Inventory of Current Financial Options

Transcription

1 Inventory of Current Financial Options for Solar Installation Practice in Kansas City and Beyond January 2013 Prepared by: Alan Claus Anderson J. Britton Gibson Luke Hagedorn

2 Table of Contents Introduction... 1 Traditional Financing Models... 2 Solar equipment leases... 2 Availability in Missouri... 3 Availability in Kansas... 4 Remedies for PUC Jurisdictional Issue... 5 Power Purchase Agreements... 5 Availability in Missouri... 6 Availability in Kansas... 7 Additional PPA Considerations... 8 Variations of the solar lease or PPA structure... 9 Direct lease / PPA... 9 Sale/leaseback arrangement... 9 Partnership flip Non-Traditional Financing Models Property Tax Assessment Bonds or Loans Qualified Energy Conservation Bonds Barriers to QECB utilization Community Solar Availability in Missouri Availability in Kansas... 19

3 Table of Figures Figure 1: Solar lease overview... 2 Figure 2: PPA overview... 6 Figure 3: Sale / leaseback structure Figure 4: Partnership flip structure Figure 5: St. Louis County QECB program overview Figure 6: Missouri QECB allocations... 15

4 Introduction The following inventory provides an overview of the current availability of various financing structures and programs for residential solar projects in the states of Kansas and Missouri. Specifically, this report examines the availability of solar equipment leases and Power Purchase Agreements, the two most common financing structures for residential solar projects in the United States, as well as variations thereof. Additionally, this report examines the availability of several non-traditional financing alternatives, including remote net-metering projects, property tax assessment bonds and qualified energy conservation bonds. 1

5 Traditional Financing Models Solar Equipment Leases One financing vehicle that has become increasingly popular over the last few years is the solar equipment lease. Essentially, under a solar equipment lease, a property owner ( lessee ) enters into a contract with the owner of solar generation equipment ( lessor ) to lease the equipment and consume the electricity that it generates over a set period of time, in exchange for monthly lease payments. The exact terms of the leases vary depending upon the circumstances and localities, but generally speaking, the lessor agrees to provide on-going operations and maintenance services during the term of the lease. At the end of the lease term, the lessee could have an option to purchase the photovoltaic (PV) system for its fair market value, extend the lease agreement, or have the system removed from the roof. Figure 1 below depicts the typical structure and benefits of a solar lease transaction: 1 Figure 1: Solar lease overview Leases can be attractive options for residential customers, as the developer has freedom to craft financing terms that meet the particular customer s needs. For example, developers can create a number of different types of solar leases that offer varying levels of up-front payments. Some leases may offer a no-money-down 1 Cory, K.; Kollins, K.; Speer, B. (Feb. 2010) Solar PV Project Financing: Regulatory and Legislative Challenges for Third-Party PPA System Owners. NREL/TP-6AS Golden, CO: National Renewable Energy Laboratory. 2

6 option, with higher monthly payments, while others might include an up-front down payment with lower monthly lease payments. Regardless of how the lease is structured, it appears that in order for solar leases to be successfully adopted, there must be some combination of relatively high prevailing electricity rates and strong solar residential solar energy incentives in order for customers to maximize their savings. Availability in Missouri A. Missouri solar rebate requirements In November 2008, voters in Missouri enacted Proposition C, a ballot initiative that repealed the state s existing voluntary renewable energy and energy efficiency objective and replaced it with an expanded, mandatory renewable electricity standard of 15 percent by As part of Proposition C, public utilities are required to offer rebates of $2 per watt to customers with solar electric systems of up to 25 kilowatts (kw), so long as the total system size is equal to or less than 100 kw. The regulations enacting the solar rebate state as follows: To qualify for the solar rebate and the Standard Offer Contract of subsection (H) of this section, the customer-owned or leased solar generating equipment shall be interconnected with the electric utility s system. 2 B. Missouri net metering requirements As part of the application process for the Missouri solar rebate, applicants are required first to have a net-metering application approved by the jurisdictional utility. Additionally, applicants for the rebate must certify that the installation meets all Missouri net metering requirements. As currently drafted, the Missouri net metering regulations state that net metering must be made available to eligible customer-generators, which is defined as the owner or operator of a qualified electric energy generation unit. 3 A strict interpretation of this provision would mean that only projects in which the customer either owns or operates the solar energy equipment would qualify for net metering and, by extension, the solar rebate. Such an interpretation, however, does not appear to be consistent with the Missouri Public Service Commission s stated intent in the solar rebate regulations, which was to allow for customer-leased systems. C. Public utility status 2 4 C.S.R (4). 3 4 C.S.R

