Question Submitted By Teague, 062618 OKAG, 2018 OK AG 5

Docket Nº:2018 OK AG 5
Party Name:Question Submitted by: The Honorable Michael J. Teague, Secretary of Energy & Environment
Attorney:MIKE HUNTER ATTORNEY GENERAL OF OKLAHOMA A. CHASE SNODGRASS ASSISTANT ATTORNEY GENERAL
Case Date:June 26, 2018
Court:Oklahoma Attorney General Opinions
 
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2018 OK AG 5

Question Submitted by: The Honorable Michael J. Teague, Secretary of Energy & Environment

No. 2018 OK AG 5

Oklahoma Attorney General Opinions

June 26, 2018

MIKE HUNTER ATTORNEY GENERAL OF OKLAHOMA

A. CHASE SNODGRASS ASSISTANT ATTORNEY GENERAL

¶0 This office has received your request for an Official Attorney General Opinion in which you ask, in effect, the following questions:

1. In Oklahoma, is it lawful for a third-party owner of a distributed electrical generation source to (a) lease facilities capable of distributed electrical generation to a utility consumer, or (b) generate electricity for use by a utility consumer via a power purchase agreement?

2. Would the third-party owned distributed generation source described in Question #1 qualify as a small power producer or cogenerator pursuant to OAC 165:40-1-2?

3. May the Oklahoma Corporation Commission require incumbent electric utilities to accept power generated from a third-party owned distributed generation source?

4. Would the third-party owner who enters into a either a power purchase agreement or a lease agreement with an Oklahoma consumer be considered a "utility" under 17 O.S.2011, § 151, as construed by OAC 165:35?

I.

BACKGROUND

¶1 Before turning to your questions, it is helpful to begin with a discussion of what "distributed generation" entails and an overview of the distributed generation market. Broadly, distributed generation refers to electric generation that occurs near or where the electricity will be consumed and it is used in both the residential and business sectors. See, e.g., Richard L. Revesz & Burcin Unel, Managing the Future of the Electricity Grid: Distributed Generation and Net Metering, 41 HARV. ENVTL. L. REV. 43 (2017). In Oklahoma, distributed generation has been statutorily defined for certain purposes as meaning: a. a device that provides electric energy that is owned, operated, leased or otherwise utilized by the customer,

b. is interconnected to and operates in parallel with the retail electric supplier's grid and is in compliance with the standards established by the retail electric supplier,

c. is intended to offset only the energy that would have otherwise been provided by the retail electric supplier to the customer during the monthly billing period,

d. does not include generators used exclusively for emergency purposes,

e. does not include generators operated and controlled by a retail electric supplier, and

f. does not include customers who receive electric service which includes a demand-based charge.

17 O.S.Supp.2017, § 156 (A)(1). 1 Distributed generation can be used at a single home or business or as part of a larger "microgrid" that supports multiple houses or businesses. See Z. YE, ET AL., NAT'L RENEWABLE ENERGY LAB., FACILITY MICROGRIDS (May 2005). While solar photovoltaic technology is the most common energy source for distributed generation, small wind turbines or geothermal wells may also be utilized. See SAMANTHA DONALDS, CLEAN ENERGY STATES ALLIANCE, DISTRIBUTED GENERATION IN STATE RENEWABLE PORTFOLIO STANDARDS 3 (July 2017). Distributed generation can be contrasted with the traditional model of electric service, in which a utility generating electricity at a sometimes far away power plant uses transmission lines to carry the generated electricity to local distribution lines and eventually to the customer's meter.

