Utility Use of Renewable Resources: Legal and Economic Implications
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Denver Law Review Volume 59 Issue 4 Article 4 February 2021 Utility Use of Renewable Resources: Legal and Economic Implications Jan G. Laitos Follow this and additional works at: https://digitalcommons.du.edu/dlr Recommended Citation Jan G. Laitos, Utility Use of Renewable Resources: Legal and Economic Implications, 59 Denv. L.J. 663 (1982). This Article is brought to you for free and open access by the Denver Law Review at Digital Commons @ DU. It has been accepted for inclusion in Denver Law Review by an authorized editor of Digital Commons @ DU. For more information, please contact [email protected],[email protected]. UTILITY USE OF RENEWABLE RESOURCES: LEGAL AND ECONOMIC IMPLICATIONS* JAN G. LAITOS** I. Overview: The Nature of Utility Involvement in Renewable Energy Applications ......................................... 666 A. Types of Utilities and Their Differing Relationships to Renewable Energy ...................................... 666 1. Electric Utilities and Renewable Energy .............. 666 2. Gas Utilities and Renewable Energy ................. 669 B. Prospects for Utility Interest in Renewable Energy ....... 671 II. Utilities and Decentralized Renewable Energy Applications ... 672 A. Utilities and Nonelectric, Decentralized, Renewable Technologies ..... ................................ 673 1. The Effect of Nonelectric Renewable Technologies on U tilities ............................................. 673 2. Responses of Utilities to Nonelectric Renewable Technologies ........................................ 676 a. Utility Discrimination Against Renewable Energy U sers ............................................ 676 (i) Service Discrimination ....................... 676 (ii) Rate Discrimination ......................... 678 (a) legality of rates harmful to users of renewable energy devices ................ 678 (b) alternative rate structures for the renewable energy user .................. 681 b. Utility Participation in the Development of Nonelectric, Decentralized Renewable Energy A pplications ..................................... 683 (i) Utility Involvement in the Renewable Energy M arket ..................................... 683 (ii) Regulating Utility Involvement in Renewable Energy Development: Antitrust Concerns .... 687 (iii) Alternative Types of Utility Involvement in Renewable Energy Development ............. 690 * Several of the legal issues discussed in this article were previously developed in Laitos, Utiliies and Solar Energ, in LEGAL ASPECTS OF SOLAR ENERGY 109 UJ.Minan & W. Lawrence eds. 1981). Reprinted by permission of the publisher, from LEGAL ASPECTS OF SOLAR ENERGY, edited by J. Minan and W. Lawrence (Lexington, Mass.: Lexington Books, D.C. Heath and Company, Copyright 1981, D.C. Heath and Company). ** Professor of Law, University of Denver College of Law; Former Senior Legal Specialist, Utility Applications and Policy Branch, Solar Energy Research Institute, Golden, Colorado. I am indebted to Theresa Flaim of the Solar Energy Research Institute and Wendy Brown, J.D., University of Denver College of Law. Both provided much constructive comment. 663 DENVER LAWJOURNAL [Vol. 59:4 (a) traditional utility roles and renewable energy .................................. 691 consumer education ................... 691 incentive programs ................... 692 data collection ........................ 692 quality controls ....................... 692 (b) utility marketing of renewable energy system s ................................. 693 installation and maintenance .......... 693 ownership, sales, and leasing .......... 694 financing ............................. 695 (iv) Legal and Regulatory Issues Raised by Active Involvement in Renewable Energy D evelopm ent ............................. 697 Federal tax laws .......................... 697 Public Utility Holding Company Act ...... 698 State law regarding utility merchandising activities ............................... 698 State public utility securities laws .......... 700 B. Decentralized Electricity-Producing Renewable T echnologies ............................................ 701 * SW E C S .............................................. 701 " P Vs .................................................. 701 * Low-H ead H ydro ..................................... 702 " Sm all Scale Biom ass .................................. 702 1. Impacts on and Interconnections with the Utility ..... 703 2. Legal and Regulatory Issues Governing Interconnection ...................................... 703 a. PURPA-Interconnection and Rate Regulation ... 704 b. State Initiatives After PURPA .................... 706 III. Legal Issues Associated With Utilities and Centralized Renewable Energy Applications ............................. 