7 Another issue to be examined is whether a company offering to lease solar panels to the public is subject to regulation by the Missouri Public Service Commission (MPSC) as a public utility. The Missouri Supreme Court has held that, in order for a company selling electricity to qualify as a public utility, it must hold itself out as providing power indiscriminately to the general public for public use, rather than through special contracts with select individuals. 4 Although an argument could be made that a company offering to lease solar panels to the general public is inherently offering to sell power indiscriminately to the general public, there is a compelling counter-argument that such a company would not qualify as a public utility because the company 1) chooses its customers, 2) is not directly guaranteeing the output of the panels, 3) has no obligation to provide power to all interested parties, and 4) enters into unique contracts for the sale of that power upon its own terms. Availability in Kansas Though it appears that the use of solar equipment leases is permissible in Kansas by statute, it is unclear whether the use of such a lease would expose the project developer to regulation as a public utility by the Kansas Corporation Commission (KCC). Regarding the first point, it appears that the use of solar equipment leases is contemplated and permitted by K.S.A In this statute, the Kansas legislature sets forth specific informational requirements that must be included in [e]very instrument that conveys any estate or interest created by any lease or easement involving wind or solar resources and technologies to produce and generate electricity. A strong argument can be made that the inclusion of leases that involve resources and those that involve technologies implicitly permits both solar land leases (essentially real estate leases in which a lessor landowner grants the lessee access to the property and use of irradiation on the property), as well as solar equipment leases (in which a lessor leases solar equipment to a lessee property owner). However, even if solar leases are deemed permissible under the statutes, it is still possible that the use of such a lease could expose the solar project developer to regulation by the KCC as a public utility. The term public utility is defined in K.S.A (a), in pertinent part, as all companies [engaged in] the production, transmission, delivery or furnishing of heat, light, water or power. Nonetheless, as was discussed above with Kansas PPAs, Kansas law grants certain entities the option to exempt themselves from regulation as a public utility. Specifically, K.S.A (e) allows an otherwise jurisdictional entity to become exempt from regulation if it files a notice of exemption with the KCC. 4 State ex. rel. Danciger v. Public Service Commission, 275 Mo. 483, 205 S.W. 36, 40 (1918). 4

8 Though the KCC has made comments in previous orders that raise some doubts as to this statute s applicability to renewable project developers it appears that the KCC has yet to definitively opine on this issue, and thus a significant amount of regulatory uncertainty remains. Remedies for Public Utilities Commission jurisdictional issue The most efficient resolution for the issue relating to a state s regulatory authority over solar lease projects is for the state legislatures to enact a statutory exemption for renewable energy projects from public utility status. An excellent model for this type of legislative action can be found in Oregon, where the state legislature modified the definition of public utility found in O.R.S such that there is an express exemption for [a]ny corporation, company, individual or association of individuals providing heat, light or power [... ] [f]rom solar or wind resources to any number of customers. Power Purchase Agreements By far, one of the most common financing models for residential solar photovoltaic projects involves the use of a third-party Power Purchase Agreement (PPA). Under a traditional third-party solar PPA model, a site host agrees to host solar panels on its structure. The host and the developer then sign a PPA, under which the host agrees to purchase the power generated by the system. The project developer then installs, operates, and maintains the system on behalf of the host, in return for the PPA payments paid by the host. 5 Often, the project developer will then contract with an equity investor to buy the project rights from the developer, who will be able to utilize the full benefits of the tax credits and incentives generated by the project. Figure 2, below, depicts the typical interactions between the consumer, the system owner and the utility in a standard third-party PPA model: 6 5 Bloomberg 6 Cory, K.; Kollins, K.; Speer, B. (Feb. 2010) Solar PV Project Financing: Regulatory and Legislative Challenges for Third-Party PPA System Owners. NREL/TP-6AS Golden, CO: National Renewable Energy Laboratory. 5

