Iowa — a mischaracterization of the impact of third-party financing.”
Meanwhile, the idea that distributed solar unfairly shifts costs to customers without solar and jeopardizes grid reliability has been widely challenged with evidence showing more distributed solar generally makes the grid more efficient and resilient, benefiting all customers.
“The impact of third-party financed solar on Iowa’s electric rates? Negligible,” said Renew Wisconsin’s Vickerman. “If anything, the gap between Iowa’s and Wisconsin’s electric rates has widened since 2014.”
Social justice and equity issue
The Environmental Law & Policy Center cites a 1911 Wisconsin Supreme Court case, Cawker v. Meyer, wherein the court ruled that a company selling heat and power to several neighbors did not constitute a public utility because of its limited scope.
Case law says utilities’ rights to operate as regulated monopolies must be protected for the interest of customers, not the utilities’ competitive interests, furthering the argument for third-party solar as advocates see it.
Once third-party financing becomes commonplace, the success and popularity of such arrays depend in part on net metering policies that typically apply equally to directly owned and third-party-owned projects.
In Iowa, advocates say utilities have done nothing since the Supreme Court decision to impede third-party-owned arrays specifically, but struggles over distributed solar continued. The Environmental Law & Policy Center and other advocates were upset with a 2019 utility-backed bill that would have gutted net metering for all distributed solar, including third-party-owned arrays.
Ultimately 2020 state legislation established inflow-outflow billing that will transition to a value-of-solar tariff. That compromise was supported by clean energy groups, though they have clashed with utilities over its implementation.
Third-party ownership allows nonprofits like schools, government agencies, churches, hospitals and social service agencies to collect tax benefits even though they do not pay taxes, since a private developer owns and operates the solar installation, passing their tax savings on to the customer.
The model also makes rooftop solar feasible for private residents or other entities that cannot afford the upfront capital, and lower-income families who do not earn enough to owe taxes that could be slashed through the credit. Third-party ownership becomes even more important since the Inflation Reduction Act extended the federal investment tax credit for solar, advocates say.
“We’re focused on getting more folks and organizations and farmers and businesses to own more of the energy that’s around their properties — whether wind, solar, geothermal,” said Jason MacDuff, president of Greenpenny, an Iowa-based, sustainability-focused bank that funds many third-party-owned solar projects. “They should be able to harness the power and be able to deploy it so they can preserve their own resources. That’s important for economic development, especially in rural areas.”
The Bad River Tribe in northern Wisconsin was able to install three solar-powered microgrids with battery storage through third-party ownership, since they are not regulated by the Public Service Commission or subject to state law as a Native American tribe that gets power from an electric cooperative. The nonprofit that partnered with the tribe on the project, Cheq Bay Renewables, argued in a public comment in the Vote Solar case that third-party ownership is a social justice and equity issue.
“Equity has risen in importance across all Federal and State decisions, and should be applied to TPF (third-party financing),” Cheq Bay Renewables president William Bailey wrote in the public comment in the Vote Solar case. “TPF is just another financing tool to allow a more rapid and equitable expansion of clean energy. … This docket is not about one family, but rather could set policy throughout the state.”
Kari Lyderson has written for the Energy News Network since January 2011. She is an author and journalist who worked for the Washington Post’s Midwest bureau from 1997 through 2009. Her work has also appeared in the New York Times, Chicago News Cooperative, Chicago Reader and other publications. Based in Chicago, Kari covers Illinois, Wisconsin and Indiana as well as environmental justice topics.