Chapter VI

LEGAL AND REGULATORY ASPECTSOF ONSITE SOLAR FACILITIES

Chapter Vl.– LEGAL AND REGULATORY ASPECTSOF ONSITE SOLAR FACILITIES

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175Solar Rights: Protecting Access

to Sunlight . . . . . . . . . . . . . . . . . . . . . . . . . .176Introduction. . . . . . . . . . . . . . . . . . . . . , .. ...176Existing Laws: Adequate Sunright

Protection?. . . . . .................,.176NewDevelopment. . ..................176

Zoning . . . . . . . . . . ..................176RestrictiveCovenants. , .............176Express Easements. . ...............177Land-UsePlanning . ................177

TransferableDevelopment Rights. ... ...178Existing Developments. . ..............178

Should the Federal Government EnactNational SolarAccessLaws?. . .......178

Status of State Legislation . ..............179Building Codes and SolarSystems . .........180

Introduction. . . . .......................180Do the Model Building Codes

CoverSolarSystems?. . .............181What Solar System Standards

Are Needed? . .....................182

PageWhat Position Have Building Officials

Taken on Solar Facilities? . ..........182State Standards. . ....................183State Certification. . ..................183

OnsiteSolarFacilities and Public Utilities. ...184Introduction. . . . .......................184Utilities: DoRates or Service

Practices DiscriminateAgainstOnsiteSolarUsers?. . ...............184

Conventional RateStructure . ..........184Selling Energy to a Utility. . ............186RegulationsCovering Discrimination ....187

AreOnsiteSolarSystemsSubject to Regu-lation as PubiicUtilities? . ...........190

Ownership . . . . . . . . . . . . . . . . . . . . . . . . . .191Electricity, Steam, or Heat? . ...........192

Can a UtilityOwnanOnsite Solar Facility? .192Municipal Utilities. . ..................194Cost-Sharing Issues . .................194

What RightsWill Utilities Have toAquifers and OtherGeological Forma-tions Used for Thermal Storage? .. ....195

Chapter VI

Legal and Regulatory Aspectsof Onsite Solar Facilities

INTRODUCTION

Onsite solar facilities are controlled by laws and regulations often writtenwith entirely different energy systems in mind. That being the case, this studyfinds surprisingly few barriers to large-scale installation and operation of on-site solar facilities. Existing legal barriers are almost entirely inadvertent.

These barriers can delay the introduction of solar equipment, but in mostcases they can probably be removed with routine regulatory action.Resistance to changes in zoning or building codes, for example, generallyarises when an interested party will be adversely affected. It is not likely thatbuilders, owners, labor unions, or public officials will perceive onsite solargeneration as a threat.

The exceptions to this generally optimistic conclusion are the laws andregulations governing public utilities. Most statutes and regulations govern-ing energy generating equipment assume that energy would be suppliedprimarily by large regulated utility companies which would enjoy a “naturalmonopoly” in a given region. If small facilities become economically com-petitive, however, the only natural monopoly may be systems for transmittingand distributing energy. It is important to notice that most of the regulatoryissues raised in connection with small solar energy devices also apply to con-ventionalIy powered on site cogenerating equipment.

Application of existing utility regulations to onsite energy systems is fre-quently ambiguous, sometimes contradictory, and occasionally inadvertentlydiscriminatory. Problems can arise if utilities attempt to own and operate on-site equipment, and if organizations other than utilities attempt to generatesolar energy for sale. Regulations governing the rates charged by utiIities forbackup power and the price at which they will be willing to purchase onsitepower generated in excess of onsite needs can have an enormous effect onthe cost of solar energy computed by nonutility owners of solar equipment.

Existing rate structures, however, have been designed without attention tothe problems of solar equipment and the analytical basis for determiningequitable rates is only beginning to be established. Although regulatednatural gas prices were designed to benefit gas consumers, the policy tendsto reduce the attractiveness of solar energy devices.

How these ambiguities are resolved can have profound effect on the futureof the solar energy industry. Regulations can affect the designs chosen andpatterns of ownership, and they can serve to retard, stifle, or stimulate thedevelopment of the industry. It is clearly an area where doing nothing couldtranslate into a policy of restraining the growth of the solar industry.

176 Ž So/ar Technology to Today’s Energy Needs

SOLAR RIGHTS: PROTECTING ACCESS TO SUNLIGHT

INTRODUCTION

An investment in a solar installation mustbe considered insecure unless the owner canbe assured that the collectors will not beshadowed by new construction or vegeta-tion during the useful life of the equipment.Protecting this access to sunlight can be dif-ficult, since no property owner in the UnitedStates has an absolute legal right to sun-shine.1 If procedures to ensure some suchprotection cannot be developed, concernabout “sun rights” could present a majorbarrier to the use of solar energy, It may notbe easy to provide such protection in dense-ly populated areas or in areas graced withlarge trees, In some cases–particularly old-er residential neighborhoods — it may be im-possible to ensure access to sunlight for allbuildings. A considerable amount of protec-tion can be provided, however, with imag-inative use of existing laws, zoning ordi-nances, and covenants; it seems unlikelythat additional Federal legislation would beable to contribute usefully to the resolutionof these problems.