9 Figure 2: PPA Overview Availability in Missouri As is discussed above with solar equipment leases, another issue to be examined is whether a company offering to sell electricity through a solar PPA is subject to regulation by the MPSC as a public utility. The Missouri Supreme Court has held that, in order for a company selling electricity to qualify as a public utility, it must hold itself out as providing power indiscriminately to the general public for public use, rather than through special contracts with select individuals. 7 Although an argument could be made that a company offering to install solar panels on buildings and sell the power generated by the panels to the occupants of those buildings is offering to sell power indiscriminately to the general public, there is a compelling counter-argument that such a company would not qualify as a public utility because the company 1) chooses its customers, 2) has no obligation to provide power to all interested parties, and 3) enters into unique contracts for the sale of that power upon its own terms. In addition, there is circumstantial evidence indicating that the MPSC does not oppose the utilization of PPAs. Specifically, in its response to public comments during the original rulemaking process, the MPSC stated that it agrees with the majority of the comments that the definition of customer-generator should be expanded to allow alternative ownership arrangements. This will allow the most participation and support the generation of renewable energy in Missouri. 8 7 State ex. rel. Danciger v. Public Service Commission, 275 Mo. 483, 205 S.W. 36, 40 (1918). 8 MPSC Docket No. EX , In the Matter of a Proposed Rulemaking Regarding Electric Utility Renewable Energy Standard Requirements, Final Order Rule 4 CSR , July 7,

10 Availability in Kansas The question of whether PPAs are permissible in Kansas revolves around whether the sale of power through a PPA would subject an entity to regulation by the Kansas Corporation Commission as a public utility. Currently, it is unclear whether the Kansas Corporation Commission has jurisdictional authority over entities that sell power through PPAs. Currently, the term public utility is defined in K.S.A (a), in pertinent part, as all companies [engaged in] the production, transmission, delivery or furnishing of heat, light, water or power. Though, at face value, a solar project developer would clearly meet this definition, Kansas law also grants certain entities the option to exempt themselves from regulation as a public utility. Specifically, K.S.A (e) allows an otherwise jurisdictional entity to become exempt from regulation if it files a notice of exemption with the KCC with respect to each project entity that potentially may fall under the definition of a public utility in Kansas. The argument that residential solar project developers qualify for this exemption is bolstered by the fact that the KCC has made comments in previous orders that raise some doubts as to this statutes applicability to renewable project developers. First, in the KCC s December 27, 2007 Final Order in Docket No. 08-WSEE-309- PRE, it noted that [a]lthough the Commission makes no decision on the matter at this time, Westar has observed that the Commission may not have jurisdiction or authority over the developers that own the wind farms and sell power to Westar through PPAs. Arguably, if this position held no merit, the KCC could have struck it down at that time but declined to do so. Second, in a 2001 docket, two wind energy companies applied to the KCC for a limited certificate of convenience and necessity to operate as a public utility in Kansas. 9 When reviewing this request, the Commission noted that although the project planned by the Company is qualified for an exemption under K.S.A (e), at its option, [it] seeks a limited certificate to operate as an electric public utility. Ultimately, after reviewing these dockets, it appears that the KCC has yet to definitively opine on this issue, and thus a significant amount of regulatory uncertainty remains. Because PPAs are one of the most common financing vehicles utilized across the country for solar installations, this regulatory uncertainty will 9 These filings are contained in the following dockets: In the Matter of the Application of Gray County Wind Energy, L.L.C. for a Certificate of Public Convenience to Transact the Business of an Electric Public Utility in the State of Kansas (Docket No. 01-GCWE-754-COC). An Application was filed by Gray County Wind Energy, LLC, a subsidiary of FPL Energy, on March 15, 2001, and its Application was approved by the Commission s July 23, 2001 Order; In the Matter of the Application of Elk River Windfarm, LLC for a Certificate of Public Convenience to Transact the Business of an Electric Public Utility in the State of Kansas (Docket No. 05-ERWE-499-COC). Elk River Windfarm, LLC, a subsidiary of PPM Energy, filed an application in this docket on December 2, 2004, and the KCC issued an Order approving the Application on December 20,

