If the ACC Fails to Regulate SSA Companies, Then There Will Be Problems

If the Arizona Corporation Commission (ACC) ruled that Solar Service Agreements (SSAs) are valid without these SSA companies registering as utilities, then the ACC has failed its mandate to protect Arizona energy users from potentially unscrupulous corporate malfeasance.

Entities that sign SSAs are in effect changing utilities from one that is regulated to another that is subject to go out of business and not responsible to anyone but increasing shareholder value.  The authors cite “an innovative approach to solar energy that benefits private and public entities alike.”  This is untrue; this approach allows private firms to fly under the regulatory framework protecting its citizens.  The article will not specifically cite the potential savings for tax-exempt entities, which would seem natural with the statement, “The escalating and constantly gyrating costs of energy can play havoc with a school district’s budget.”  What are the savings?

I am a solar energy expert in Arizona and consul my clients to purchase these systems with either a bank loan or outright cash if it is available.  The fundamental reason behind my reasoning is that the savings from a SSA is only a fraction of the real savings available from making the investment in an entity’s long-term economic sustainability.  In the best case for an SSA agreement over 25 years, the cost of electricity will decrease between 10%-20% from what the utility charges.  In the best case for the purchase of a solar energy asset, electricity will be free for every kWh generated for at least 2 decades.  The ultimate problem with SSAs is that the devil lies in the details; it is certain that the SSA firm is not responsible for many things that the state’s utilities are mandated to provide.  What is the likelihood of a utility going out of business?  What is the likelihood of a company with investors to make fundamental mistakes and cease operation?  From the current events, it is evident that not one utility went out of business and thousands (even ones too big to fail) went out of business or required government bailout money.

In this example of a 300 kW power plant, the following facts are evident:

1. The current cost per kWh is $0.075 and escalating at 6.5% per year.
2. The SSA starts out at $0.90 per kWh and escalates at 2% per year.
3. The system breaks even in 4 years with current energy costs or SSA costs.

Interestingly enough, the authors cite “The likely effect would be to send the firms packing to other states that do not regulate them like utilities.”  So, in effect, if these companies cannot make an easy score in Arizona, they will move to other places like California, Utah, Colorado, or others.  I do not believe anyone in Arizona is unhappy that Enron did not like Arizona’s regulatory environment and passed on the state as a fruitful candidate for its corporate efforts.

There are many examples of viable public and private partnerships that result in truly magnanimous projects.  However, the SSA will not provide Arizona schools with a truly beneficial relationship.  Here are the facts why SSA companies are in Arizona:

1. Arizona Schools have been hit hard with budget cuts and are looking for any ways to trim the budget if even by only tenths of a percent.
2. Arizona’s two major metropolitan areas receive more sun per day than any other metropolises in the US…this ensures the private companies will be able to mint money
3. Arizona currently does not regulate SSA firms, which is an opportunity for these companies given many other states are proposing to regulate these companies like utilities.
4. Arizona has some of the best solar energy incentives in the country.

These are the reasons the Arizona Corporation Commission should not give a pass to SSA companies:

1. Schools are susceptible to signing agreements that may make sense for small savings today but forgo the larger savings available with a better plan.
2. There are much better plans for schools to save money with solar energy assets that are realized with a true private partnership with public schools…benefactors step up.
3. Burdensome regulation protects Arizona consumers…Arizona’s past is full of many examples when private firms lobbied public regulatory agencies for a pass, and Arizona ended up holding the foul-smelling bag.
4. The likelihood that the head of the Sierra Club and Goldwater Institute see eye to eye without an outside lobbying effort is unfathomable.  The Goldwater Institute recently sued the ACC to prevent it from instituting renewable energy guidelines for the state.

The authors do point out something very important, that fact is that Arizona utilities are on pace to fail their renewable energy mandates by a significant amount.  In effect, AZ utilities have done a great job at confusing their renewable energy incentive programs by allowing phantom projects to soak up the majority of available money, which prevents signed contracts from moving forward with truly interested enterprises wanting to make the long-term investment.  I can drown the reader in facts with public documents filed at the ACC, and if you would like to know more, please read.