EXISTING LAWS: ADEQUATESUN RIGHT PROTECTION?

New Development

Imaginative work is needed to determinehow best to use existing laws. Although localgovernments are able to help protect sun-rights, under existing statutes this powerusually is not used to help solar equipmentowners.

ZONING

The power to zone can literally shape acommunity from broad outline to minutedetail, The zoning authority power is broadenough to enable States and municipalitiesto assure solar access in new subdivisions,shopping malls, industrial parks, and smallcommunity developments, Existing zoningreguIations may direct the purpose for

‘ Fountainb/eau Hotel Corp. v Forty-five Twenty-flve, /nc,, 114 So. 2d 357,181 Fla Supp 74 (1959)

which land may be used, control buildingheights and orientation, and govern lotsizes, yard requirements, the appearance ofbuildings, property, and secondary struc-tures.

If maximum use of solar collectors isdesirable, it may prove useful to adopt man-datory minimum or uniform height regula-tions similar to rules that now limit buildingheights. ’ Since zoning laws generally allowunderdevelopment, problems are foresee-able. For example, if a property owner in anarea zoned for 16-story development buildsonly a 4-story building, shading problemscould ensue. Perhaps economic incentiveswiII make such cases rare.

RESTRICTIVE COVENANTS

The numerous local building covenantsand architectural review boards provideanother opportunity for protecting sun rightsin a community but may also present prob-lems for solar equipment. These covenantsare private legal devices which are typicallyin the form of reciprocal promises in eachdeed of a subdivided tract. They can beused to provide detailed guidance about thekinds of architecture and the bui ldingmaterials which will be permitted in theregion covered. Since many early solar col-lectors are likely to be ungainly (if notoutright ugly), it is possible that the use ofsolar devices will receive unfavorable treat-ment by local organizations reviewing com-pliance with the building covenants. Theproblem is Iikely to become much more dif-ficult if tracking collectors begin to enterthe market in significant numbers. The unat-tractive appearance of the inexpensive solarwater heaters in Israel has apparent lypresented a major problem for manufac-turers in that country, and there are isolated

* Such a law may guarantee each structureenough sunlight for a hot water heater or other roofcollectors, but would obviously not meet the needs ofvertical solar collectors (includlng windows) that arepart of a structure’s wal Is

Ch. VI legal Aspects of Onsite Solar Facilities ● 1 7 7

ins tances of loca l opposi t ion to roof topsolar systems in the United States. It r-nay beuseful to anticipate t h e p r o b l e m a n ddevelop regulations which would permitsolar facilities in which some care has beentaken to min imize p ipe- farms on roof topswhile permitting enough flexibility in designto ensure eff ic ient performance of theequipment. Clearly, there will have to besome compromise between performanceand aesthetics.

The advantages of using restrictive cov-enants as a means of protecting sunrightsare threefold: (1) covenants can be used tothwart impending interference of solar ac-cess (usualIy by injunction) before construc-tion begins, thus assuring a continuous sup-ply of sunlight; (2) they cost the Governmentnothing; and (3) State or local governmentscould encourage or require their use in newdevelopments.

EXPRESS EASEMENTS

Express easements provide another pri-vate legal device to protect access to sun-light in both new and existing developments.An easement confers the right to use (notpossess) specified parts of another’s prop-erty for a special purpose. A property owner,concerned about shading, could bargainwith a neighbor for an unimpeded path ofsunlight over the neighbor’s land. Ease-ments, which may also be leased, are bind-ing on subsequent owners of both parcels i nmany States, but in others new legislationmay be necessary to assure continuity of ac-cess to sunlight. Something of value is tradi-tionally given in exchange for land (althoughsome courts don’t require it), and the agree-ment must be in writing to be enforceable.

if a State views easements for light and airas benefiting a person (i. e., “in gross”) ratherthan a parcel of land, the State may not en-force the agreements against subsequentowners, although a subsequent owner prob-ably could, To attain enforcement, a Statecan enact a short, simple statute stating thatsuch easements must include the verticaland horizontal angles over adjoining prop-erty; terms and conditions of the grant; and

any compensation to be paid to any party in-volved. The legislation should also assurethe recording of express solar easementsalong with other land records.

Colorado has already enacted such legis-lation, and Florida, Maryland, and Arizonaare considering nearly identical bills.