11 undoubtedly present an obstacle to the widespread adoption of distributed generationlevel solar equipment. Remedies for PUC jurisdictional issue As was discussed with solar leases above, the most efficient resolution for the issue relating to a state s regulatory authority over solar PPAs would be for the state legislatures to enact a statutory exemption for renewable energy projects from public utility status. An excellent model for this type of legislative action can be found in Oregon, where the state legislature modified the definition of public utility found in O.R.S such that there is an express exemption for [a]ny corporation, company, individual or association of individuals providing heat, light or power [... ] [f]rom solar or wind resources to any number of customers. Additional PPA considerations The viability of solar PPAs in Kansas and Missouri is inherently tied to the availability of solar set-asides and incentives. Thus, in order to ensure that solar PPAs are utilized to develop a significant number of in-state residential solar projects, it is vital that both Kansas and Missouri adopt a wide variety of specific solar incentives such as state-level tax credits, solar investment subsidies, and solar-specific tiers in RPS requirements can be implemented. Such subsidies are critical for the economics of the proposed project, and thus are required to promote widespread adoption of residential solar projects across the region. 8

12 Variations of the solar lease or PPA structure Though the concept of leasing solar equipment to consumers is relatively straightforward, in reality, solar leases often require the formation of a variety of complicated relationships between a number of interested parties. Direct lease / PPA Under a typical direct lease or PPA, a project developer enters into an agreement with the host customer, pursuant to which the project developer will own the system throughout the life of the project and will finance and oversee the installation, engineering and maintenance of the system. In return for these services and for the electricity generated by the system, the customer will submit payments over the life of the project. Sale/leaseback arrangement Though direct lease or PPA transactions are relatively simple and efficient, the reality is that they often do not present the most economically advantageous alternative for project developers. Solar project developers often do not have the ability to fully utilize the tax incentives that stem from installation of a renewable energy project, such as the federal Investment Tax Credit, Production Tax Credit, or Modified Accelerated Cost Recovery System Depreciation. Therefore, in order to maximize the project value, it is necessary to transfer the ownership of the project to an entity that will be able to fully monetize those incentives. One popular variation of the direct structure that helps capture this potential value is known as the sale-leaseback model. In a sale-leaseback transaction, the project developer essentially enters into a direct lease or PPA with the host customer, whereby the developer agrees to finance and oversee the installation, engineering and maintenance of the system in exchange for payments throughout the life of the project. However, once the project has been fully installed and is ready for commercial operation, the project developer will sell the equipment and the corresponding contract rights to a third-party tax equity investor. This is the sale portion of a sale-leaseback transaction. Once the project has been sold, the tax equity investor and the project developer enter into a lease, whereby the project developer remains responsible for the ongoing oversight and management of the project. This is the leaseback portion of a saleleaseback transaction. The term of the leaseback lease will essentially mirror the term of the original equipment lease or PPA with the host customer and payments made by the project developer to the tax equity investor under the leaseback lease will be funded by the host customer payments under the original agreement. When done correctly, this structure allows the tax equity investor to be the legal owner of the project and thus be eligible to claim the various resulting tax benefits. A 9

13 portion of this captured value is passed down to the project developer and the host customer through reduced lease payments under the original and the leaseback leases. Figure 3 Partnership flip As an alternative to a sale-leaseback transaction, a project developer might choose to utilize a financing model known as a partnership-flip. In a partnership-flip, the project developer and a tax equity investor will form and jointly own a special purpose partnership entity ( JointCo ). JointCo will enter into a solar lease or PPA with the host customer and will own, install and maintain the project. Entities within a partnership are free to allocate the cash flow and tax benefits between themselves. Accordingly, the project developer will typically provide the capital required to construct and operate the project to JointCo, and in return will be allowed to receive distributions of the income from the host-customer payments to recover its initial investment. Once the initial investment is recovered, the cash flow from JointCo will be allocated to the tax equity investor until such time as it collects a predetermined rate of return. Once that return has been achieved, the cash flow from 10

14 JointCo will flip again, granting the project developer the majority of the profits for the remainder of the term of the lease with the host customer. Of course, throughout the term of the agreement, the tax equity investor will be allocated the tax benefits. Figure 4 11

