The Iowa Supreme Court last week heard arguments in a case pitting Eagle Point Solar against the Iowa Utilities Board and the state’s three dominant electricity providers — Interstate Power and Light (IPL), MidAmerican Energy and the Iowa Association of Electric Cooperatives. The case hinges on what constitutes a “public utility” under Iowa law and whether third-party solar ownership agreements infringe on Iowa utilities’ exclusive service territories.

The Minnesota Public Utilities Commission, meanwhile, is weighing an administrative law judge’s opinion that a 100-megawatt solar build-out proposed by Geronimo Energy is the best way to meet the state’s future electricity needs (ClimateWire, Jan. 7). The judicial opinion, while not binding on the commission, has raised the prospect of utility-scale solar farms in Minnesota, a state not traditionally included among top solar markets.

Yet as in Iowa, the idea of expanding Minnesota’s solar portfolio, at least in the form Geronimo proposes, is getting a cold reception from traditional utilities. Xcel Energy, the state’s largest power provider, has argued to the PUC that it should set aside the recent judicial opinion and approve Xcel’s own proposal to build new natural-gas-fired generation to meet the state’s future electricity needs.

The outcomes of the two cases, while specific to Iowa and Minnesota and the companies operating within their borders, could nevertheless become bellwethers in other regions of the country, especially as market forces and regulatory standards shift to allow more electricity to come from nontraditional sources and independent providers.

Many of the nation’s traditional electric utilities have openly worried about erosion of their financial bottom lines as upstart solar companies operating in nearly half the states contract with homeowners and business owners to produce and sell electricity from panels that are mounted directly on the property owners’ rooftops, essentially converting electricity consumers into electricity producers.

“These traditional utilities have a big stake in what energy investments are made and how those investments fit into the broader system,” said Ross Abbey, a policy associate and solar power specialist with St. Paul, Minn.-based nonprofit Fresh Energy. “Partly it’s an engineering thing, but they also have a self-interest in remaining in the driver’s seat. In both of these cases, you’ve got outside suppliers coming in and offering to do it cheaper or better, and that is a bit of a challenge for utilities as central players in the energy sector.”

Can solar power play in Dubuque?

In Iowa, the dispute over solar power has cast the state’s three dominant power utilities in a new light.

Whereas Iowa’s wind power boom has come largely with the support of Iowa’s rate-based utilities, the path to a solar build-out is proving more difficult, especially if the generation comes from companies that are helping facilitate the transition to decentralized electricity generation by financing and building third-party solar systems.

IPL, a subsidiary of Wisconsin-based Alliant Energy, in 2012 challenged Eagle Point Solar’s right under Iowa law to install a solar array atop the city of Dubuque’s municipal operations center and then sell the panels’ electricity output under a “behind the meter” power purchase agreement with the city, offsetting some of the center’s grid-derived power.

In each of the last two years, the city has offloaded in excess of 200,000 kilowatt-hours of power from the panels, or roughly one-third of the facility’s total power demand, according to company estimates, and it avoided an estimated 270 tons of carbon dioxide emissions.

Although the environmental benefits of solar power to Dubuque are not in dispute, Iowa’s utilities believes the Eagle Point-Dubuque solar deal, at least as it was originally conceived and executed, violates state laws that govern the way electricity is delivered to Iowa ratepayers.

IPL and its utility co-plaintiffs contend that Iowa law holds that only a “public utility” or “electric utility” can sell electricity within the state, and that the transfer of solar power by an independent firm to the city of Dubuque violates IPL’s exclusive rights to provide power in much of eastern and southern Iowa, including Dubuque.

In April 2012, the utilities won a ruling before the Iowa Utilities Board, which held that Eagle Point Solar was in fact a competing public utility operating in IPL’s designated territory. But that decision was overturned a year later by a state district court judge who ruled that the sale of solar power to Dubuque under a third-party financing agreement did not make the company a utility, nor did it infringe on IPL’s state-sanctioned monopoly.

In fact, Polk County District Judge Carla Schemmel found that the deal was consistent with the state’s interest in “promoting economical, efficient and adequate electric service to the public.” The utilities appealed to Iowa’s highest court last fall.