The advantages of express easements are:they cost governments almost nothing; theyallow highly motivated individuals to act ontheir own; they may offer more protectionthan zoning laws, which can be changed;and they are adaptable to specific needs ofdifferent property owners.

Disadvantages are their transfer with thesale of land cannot be forced, their cost isuncertain, enforcement through the courtscould be costly, and the would-be owner ofa solar structure must bear the entire cost ofan easement.

LAND-USE PLANNING

Commonly used techniques that couldpromote solar utilization in new develop-ments include comprehensive city or countyplans, energy impact statements, and flexi-ble zoning techniques.

Many States use comprehensive plans toguide long-range policy in local zoning.Some State courts require that local zoningagree with a comprehensive plan. At leasttwo States have considered including solarenergy elements in their comprehensiveplans.

Nine States require that environmentalimpact statements discuss the effects ofprojects on energy consumption — two re-quire analysis of measures to conserve ener-gy resources,2 The developers of large tractsof land must usually file impact statementsunder State laws, and this procedure mightbe used to assure consideration of solarenergy utilization. Colorado has considered

‘ Corbln Crews Harwood, Us/rig Land to Sa\e Ener-

gy (Carnbrldge, Mass Balllnger Publlshlng Co , for-thcoming)

178 ● Solar Technology to Today’s Energy Needs

such a bill.3 The same Colorado bill wouldrequire that subdivision regulations includestandards and technical procedures for solaruse.

F l e x i b l e z o n i n g t e c h n i q u e s i n c l u d eplanned unit developments (PUDs) andbonus or incentive zoning. Only a few Statesspecifically authorize PUDs, but some com-munities use this technique without Stateauthorization. This concept relaxes zoningrequirements and allows builders to offerlayout, building design, and uses as a singlepackage.

To obtain approval of their plans, devel-opers could be required to indicate whereshadows would exist and to justify designsthat would create shadows. Bonus or incen-tive zoning offers governmental rewards inexchange for a developer’s inclusion ofdesign elements otherwise not directly re-quired by zoning.

Transferable Development Rights

A much-discussed but little-used ap-proach to land-use planning called trans-ferable development rights (TDR) is unique-ly suited to protecting solar access.

Under the TDR concept, rights for devel-opment conferred on lots by zoning codesare transferable and can be sold independ-ently of the land. Property owners could selldevelopment rights that they could not exer-cise because of solar restrictions. For exam-ple, the owner of a commercial propertythat adjoins a neighborhood of single familyhomes might sell the right to build a tallbuilding to the owner of a lot where a tallbuilding would not cast shadows on solarequipment. Under this concept, a municipal-ity can be a buyer-of-last-resort for develop-ment rights in cases where it is necessary toprotect access to sunlight for solar collec-tors The main advantage of the TDR con-cept is that it permits a municipaIity topolice solar access rights and avoid uncon-stitutional taking of property without com-pen sat ion.

‘ (010 H B 1166(197’6)

The Los Angeles Department of City Plan-ning concludes that its code may be ade-quate to protect solar access in developedas welI as new neigborhoods,4 Transit ionneighborhoods, where new commercial de-velopment is allowed alongside older resi-dential sections, will be one of the mostdifficult areas in which to protect solar ac-cess. If a newly zoned commercial area issouth of an older residential neighborhood,the taller buildings may cause shading prob-lems. Los Angeles zoning regulations dealwith this by Iimiting new structures in suchareas to six and three stories, “steppin g

down” heights gradually to avoid sharp con-trasts between old and new development. 5

Existing Developments

Assuring the protection of sunrights inneighborhoods can be a difficult problem.Many existing buildings in older commercialareas probably could not be adapted to usesolar energy unless basically rebuilt, whichmeans the demand for solar access in theseareas may be small. Clearly, it would bedesirable to consider solar access when anentire area is to be redeveloped, or evenwhen individual permits for remodeling areissued,

Probably the strongest available tech-nique for protecting sunrights in existingdevelopments is the purchase of solar ease-ments. It may be possible (for a price) for aprospective solar owner to purchase aneasement that will require his southernneighbor to cut trees to provide access tosunlight.

SHOULD THE FEDERAL GOVERNMENTENACT NATIONAL SOLAR ACCESS LAWS?

The Federal power to regulate commerceand provide for “the common defense” is

4 Charles S Rozzellee, Property Owners’ R/ghts toSurJ//ght, Los Angeles Department of City Planning,City Pldn Case No .26110 (1976), see p 14

5 I bid , p 12 An admlnlstratlve prob lem couldarise If the city were flooded with applications forthese special zones

Ch, V/ Legal Aspects of Onsite Solar Faci/ities ● 179

apparently broad enough to allow Congressto adopt policies protecting the use of solarenergy if it so desired. b It is probably notnecessary (and may even be unwise), how-ever, for the Federal Government to inter-vene in protection of individual access tosolar energy

Solar rights laws will have to be adaptedt o l o c a l c o n d i t i o n s , n o m a t t e r w h e r edraf ted The var iab les that must be con-sidered in access laws include topography,latitude, availability of alternative energysources, long-term regional growth plans,impacts of past and present zoning laws,and even the relationship of streets tosunlight patterns.