15 Non-Traditional Financing Models In addition to the standard models of PPAs or solar equipment leases discussed above, there are a number of alternative project finance vehicles that have taken hold in various part of the country over the last few years. While, to our knowledge, these models have not yet been utilized in Kansas or Missouri, they might present interesting alternative vehicles to promote the widespread adoption of residential PV developments. Property Tax Assessment Bonds or Loans Over the last few years, more than 30 states have adopted a new approach to financing residential solar projects that can generally be classified as property tax assessment bonds. Under this structure, cities, counties or separate taxing jurisdictions set up by local governments may issue long-term bonds or tap into the city s general funds in order to finance loans to local property owners that cover the costs of PV system purchases, installations and maintenance. The property owners then repay over an extended term, typically 15 to 20 years, through a special property tax assessment collected annually or semi-annually. Locally, the Mid-America Regional Council is in the process of establishing a Property Assessed Clean Energy (PACE) bond program for the Kansas City region. These property tax assessment bonds present an attractive option for property owners, as they can finance the entire cost of the installation with no equity contribution as would be required by a bank. Additionally, property owners can typically enjoy better interest rates and longer payback periods than would be provided under typical loans because the funds are tied to the tax capacity of the property and not the credit standing of the property owner. Qualified Energy Conservation Bonds Qualified Energy Conservation Bonds (QECBs) were authorized by Congress in the 2008 Energy Improvement and Extension Act. Under this legislation, the U.S. Congress allocated significant funds to the states to suballocate to entities such as local governments or municipalities with populations of 100,000 or more, counties, school districts or universities. Specifically, these bonds may be issued for the following purposes: 1. To reduce energy consumption in publicly owned buildings by at least 20 percent. 2. To implement green community programs (including the use of grants, loans, or other repayment mechanisms to implement such programs). 3. For rural development (including the production of renewable energy). 4. For certain renewable energy facilities (such as wind, solar and biomass). 12

16 QECBs are taxable bonds, but the federal government subsidizes the issuers by providing either a federal tax credit to bond holders on quarterly credit allowance dates or a direct cash payment from the U.S. Department of Treasury equal to the lesser of the taxable coupon rate or 70 percent of the tax credit rate. The ultimate effect of this subsidization is that the issuer pays significantly lower interest costs than on a comparable tax-exempt bond. Kansas has already allocated the full amount of its QECB funds and thus cannot utilize this program for any additional purposes. Missouri, however, has nearly $50 million of QECB funds that have not yet been issued. St. Louis County provides an excellent model for how the implementation of a local QECB program might work in Missouri. In April 2011, the county issued $10.3 million of QECBs to finance a residential energy efficiency program that provides up to $15,000, 10 year loans at an interest rate of 3.5 percent for energy efficiency retrofits to residential homes, far lower than the traditional rates for energy improvement loans. The bonds issued by the county were serial bonds with a maturity of 15 years with an effective interest rate of 0.7 percent. As of October, 2011, the project had approved loans totaling almost $1.4 million, with a total of approximately 1,400 home energy upgrades expected over the next few years. 13

17 Figure 5: St. Louis County QECB program overview Barriers to QECB utilization Interestingly, on the whole, the full potential of QECB program has not been achieved. Though the program was first offered to states and local communities in 2009, as of March 2012 only approximately 20 percent of the funds had been utilized. 10 According to a 2012 study by the National Association of State Energy Officials, there appear to be three main reasons for this underutilization: State and local governments are hesitant to take on new debt financing in the current economy; 2. Suballocations to local governments may be too small to issue costeffectively; and 3. State and local governments are not familiar with this new mechanism. 10 NASEO Briefing Report, Qualified Energy Conservation Bonds: An Assessment of the Challenges, Needs, and Outcomes of QECBs at the State and Local Levels (2012), available at 11 Id. 14

18 While there is no easy way to address communities aversion to taking on additional debt financing, the other issues fortunately are not as significant a barrier in Missouri as they might be for other states. Specifically, the issue of the suballocations being too small to allow for cost-effective issuances appears to primarily be a barrier for states with a large number of populations over 100,000. In Missouri, however, the list of potential issuers is smaller, and thus the amount that has been allocated to the individual communities is quite significant. Specifically, these funds have been distributed out by the Missouri Department of Economic Development to the cities, municipalities and counties in the state that have a population greater than 100,000 people, in proportion to their respective population sizes. These allocations are set forth in the following Figure 6. Figure 6: Missouri Department of Economic Development, "Qualified Energy Conservation Bonds: Missouri Allocations," available at * Residual population and allocation of the applicable county after subtracting from the county population any city within the county having a population in excess of 100,000. As the chart above illustrates, local communities across Missouri have access to millions of dollars in funds for green projects that they are not currently utilizing. 15