¶2 Often, distributed generation consumers utilize a third-party business to provide, install, and maintain the distributed generation system, and, in some instances, finance the purchase of the necessary equipment. Two popular arrangements for distributed generation systems are leases and power purchase agreements. Under a lease, the third-party owner retains title to the system, but conveys to the consumer the right of possession and use of the system. See BLACK'S LAW DICTIONARY 972 (9 th ed. 2009). A power purchase agreement is simply "a long-term agreement to buy power from a company that produces electricity." ALBERT THUMANN & ERIC A. WOODROOF, ENERGY PROJECT FINANCING: RESOURCES AND STRATEGIES FOR SUCCESS 93 (2009) (hereafter, "ENERGY PROJECT FINANCING"). In this scenario, the third party "will provide the capital to build, operate, and maintain" the system and assume the risks and responsibilities of ownership, while the "host customer is only responsible for purchasing the electricity produced" by the system. Id. at 93-94. Two benefits to consumers of these third-party ownership schemes are that they (i) require less initial capital from the consumer, and (ii) can shift some risks of ownership to the third-party owner. See CARL LINVILL, ET AL., DESIGNING DISTRIBUTED GENERATION TARIFFS WELL, RAP ENERGY SOLUTIONS 21 (Nov. 2013).

II.

DISCUSSION

¶3 Your questions touch on several issues regarding the permissibility of third-party ownership schemes for distributed generation. The answers to your questions vary depending on (i) whether the third-party ownership scheme is a lease agreement or a power purchase agreement, and (ii) whether the distributed generator is located in an incorporated or unincorporated area.

A. In unincorporated areas of Oklahoma, the legality of third-party owned distributed generation systems depends on whether the third party qualifies as a "retail electric supplier" under the Retail Electric Supplier Certified Territory Act.

¶4 To determine the legality of third-party ownership of distributed generation in unincorporated areas of the State, 2 we must consider whether such an arrangement would violate the Retail Electric Supplier Certified Territory Act ("RESCTA"). Enacted in 1971, RESCTA provides that:

It is hereby declared to be in the public interest that, in order to encourage the orderly development of coordinated statewide retail electric service, to avoid wasteful duplication of distribution facilities, to avoid unnecessary encumbering of the landscape of the State of Oklahoma, to prevent the waste of materials and natural resources, for the public convenience and necessity and to minimize disputes between retail electric suppliers which may result in inconvenience, diminished efficiency and higher costs in serving the consumer, the state be divided into geographical areas, establishing the unincorporated areas within which each retail electric supplier is to provide the retail electric service as provided in this act.

17 O.S.2011, § 158.23 (emphasis added). RESCTA grants the exclusive right to supply retail electric service within the retail electric supplier's certified territory: Except as otherwise provided herein, each retail electric supplier shall have the exclusive right to furnish retail electric service to all electric-consuming facilities located within its certified territory, and shall not furnish, make available, render or extend its retail electric service to a consumer for use in electric-consuming facilities located within the certified territory of another retail electric supplier....

Id. § 158.25 (emphasis added). RESCTA defines retail electric supplier, retail electric service, certified territory, and electric consuming facility as follows: The term "retail electric supplier" means any person, firm, corporation, association or cooperative corporation, exclusive of municipal corporations or beneficial trusts thereof, engaged in the furnishing of retail electric service.

The term "retail electric service" means electric service furnished to a consumer for ultimate consumption, but does not include wholesale electric energy furnished by an electric supplier to another electric supplier for resale.

The term "certified territory" shall mean the unincorporated areas as certified by and pursuant to Section 158.24 of this title.

The term "electric consuming facilities" means everything that utilizes electric energy from a central station source.

Id. § 158.22.

¶5 RESCTA prohibits retail electric suppliers from furnishing retail electric service to a consumer in an unincorporated area that is within the certified territory of another retail electric supplier. 17 O.S.2011, § 158.25. Thus, a determination of whether the third-party owner of a distributed generation source would be in violation of RESCTA by supplying electricity to an Oklahoma consumer will depend on whether the third-party owner (1) meets the definition of "retail electric supplier" and (2) furnishes "retail electric service" within the unincorporated certified territory of another retail electric supplier.

1. A third-party owner of a distributed generation...

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