It is possible, however, that State orFederal encouragement will be needed tomotivate local governments to incorporatesolar access into their statutes. One expertestimated that only 5,000 of 60,000 jurisdic-tions with power over land use exercisedzoning powers in 1974 7

While preemption seems unnecessary, anappropriate Federal role might be a nationalpolicy set by Congress. For example, the ex-istence of solar access laws could be a fac-t o r i n c h o o s i n g locat ions for federallyowned, funded, or operated structures.

‘ \t Ickard \ I l/burn, )1 7 U S 111 (1 942), a person

grow I ng wheat on hl~ own land tor home use — a non-com m erc I d I dct I v I t} — w a $ tou nd to have enough ef -tec t on Interstate commerce to come under the Con-gress’ power

7 Peter W e l t , The F u t u r e oi the C i t y N’ew Dlrcc-tjons (n U r b a n P/annln~ ( N e w ‘r’ork Wa tson-Gupttl IPublic atlon~, Whitney Library ot Design, 1974), p 149

“ Crlterid \pPc I tIC J I Iy r e f e r r i n g t o solar ac( es<cou Id be ~ dded to H U D’~ Se{ t Ion 701 Cornmunlty De-vel opmen t prog rd m, w hlch p r o v i d e s financing forland-u~e plannlng that meets certain ( rlteria Sect Ion701(C) ot tire Flous[ng Act ot 1954 (ds dmended by thetiouf~ng dnci Commurllty D e v e l o p m e n t Act of 1974)\ays that tu nd 5 w I I I on I y be ava I I a b I e t o ap p I I c d nt ~w ho have on go I ng co m prehen $ Ive p I d n n i ng p roces~esthat Inc I ude both a housl ng element and a I and usee I e me n t The o~era I I a I m of t h Is program I \ corn pat I-

ble with the encou rdgement of \ol ar-ac ce~~ pl ann I ng,‘5 I n cc It hopes to en( ou rage ‘‘a more rat Iona I ut I I I zd -

t Ion ot land and other natural resources, and the bet-te r a r rd ngement of res I den t I d 1, com m e rc I a 1, I nd u j-

Solar access criteria could be added to theDepartment of Housing and Urban Develop-ment’s (HUD) Section 701 Community De-velopment program, which provides financ-ing for land-use planning.8 The overall aimof this program is compatible with the en-couragement of solar-access planning, sinceit is designed to encourage “a more rationalutiIization of land and other natural re-sources and the better arrangement of resi-dential, commercial, industrial, recreation-al, and other needed activity centers, ”

STATUS OF STATE LEGISLATION

A variety of legislation has been proposedon the State level. A bill in Massachusetts(Senate No. 269, 1977) uses the building per-mit system to protect sunrights. Under thisproposed law, those wishing to erect active-or passive-type solar energy units wouldhave to reasonably locate and angle theirequipment to minimize the possibility offuture interference with it, To get a buildingpermit, the equipment also would have tobe reasonably sized relative to the structure.The remaining problem of vegetation in ad-joining property would have to be solved byexpress easement. In land zoned for devel-opments for four stories, the municipal plan-

trla 1, recreat Iond 1, and other needed a( t I\ Ity center$ “

The regulations accompanying the 701 progralm (Ti-tle 24, part 600 — Comprehen~lve Plannlng As$lstance)halve been dmended to emphd~l~e energy concern~

Se( tlon 60072 now state~ that In $ele( tlng prlorlttes,edch reclplent shou Id con~ tder

(,2) Prolectlons of land use needs and land resourced e v e l o p m e n t Includlng energ} tac I I ltl~s sltl ng

needs

(7) The conservdtlon of energy through land use~trdtegles des Igned to reduce energy consu mption and the development of pol I{ IPS designed totac I ! Itate the re{ oier~ ot e n e r g y re$ourc e$ I n dmanner ( ompdt Ible with environmental I protec

t [on

“ Energy tacll Itle> sltlng needs” could be Interpreted

to lncl ucle “talc I I ltle~” a~ ~ma I I as an drrdy ot ~old r c ol-Iectors on the roof of a ~lngle it ructure, but a more ex-pl I c It ~tatutory conslderdt Ion of Jol a r energy needj I \rea I Iy needed42 u s c 5301 (c) (5)

180 . Solar Technology to Today’s Energy Needs

ning agency and the municipal governingbody would have to approve a proposedsolar structure. Before a nonsolar structurecould receive a building permit under thislegislation, the records would have to showthat there was no interference with an ap-proved solar collector.