19 In many cases, accessing these funds might require nothing more than putting together a grass roots movement and a strong proposal to submit to the appropriate community personnel. Community Solar There are two traditional categories that are used to describe the scale of energy generation for renewable projects: utility-scale projects and distributed generation projects. Over the last few years, a hybrid category has evolved in an effort to maximize the benefits and minimize the challenges of these traditional models. This alternative, known as community solar, networked PV, solar aggregation, virtual net metering, or remote net metering, essentially consolidates a large number of distributed-generation systems on a common site within a community. Individual customers then purchase or lease rights to those individual systems and have the energy generated by that system credited against their personal energy consumption. In theory, such a configuration would allow the project as a whole to benefit from the economies of scale and provide an opportunity to maximize engineering and construction competence and the tax incentives available to the individual consumers. Availability in Missouri It is currently unclear whether Missouri law permits use of Remote Net Metered projects. Specifically, there appear to be three major potential barriers to the use of this financing structure: 1) compliance with Missouri s net metering requirements; 2) avoidance of regulation as a public utility by the MPSC; and 3) compliance with state retail wheeling restrictions. While there are a number of issues that should be carefully evaluated and accommodated for, a remote net metering project could potentially provide a very interesting alternative for solar generation in the state of Missouri. The project structure provides an opportunity for individual customers to benefit from economies of scale and to capture revenue streams from the use and sale of the generated power, the sale of the RECs that accompany that power, the utility solar rebates required by Missouri law, and the applicable federal tax and depreciation incentives. 1. Satisfaction of net metering requirements As described above, many states provide regulatory advantages for small renewable projects under what are known as net metering statutes. Under such laws, so long as the renewable energy system has a capacity that is less than a certain size threshold, public utilities are typically required to purchase power generated from the system, often at a predefined price. Additionally, the seller of the power is typically exempt from regulation as a public utility within the state. 16

20 In Missouri, a project qualifies for net metering if the project: 12 (a) (b) (c) (d) (e) (f) (g) Is powered by a renewable energy resource; Has an electrical generating system with a capacity of not more than one hundred kilowatts; Is located on a premises owned, operated, leased or otherwise controlled by the customer-generator; Is interconnected and operates in parallel phase and synchronization with a retail electric supplier and has been approved by said retail electric supplier; Is intended primarily to offset part or all of the customer-generator's own electrical energy requirements; Meets all applicable safety, performance, interconnection and reliability standards established by the National Electrical Code, the National Electrical Safety Code, the Institute of Electrical and Electronics Engineers, Underwriters Laboratories, the Federal Energy Regulatory Commission and any local governing authorities; and Contains a mechanism that automatically disables the unit and interrupts the flow of electricity back onto the supplier's electricity lines in the event that service to the customer-generator is interrupted. When determining whether a remote net metering project satisfies these criteria, research will need to be conducted regarding whether a number of these requirements can be satisfied. For example, analysis will need to be conducted to determine whether requirement (c) would permit a generating system to be located off-site, as it requires the project to be located on a premises owned, operated, leased or otherwise controlled by the customer-generator. It is possible that this requirement could be satisfied if the ownership structure is designed in such a way that the individual owners can own or lease small portions of the community property on which the remote system is sited, but additional analysis will be needed on this point. Furthermore, requirement (d) highlights the need to obtain some form of approval from the incumbent public utility, as well as comply with that utility s tariffs. The latitude that the public utility may have in this approval process is not clear from the regulations. Additionally, further analysis will need to be conducted with regards to requirement (e), as the generating unit most likely will not be directly connected to the customer s home meter. In other words, analysis will be needed to determine whether off-site generation is intended primarily to offset the customer s own electrical energy requirements CSR

