BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF A ) DECLARATORY ORDER REGARDING ) THIRD-PARTY ARRANGEMENTS ) FOR RENEWABLE ENERGY GENERATION) Case No. 09.002 17-UT. ‘BRIEF OF MEMBERS OF THE NEW MEXICO LEGISLATURE Introduction The undersigned members of the New Mexico Legislature serve this brief to support a finding that third-party arrangements for renewable energy generation are permissible and in the public interest. The Legislature has spoken clearly in recent sessions in support of the continued development of renewable energy generation in New Mexico, including distribured generation of electricity from renewable sources. Third-party arrangements are a vital tool to support the continued development of renewable energy generation in New Mexico and should be supported by our state’s government. Posture of this Matter & Background Information Due to the public policy directives to increase renewable energy and to capitalize on the incentive programs available, a financing mechanism known as the third-party ownership power purchase agreement (PPA) model is being used across the United States to offset the hefty individual expense of solar photovoltaic (PV) systems. The third-party PPA is essentially a long-term contract between a third-party owner and a utility customer (usually commercial or governmental entities) to finance an onsite PV system. In the alearrangement, the thirc-party owner installs, owns, operates and maintains the PV system, charges the customer for the system based on kilowair hours (kWhs) produced and receives the benefits of owning the system, including state and federal tax credits, depreciation, tax incentives and private investor-owned utility (OU) cash incentives, The third-party ‘ownership PPA model is fast becoming "the financing method of choice" in many states because of the low or no initial investment cost to the customer. (Franrzis, L., "Photovoltaics Business Models’, National Renewable Energy Laboratory Subcontract Report 581-42304, February 2008, htrp;//www.nrel. gov/docs/ fy08osti/42304.pdf,) The growth of the solar industry depends on this and other alternative financing mechanisms. However, there are currently legal challenges to third-party PPAs in many jurisdictions similar ¢o the issues before the PRC in its Initial Order, Case No. 09-00217-UT, June 17, 2009. A relevant fuct pattern before the PRC on third-party PAs is as follows On June 24, 2009, the Santa Fe City Council approved a contract with SunBdison Utility Solutions, LLC (SunEdison), to provide PV systems at eight city-owned facilities. The SuniEdison proposal includes the following elements: 1) a 20-year PPA for the City of Santa Fe to host onsite PV systems at a rate based on kWhs produced; 2) the understanding that SunEdison will construct, own, operate and maintain the PV system; 3) monthly payments from Public Service Company of New Mexico (PNM) to the city for all solar renewable enexgy certificates (RECS) generated; and 4) the understanding that ‘SunEdison will pursue federal and state tax credits and other renewable energy incentives. (City of Santa Fe Memo to David Millican, Director, Finance Department, Nicholas Schiavo,Energy Specialist, June 1, 2009.) On behalf of the city, SunEdison submitted nine PV project applications to PNM’: large-scale PV program, a PNM-sponsored program that pays customers using PV systems a REC payment of $0.15 per kWh generated by the PV system over a 20-year term. (Id.) The program was instituted to foster renewable energy production in order for PNM to meet its renewable portfolio standard (RPS) requirements. On June 17, the PRC issued an initia! order announcing its intent to initiate a declaratory proceeding on whether third-party PPAs for renewable energy generation are permissible under New Mexico law, including the Public Utility Act (PUA), Chapter 62, Articles 1 through 6 and 8 through 13 NMSA 1978, the Renewable Energy Act (REA), Chapter 62, Article 6 NMSA 1978 and Commission Rule 17.9.572 NMAC (Rule 572). ‘The PRC requests legal briefs from interested parties addressing the following issues: a) The permissibility of arrangements that are entered into primarily as a financing mechanism for distributed renewable energy generation systems whereby a third party owns the renewable generation equipment, which is installed on the utility customer's premises, there is a longterm contract with the customer to supply a portion of that customer’ electricity use, and payments are based on kilowatthours (kWh). (b) Is the permissibility of such arrangements affected by whether (i) there is a single relationship between the third-party owner of the generation and a customer ot (i) there are multiple customers taking power from the same third parry? From this request for briefs, the PRC is poised to determine whether these third: party PPAs are permissible based on the fundamental question of whether a third-party owner Is a public utility within the meaning of the PUA. (Llano, Inc, u: Southern Union Gas -3-