A Minnesota bill suggests a very differentlegal approach (Minnesota H.R. 2064, 1976).It would simply grant solar easements to anycollector owner. Anyone erecting an objectshading the system would have to pay thesolar homeowner three times the actual costof implementing an alternat ive energysystem. Although the penalty section is in-triguing, this bill has many problems, in-cluding vagueness and unfairness based onthe first-come, first-served basis of the law.

Colorado legislation would forbid proper-ty owners from allowing their trees andshrubs to grow enough to shade solar collec-tors between 9 a.m. and 3 p.m. ’ But it is anattempt to deal with the serious problem ofvegetation, and the specific times listed i n

the legislation give property owners a clear-er view of their rights than a vague protec-tion of “sunlight necessary for the operationof solar equipment. ”

The tiny town of Kiowa, Colo., has en-acted a law declaring shadows on collectorsto be public nuisances. This nuisance ap-proach could present several kinds of prob-lems: no certainty of protection would existbefore a collector was installed, tangledcomplexity of the nuisance law, and costlyIawsuitsputes.

Law. , - . & - -

proprrev iv ilightseither

would be required to sett le dis-

journal articles suggest applyinglaws used in the West — the prior ap-

iation doctrine — to solar access, andng the old English doctrine of ancient10 11 No State has, to date, followedof these suggestions, both of which

would require extensive litigation, provideno compensation to the injured solar users,and were not drafted specifically for solarapplications.

BUILDING CODES AND SOLAR SYSTEMS

INTRODUCTION

Building codes, specifically applicable tohot water and space heating, air-condi-tioning, and electrical equipment, seldomcontain provisions covering onsite solarsystems. Code problems do not appear tohave been a major barrier thus far, but it isclearly possible that uncertainty on the partof code officials resulting from a lack of in-formation about solar devices and a short-age of standards and cert i f icat ion pro-cedures for solar systems could result in

‘ Colorado S B 38 (1976)

‘0 Mary D White, “The Allocation of Sunllght So-lar Rights and the Prior Appropriation Doctrine, ”University of Colorado Law Review 47 (1976) See t h eextensive review In the E nvlronmental Law Institute’s(E Ll) Legal Barriers to Us/rig Solar Energy for Hearingand Cooling f?ui/dings, which was contracted for by

fragmentation of the solar market, delays,additional expenses, and uncertainty to thebuilder or owner in the permit applicationand process. There are, as a result, com-pelIing reasons for enacting mechanisms forinspecting solar equipment similar to thosein effect for other heating, cooling, andgenerating equipment installed in resi-dences or commercial buildings.

The Federal Government, in a HUD dem-onstration program, developed standards

the Energy Research and Development Admin[stra-tlon, and IS an early effort In this direction It isavailable from E L I (1 346 Connecticut Ave , N W ,Suite 620, Washington, D C 20036) for $750

1‘ Lawrence Kressel, “Harrsorr v Sa/is/ran Properrles,/rrc,, Preservation of View– Limltatlons as to Heightof Improvements and Architectural Contro l In Uni-form Long Term Lease, ’’fnv. Law5(1974) 183

Ch. VI Legal Aspects of Onsite Solar Facilities ● 181

that could be used as models for incorpora-tion in building codes. Certification thatsolar systems meet those standards could bedelegated to approved testing agencies,thereby expediting the building permit proc-ess for solar users.

DO THE MODEL BUILDING CODESCOVER SOLAR SYSTEMS?

The three most widely used model build-ing codes are:

●

●

●

The Basic Building Code of the Buildingo f f i c i a ls and Code Admin is t ra to rs(BOCA), found mostly in the East andMidwest;

The Uniform Building Code of the Inter-national Conference of Building Of-f icials ( ICBO), found mostly in theWest; and

The Standard Building Code of theSouthern Building Codes Conference(SBCC), found mostly in the South.

According to a 1970 survey of localbuilding departments, 63 percent of the 919cities that had building codes of any kindused one of these three model codes. 12

The most widely used standards for elec-trical wiring and equipment are those of theNational Electrical Code of the NationalFire Protection Association. Although noexact figures are available, it appears thatthese electrical equipment standards areeven more widely used than any of the threemajor model building codes. The electricalstandards are adopted by reference in theBOCA code (Section 1500.3), but not by theother two model codes.

Building codes define terms, set standardsfor materials and equipment, describe howmaterials and equipment may and may notbe put together, and provide for enforce-ment through permits and inspect ions.Standards generally are either specification

‘ ‘ C h a r l e s G F i e l d a n d S t e v e n R Rlvkln, TheEluI/ding Code Burden, Lexington, Mass D C Heathand Co , Lexington Books, 1975, p 43

standards, which identify materials andequipment that may be used in construc-tion, or performance standards, which setstandards that materials must meet. Specifi-cation standards are easier to administer,but are inflexible. Performance standardsare more flexible, but require more trainedpersonnel, time, and money to administer.