706 A. Federal Law Mandating Utility Use of Solar Technologies 707 B. Competition of Facilities Using Renewable Energy with Conventionally-Fueled Utilities .......................... 708 1. U tility R esponses .................................... 708 2. PU C Responses ..................................... 709 a. PUC Jurisdiction Over Facilities Using Renewable E nergy .......................................... 709 b. Consequences of PUC Jurisdiction ................ 710 c. Alternatives to PUC Jurisdiction .................. 710 3. Competition by Municipally-Owned Renewable Energy Facilities ..................................... 711 4. Competition by Federally-Owned Renewable Energy Facilities ............................................ 712 C. Siting of Utilities Using Renewable Energy Technologies . 713 I. B iom ass ............................................. 714 2. Low-head Hydroelectric Power ....................... 714 19821 UTILITY USE OF RENEWABLE RESOURCES 3. Large Wind Energy Conversion Systems (WECS) ..... 715 4. Photovoltaic Systems and Solar Thermal Central Power Stations ...................................... 716 5. Ocean Thermal Energy Conversion (OTEC) .......... 717 D. Legal Liabilities Resulting from the Operation of a Utility Using Renewable Fuels ................................. 717 1. Liability for Damage or Injury ....................... 717 2. Liability for Failure to Provide Electricity ............ 719 IV . C onclusion .................................................. 720 INTRODUCTION The relationship between utilities and renewable energy' is important because utilities will determine to a large extent the development of renewa- ble energy in the United States. To understand this key role that utilities will play, it is necessary to explain how utilities are regulated. The purpose of this article is to provide both an overview of the ways in which renewable energy applications affect utilities, and an analysis of relevant legal princi- ples that shape this relationship. The article is divided into three major sections. The first section in- troduces the general nature of utility involvement in renewable energy use. It discusses thet various types of utilities most likely to take an interest in renewable energy, the kinds of applications that are the subject of this inter- est, and the conditions that generally will trigger this utility interest. The second section focuses on the legal relationship between utilities and decen- tralized renewable energy applications-technologies which operate at the site of the customer and reduce the need for the utility to provide power to the customer. Because such decentralized technologies are presently market- able, their use will have important legal and economic consequences for util- ities. The final section outlines the important legal issues that arise from 1. "Renewable" energy forms are, as the term implies, capable of supplying energy by resources that are largely inexhaustible. Such resources, and their applications, are: Resource Application (1) the sun (solar) hot water (active systems) space heating and cooling (active) passive systems (heating and cooling) industrial process heat solar thermal power (electricity) photovoltaics (electricity) (2) the wind wind energy conversion systems (electricity) (3) biomass gas alcohol fuels residue waste heat (electricity) (4) rivers low head hydroelectric power (electricity) (5) the ocean ocean thermal energy conversion (OTEC) (electricity) waves and tidal power (electricity) Several studies predict that these renewable energy forms could supply up to 20% of the country's energy needs. Set H. KENDALL & S. NADis, ENERGY STRATEGIEs: TOWARD A SOLAR FUTURE (1980); R. STOBAUGH & D. YERGIN, ENERGY FUTURE (1980); HousE COMM. ON EN- ERGY AND COMMERCE, SOLAR ENERGY RESEARCH INSTIrTUE, REPORT ON BUILDING A SUS- TAINABLE FUTURE, 97th Cong., 1st Sess. (Comm. Print 1981). DENVER LAWJOURNAL [Vol. 59:4 utilities' adoption of centralized renewable energy applications-technolo- gies that allow utilities to provide power from renewable fuels directly to customers. Due to their high cost and technical complexity, centralized re- newable energy applications are not as market-ready as decentralized appli- cations. Therefore, the discussion of legal issues is relatively brief. I. OVERVIEW: THE NATURE OF UTILITY INVOLVEMENT. IN RENEWABLE ENERGY APPLICATIONS A. Types of Ut'lities and Their Dijfering Relationships to Renewable Energy Utilities can be divided into several categories. The most obvious way to classify utilities is by their end product. Utilities usually supply gas, elec- tricity or both. Another way of classifying them is by their function. Some electric utilities generate electricty; others purchase it wholesale from utilities