Washington UTC clarifies its authority to regulate third-party ownership of solar panels and requests further legislative direction

The Washington Utilities and Transportation Commission (WUTC) has issued an interpretive policy statement clarifying its jurisdiction to regulate third-party owners of solar panels and other net metering systems as “Public Service Companies.” Docket No. UE-112133 (July 30, 2014) (statement).  While the WUTC’s policy statement  provides useful guidance on the agency’s current position and the action it will likely take in the future, the statement is not binding on the agency.

For purposes of the policy statement, the WUTC considered two contract structures by which third-party owners of rooftop and other distributed solar generation provide a host property owner with electrical energy produced by the solar facility — the leasing of solar equipment to the host and the sale of power from on-site equipment to the host.  The WUTC concluded that, in most instances, it has jurisdiction to regulate third-party owners of such solar facilities as “utilities.”  The WUTC felt, however, that its regulatory authority should be limited to issues of consumer protection and should not include the same economic and rate regulatory authority that is applicable to traditional utilities.  This statement is the most recent progress by the WUTC in its multi-year effort to update rules on distributed electric generation and support development of renewable resources.

Washington’s net metering program was established by statute in 1998. Electric utilities were required to offer net metering to their customers until the cumulative net metering capacity reached a cap of 0.25 percent of the utility’s peak 1996 demand.  In 2006, the Energy Independence Act expanded the program by increasing the net-metering cap to 0.5 percent of 1996 peak demand and enabling utilities to count distributed generation resources at double their actual output for the purpose of meeting the utilities’ renewable portfolio standards.  Despite these efforts, distributed generation has grown more slowly in Washington than anticipated, and no electric utility in the state has reached its 0.5 percent cap. Based on a 2011 study, the WUTC believes that the slow adoption of distributed generation is due in part to uncertainty concerning the Commission’s regulation of third-party ownership of net metering systems – the primary business model for installing distributed generation.  The WUTC issued a final order in 2013 clarifying that third-party ownership of net metering systems is eligible under RCW 80.60.010 for the net-metering program.

To assert jurisdiction over a third-party owner of net metering generation, the WUTC must find both that the third party owner is an “electrical company” and that it provides “public service.”  The WUTC concluded, however, that there is no “bright line rule to determine if a facility is dedicated to the public use,” and that therefore a fact-specific multi-factor analysis is required.  Focusing on consumer complaints and consumer protection, the WUTC determined that, “on balance,” third-party owners of rooftop solar and other net metering generation fall under the commission’s jurisdiction.  The WUTC identified consumer risks including (1) fraud and deceptive business practices, (2) quality of installed systems, (3) unfulfilled contract obligations, (4) securitization of consumers’ lease payments, (5) contractual limitation of consumers’ legal remedies, (6) inadequate communication and disclosure of contract terms, and (7) restrictions on the customer’s ability to sell the home.

To combat these risks without unduly burdening industry, the WUTC recommended that the Washington State Legislature enact legislation to clarify the scope of the WUTC’s regulatory authority over third-party owners of net metering generation.  The WUTC suggested using a statutory framework similar to that governing competitive telecommunication companies, where companies “simply register with the commission and publicly post their prices and contracts” rather than requiring such entities to be subject to “traditional rate base, rate of return regulation.”  The WUTC believes this policy clarification will allow the commission to encourage competition in the market place and police unfair business practices by performing such functions as “promulgating rules, receiving consumer complaints, investigating issues raised, helping resolve disputes once escalated, and initiating administrative actions against companies when appropriate.”

If the Legislature does not address this issue during the 2015 legislative session, the WUTC plans to consider a rulemaking process to further clarify its “jurisdiction over third-party owners of net metering systems and describe how [it] would regulate such companies.”