Building codes regulate nearly everythingthat is constructed or built on land, with fewexceptions. Before granting permits for con-struction, remodeling, or repairs, buiIdingofficials decide whether plans conform tocode requirements. If a plan proposes use ofmaterials and methods that are specificallycovered by a building code, approval is rou-tine. If a plan calls for innovative materialsor techniques, however, a building officialhas the discretion to require testing of ma-terials and submission of evidence that theresulting structure will not be inferior to atraditionalIy built structure.

Most bui lding off ic ials display widelatitude in approving or rejecting materials,equipment, and methods not specificallyprovided for in the codes. If a l t e r n a t i v ematerials or techniques are to be used,building officials must be satisfied that theresulting structure will be at least equal instrength, fire resistance, safety, quality, andeffectiveness to structures assembled withmaterials and techniques specified in thecode. I n such case-by-case showings, ap-plicants may be required to pay for testingat facilities chosen by the building officials,using methods approved under the codes orchosen by them.

For most kinds of construction materialsand equipment, nationalIy recognizedstandards, test methods, and testing agen-cies are specified in the codes. Two ex-amples are the Underwriters Laboratories,Inc., for electrical equipment, and the Amer-ican Gas Association, for gas equipment, Forsolar energy systems such nationalIy recog-nized standards, test methods, and listingagencies do not exist.

Under al I three model codes, heating, ven-tilating, and cooling appliances must be ap-

182 ● Solar Technology to Today’s Energy Needs

proved by building officials or carry thelabel of an approved testing agency or lab-oratory. A “heating appliance” is presentlydefined in all codes as a device that gen-erates heat from sol id, Iiquid, or gaseousfuels, or with electricity, Solar sources arenot mentioned, nor are they included in thedefinitions of ventilating or cooling ap-pliances. In addition, there is no agency tocertify compliance and attach labels tosolar equipment, nor is there a nationallyrecognized set of standards on which tobase compliance. Solar heating systems aretherefore at a potential disadvantage ascompared to conventional systems, whichcan be approved for instalIation with a sim-ple showing of a label.

Other possible impediments to the use ofsolar facilities include code requirementsfor maintaining rather high minimum build-ing temperatures in cold weather, and for-mulas for determining window sizes. Limita-tions on awning and roof overhangs may in-terfere with some passive solar designs.Standards for prefabricated assemblies mayresult in costly tests to demonstrate weatherresistance.

More potential problems include limita-tions on residential building heights thatmay preclude roof collectors, chimney andplumbing clearances, application of newstandards to remodeling of old buildings,and implied prohibitions against using solarcolIectors as integral parts of a structure’sroof or walIs,

WHAT SOLAR SYSTEM STANDARDSARE NEEDED?

The only unique component of solarheating, cooling, and generating systems isthe collector. Once heat is collected, orelectricity is generated, it is transported,stored, and utilized by the same type ofequipment used in conventional systems.Standards for pipes, ducts, valves, storagetanks, controls, wiring, storage batteries,and other components already exist, eventhough their use in a solar energy systemwas probably not contemplated when the

standards were written. The primary require-ment for new standards is for solar collec-tors, including photovoltaic and focusingdevices.

Problems could result from novel usageof equipment and materials presently cov-ered in the codes, involving risks of leakageor explosion from excessive temperatures,high pressures, corrosion, and other compo-nent failures. Standards should addressthese and other risks, including human con-tact with hot surfaces or broken glass, con-tamination of dr inking water with toxiccoolants if plumbing is not properly in-stalled, and damage to collectors from highwind or heavy snowfalIs,

These risks would be relatively low in sys-tems designed for low-temperature uses,such as heating buiIdings or drying grain,but could be higher in some proposed solarelectric systems. Building codes must beamended in ways that apply different stand-ards for material and equipment accordingto the use of the solar energy facility.

WHAT POSITION HAVE BUILDINGOFFICIALS TAKEN ON

SOLAR FACILITIES?

Few builders have reported difficulties inobtaining building permits to construct solarfacilities. The major problem with codesmay prove to be an overly lax inspectionresulting from untrained inspectors ratherthan codes so strictly written that they in-terfere with sound solar engineering. Build-ing codes expert Steven Rivkin has said that,“Rather than serving as a retardant, existingbuilding codes have no bearing at all on thedevelopment of solar systems.’’13It is possi-ble that building officials will continue tolook with favor on solar energy systems, andnot rigidly enforce codes.