21 2. Public utility status Under Missouri law, public utilities are regulated by the Missouri Public Service Commission on a statewide basis. 13 While the term public utility is defined very broadly (see Section (43) R.S.Mo.), 14 the Missouri Supreme Court long ago held in State ex rel. M.O. Danciger & Co. v. Pub. Serv. Comm n that a public use requirement was intended. 15 The statutory provisions on which this case relied remain largely unchanged today and more recent decisions continue to cite and follow Danciger s holding that facilities must be devoted to a public use before [they are] subject to public regulation. 16 However, recently, this public use requirement appears to have been narrowed by interpretations by the MPSC, and therefore, an aggregation project needs to be reviewed to determine whether it may be considered a public utility by the MPSC and therefore subject to regulation. 3. Retail wheeling Depending upon how the system is structured, it is possible that the concept of retail wheeling will need to be evaluated. Essentially, retail wheeling refers to the process of delivering energy supplied by one party over a transmission system owned or controlled by another party. The party that controls the transmission system is entitled to charge the customer for the use of the transmission system. If the remote net metered system is designed in such a way that the power will have to be delivered back to the customer s home meter, an agreement will need to be reached with the applicable transmission owner for the transmission of that power. As a result, it will be necessary to examine the applicable transmission owner s tariffs and any applicable statutes and regulations to ensure that no violations occur. 13 Ogg v. Mediacom, L.L.C., 142 S.W.3d 801, 813 (Mo. App. W.D. 2004) (footnote omitted); see also R.S. Mo. 14 Section (43) R.S.Mo. defines a public utility to include, in pertinent part, every electrical corporation as these terms are defined in this section, and each thereof is hereby declared to be a public utility and to be subject to the jurisdiction, control and regulation of the commission and to the provisions of this chapter. The term electrical corporation is defined in (15) as: every corporation, company, association owning, operating, controlling or managing any electric plant except where electricity is generated or distributed by the producer solely on or through private property for railroad, light rail or street railroad purposes or for its own use or the use of its tenants and not for sale to others. Electric plant is defined, in pertinent part, as all real estate, fixtures and personal property operated, controlled, owned, used or to be used for or in connection with or to facilitate the generation, transmission, distribution, sale or furnishing of electricity for light, heat or power. 15 See State ex rel. M.O. Danciger & Co. v. Pub. Serv. Comm n, 275 Mo. 483, 205 S.W. 36, 38 (Mo. 1918). 16 See Osage Water Co. v. Miller County Water Auth., Inc., 950 S.W.2d 569, 574 (Mo. App. S.D. 1997); Khulusi v. Sw. Bell Yellow Pages, Inc., 916 S.W.2d 227, 232 (Mo. App. W.D. 1995). Hurricane Deck Holding Co. v. PSC of Mo., 289 S.W.3d 260, 2009 Mo. App. LEXIS 958 (Mo. Ct. App. 2009). 18

22 Availability in Kansas As is the case in Missouri, it is currently unclear whether Kansas law permits use of remote net metered projects. Specifically, there appear to be three major potential barriers to the use of this financing structure: 1) compliance with Kansas s Net- Metering requirements; 2) avoidance of regulation as a public utility by the KCC; and 3) compliance with state retail wheeling restrictions. 1. Satisfaction of net metering requirements As in Missouri, Kansas net metering provisions pose a potential obstacle for remote net metered projects. In Kansas, the project must, among other things, be located on a premises owned, operated, leased or otherwise controlled by the customer-generator and be intended primarily to offset part or all of the customer-generator's own electrical energy requirements. 17 Both of these requirements present potential obstacles for remote net metered projects, as the actual solar panels would be located off-site and may or may not be directly connected to the customer-generator s meter. 2. Public utility status As described above in the sections on Kansas solar equipment leases and PPAs, the Kansas statutes define the term public utility as, in pertinent part, all companies [engaged in] the production, transmission, delivery or furnishing of heat, light, water or power. 18 However, the Kansas statutes also grant certain entities the option to exempt themselves from regulation as a public utility pursuant to K.S.A (e) by filing a Notice of Exemption with the KCC. It is not immediately clear from the text of the statutes and regulations whether a remote net metered project would qualify for public utility status. Thus, it would be advisable for any projects that attempt to adopt this type of structure to file a Notice of Exemption with the KCC. 3. Retail wheeling Finally, as was described above for Missouri projects, depending upon how the system is structured, it is possible that the concept of retail wheeling will need to be evaluated. If the remote net metered system is designed in such a way that the power will have to be delivered back to the customer s home meter, an agreement will need to be reached with the applicable transmission owner for the transmission of that power. As a result, it will be necessary to examine the applicable transmission owner s tariffs and any applicable statutes and regulations to ensure that no violations occur. 17 K.A.R (b). 18 K.S.A (a). 19