Utilities warn of market disruptions

In last week’s hearing, both sides tried to spin the complexities of Iowa energy law in their favor, with the utilities stressing that Eagle Point is in the business of selling electricity on a kilowatt-hour basis, which by definition makes it a public utility.

“We have a regulatory compact that the utilities have an exclusive service area in exchange for providing energy at a moment’s notice upon request to all customers, without discrimination,” Scott Brennan, an attorney representing IPL, MidAmerican and the Iowa electric cooperatives, told the seven-member Iowa Supreme Court in Des Moines. “In that situation, we’ve changed the scenario.”

Moreover, if companies like Eagle Point are allowed to enter Iowa’s electricity market as independent power providers, the utilities argue, the end result could be an explosion of unregulated “utilities” operating throughout the state and selling electricity under power purchase agreements to end users ranging from homes and businesses to hospitals and industrial parks. And unlike Eagle Point, not all the new energy providers will be selling clean energy, the utilities warn.

“This court should reject the appellees’ arguments to cast this as a battle between renewable and traditional energy sources because any ruling by this court will be applicable to all sales of energy set up on a customer’s property, whether renewable or not.”

Eagle Point, which installed the Dubuque operations center’s 850-panel solar array in 2011, has argued that the utilities’ arguments are misleading and intended to create fear that power purchase agreements will disrupt the state’s energy markets.

Representatives of the company say the Dubuque PPA, which was later revised into a lease agreement to appease Alliant Energy, does not violate the utility’s state-sanctioned monopoly because Eagle Point is not selling power to the public. Rather, the energy supplied by the panels is being consumed on site, making it in essence a self-generation system.

“Our argument is that we don’t sell electricity, we provide a bunch of services to allow the generation of electricity,” Phil Stoffregen, co-counsel for Eagle Point Solar’s parent company, SZ Enterprises, said in a telephone interview.

Barry Shear, Eagle Point’s president and CEO, said in an interview that the Iowa utilities’ argument that his small company could be construed as a public utility is the “Grand Canyon” of legal arguments. “I’m not doing power purchase agreements because I want to create a large portfolio of energy assets,” he said. “I want to do these deals so I can build solar arrays for municipalities and schools.”

Big solar vs. cheap gas in Minn.

Meanwhile, in Minnesota the state Public Utilities Commission is expected to rule next month on a proposal by Geronimo Energy to build a 100 MW solar photovoltaic power project at multiple sites in southern and central parts of the state. Geronimo’s goal is to sell all of the output from its $250 million Aurora solar project to Xcel Energy, thus helping meet future energy demand in Xcel’s service territory while also advancing the state’s renewable energy goals.

Geronimo’s proposal, which would be the largest utility-scale solar development in the state, received key backing earlier this month from Judge Eric Lipman of the Minnesota Office of Administrative Hearings, who issued an opinion stating that the company’s solar build-out strategy was the most economical and environmentally sound option for growing the state’s generation portfolio.

But Lipman’s findings have been challenged by a number of parties, including Xcel and the Minnesota Department of Commerce. Both have asked the Public Utilities Commission to reject Geronimo’s Aurora solar proposal in favor of competing bids to expand the state’s generation capacity using natural-gas-fired turbines.

In its most recent filing with the commission, Xcel stressed its leadership role among large utilities in developing and incorporating renewable energy, including solar power, into its energy portfolio. But when assessing the state’s projected power demand through 2019, Xcel believes Geronimo’s proposal does not adequately address the challenges ahead.

Among other things, Xcel said it can build new generation for less money by adding gas-fired turbines to its existing Black Dog Generating Station, where it has been producing power for decades. It also argues that natural gas provides greater flexibility should conditions change in the state’s electricity demand picture. Forecasts estimate that Xcel may need as much as 500 MW of new generation capacity by the end of the decade, but an economic slowdown could greatly reduce that load growth.

Commerce Department officials, who have been supportive of other measures to expand solar power in Minnesota, have also told the utilities commission that it does not believe the Geronimo solar farm is the most cost-efficient way to meet the state’s future power demand when competing against low-cost gas-fired projects.

Two other independent power companies — Calpine of Houston and Chicago-based Invenergy — also have proposed to build natural gas turbines at sites in southern Minnesota, with the electrical output being sold to Xcel under contract.

Minnesota’s utilities commission is expected to issue a decision on the competing proposals by late February.