As solar energy systems gain in populari-ty, some kind of additional code require-

‘ ‘ AlA Research Corporation, Early Use of Solarlnergy In Buildings, 2 Vols , Washington, D C , August1976, 211-32

Ch. VI Legal Aspects of Onsite So/ar Facilities ● 183

ments will need to be developed. Withoutspecific coverage in model building codes,however, local interpretations of plans or re-quirements for costly testing could fragmenta potential market, result in higher costs ofsolar devices built to meet the stricteststandards found anywhere, and delay build-ing and construction of solar systems.

All appliances face this problem at sometime, and the solution has been nationallyrecogn ized s tandards and tes t ing proce-dures for the various models of equipmentand materials Applying the same procedureto solar equipment would put solar energysystems on the same footing as other heat-ing and electric systems

Most building codes are enforced at thelocal level, often with guidance from Statelaws but seldom with intervention at theFederal level. As has been noted, wherecodes are in effect, the majority of com-munities adopt and adapt the model build-ing codes. The first step toward assuring ac-ceptance of onsite solar facilities as stand-ard equipment is to draft a model set ofstandards for inclusion in the major buildingcodes. The second is to designate a testingagency to certify performance of solar ener-gy systems.

The effort to develop national standardscouId be coordinated by the Federal Gov-ernment There is precedent for this, in-cluding an ERDA contract with the NationalConference of States on Building Codes andStandards to develop a model code for ener-gy conservation in buildings.

The Federal Government has already de-veloped standards for commercial and resi-dential solar facilities as part of a solar heat-ing and cooling demonstration program ad-ministered by HUD. These standards, orsome variation of them, are avaiIable for in-corporation in building codes.

A final Federal role in amending the codeswould be to encourage State adoption ofstandards for solar equipment Federal legis-lation mandating, encouraging, or providingincentives for State regulations or standards

for solar equipment would function withinCongress’ power to regulate interstate com-merce,

Certification is another matter. Federal ef-forts to certify solar appliances under itsHUD standards met with some criticism, andthe Federal Government has traditionall y

been reluctant to favor one commercialproduct over another. However, becausesome approved testing agency must bedesignated as the solar industry grows, theFederal Government might provide seedmoney for expandin g an existing testin g

agency or creating a new one.

State Standards

States can write their own solar equip-ment standards, with variations based onState and local conditions, provided thatthey do not unreasonably burden interstatecommerce, One approach would be toadopt standards similar to those alreadydrafted by the Federal Government underthe HUD program, on an interim basis, untilprivate-sector standards have been ap-proved. A recently enacted Minnesota lawtakes this approach, It requires a State agen-cy to promulgate standards for solar heatingand cooling systems based on current in-terim Federal criteria. 14 The law also re-quires State administrative agencies to up-date State standards as new Federal stand-ards are adopted or as new technology dic-tates.

State Certification

States will want to assess the suitability ofsolar equipment as to safety, health, struc-tural strength, and adaptabil i ty to State or

local bui lding codes. The Flor ida Solar Ener-

gy Center in Cape Canaveral already is test-i ng and certifying the thermal performanceof colIectors sold in that State As an interimmeasure, State certification can providelocal building officials with guidelines untila national testing and certification program

‘4 Mlnn Stat ~116 H 127 (1976)

184 . Solar Technology to Today’s Energy Needs

can be put in place. Some States may wishto go beyond furnishing guidelines, and canwrite laws that require local building of-

f ic ia ls to approve solar equipment thatmeets State standards and is certified byState agencies.

ONSITE SOLAR FACILITIES AND PUBLIC UTILITIES

INTRODUCTION

State laws and regulations governing therelationships between public and privateutility companies and the owners of onsitegenerating equipment are complex, and fre-quently ambiguous, largely because theseproblems have seldom been addressed byregulatory commissions. I n the small num-ber of cases where utilities and industries ex-change electrical power or process heat,contracts have generally been written inways benefiting both parties so that nolawsuits have been brought forcing thecourts to rule on ambiguities in the law.

The following discussion examines thestatutes and regulations that now governrelationships between public utilities andonsite generators of solar energy, and out-lines areas where ambiguities exist. It is anattempt to highlight areas where major regu-latory problems may exist.

State regulation through State public util-ity commissions is the primary issue. Federalpower authority has been limited to regula-tion of wholesale rates of interstate sales ofelectricity, and siting of hydroelectric fa-cilities, and is of less concern in the follow-ing analysis. The onsite solar systems, by thevery definition of “onsite,” are seldom in-volved in interstate, wholesale sales,although power sold to a utility grid mayreach interstate commerce.

UTILITIES: DO RATES ORSERVICE PRACTICES DISCRIMINATE

AGAINST ONSITE SOLAR USERS?

Perhaps the most crucial question in utili-ty regulation is whether utilities may adopt

rates or service policies that unfairly dis-criminate against solar customers requiringutility power as backup.

The answer appears to be that currentlaws will permit discriminatory rates forsolar customers if the utility can prove thatthe cost of providing service to solar cus-tomers exceeds the cost of providing serviceto other customers. Although it cannot ar-bitrarily set prices or refuse service in aneffort to eliminate competition from solardevices, the burden of proving such discrim-ination may falI on the solar customer.

Difficulties are likely to occur only whenan electric utility is involved since gas util-ities would, in general, not be adversely af-fected by a need to provide backup serviceto onsite facilities. Calculating a rate forboth the purchase and sale of electric ener-gy to a utility is an extremely complex prob-lem. The technical and economic bases forsuch rates are discussed in detail in chapterV. The present chapter focuses exclusivelyon the legal and regulatory mechanism forsetting rates.

Conventional Rate Structure

The price a consumer pays for electricityseldom directly reflects the cost of produc-ing it. I n the absence of widespread time-of-day metering, billings usually are based onformulas that allocate peak costs of energyand total monthly consumption accordingto the historical demand patterns of dif-ferent categories of customers.

The most common residential electricrate is the “declining block rate, ” underwhich customers are charged a fixed fee formonthly service, with declining rates foreach incremental block of energy consumed

Ch. VI Legal Aspects of Onsite So/ar Facilities ● 185

beyond the amount covered by the fixedfee. For example, the formula might call fora charge of $3 for the first ki lowatt hour(kWh), $004 per kWh for the next 100 kWh,and $0.03 per kWh for the next 200. (Ex-

amples of actual rate scheduIes in severalcities are Iisted in volume I I.) The decliningblock rate was introduced when marginalcosts for electric utilities were declining andutiIities were encouraging customers to usemore electricity. 15 Another frequent prac-tice, designed to increase sales of electrici-ty, is to reduce rates if a house or commer-cial buiIding is “al I electric. ”

Utilities justify using these rates in today’smarket by arguing that all-electric cus-tomers are more Iikely to use electricity dur-ing the night for heating and cooling thanare other types of residential customers,who use electricity for Iighting and otherpurposes during peak hours. ’6 The wisdomof continuing a promotional rate schedulein a period of decl in ing energy reserves,however, has been seriously questioned inmany quarters. President Carter’s proposedNational Energy Plan would have flatly pro -hibited declining block rates.

Declining block rates can discourage theuse of onsite solar power because a largepart of a customer’s utility bill is based onthe f i rs t few kwh del ivered, power whichwould probably not be replaced with solarenergy.

Larger ut i l i ty customers are f requent lycharged on the basis of their peak demandduring some specified period. Such rates aredesigned to achieve a more direct relation-ship between consumption and the net gen-erating capacity that must be installed tomeet the customer’s requirements, Tech-niques for determining peak demand varygreatly. Some utilities charge according tothe peak demand during the previous 6 mon-ths, some take the lesser of monthly peakdemands, and some percentage of annualdemand, and others charge on the basis of

15 See Berl In, Cicchettl, and G Illen, Perspective onPower, chapters 1-3

“ Letter Insert In monthly bill f rom Potomac Elec-trlc Power Company, January 1977

spot measurements of demand made with-out advance notice.

The impact of such demand rates on cus-tomers with onsite facilities can be verygreat. In some cases, a demand chargecould be so high that a purchase of energyat high rates, when onsite equipment failedor when cloudy weather persisted, couldnegate any savings attributable to the onsiteequipment for an entire year. The justice ofsuch charges is a difficult issue to resolve,Providing power to backup random failuresof onsite equipment among a large numberof small customers can clearly be managedwithout a large increase in a utility’s gen-erating capacity. Relatively high backupcharges might be justified, however, if all ofthese customers abruptly demanded backuppower during a prolonged stretch of adverseweather.

Still another rate structure is designed toprovide standby service to customers whodo not use electricity under normal circum-stances, although these rates would notapply to solar customers under the currentdefinition of “standby power.’” 7 If the def-inition were changed to cover onsite facilityowners, however, the high minimum month-ly charge associated with standby rateswould not be advantageous to customerswith onsite solar faciIities,

Some utilities have considered applyingdemand charges to residential customers tocover some of the market losses that wouldbe inevitable with widespread installation ofonsite solar generators. One such proposalby the Public Service Co., a Colorado utility,was f iercely opposed by solar custom-ers, 18 19 who calculated that under such a

17 See, for example, Southern Calltornla Edison’srate schedule #5 (standby rates)

18 T e s t i m o n y o f james H Ranntger, Manager ofRates of Regu/atlon for the Publ IC Service Company ofC o l o r a d o C o l o r a d o Public Utllltles Commiss ion ln-vestlgatlon and Suspension Docket No 935, Sept25-26, 1975

19 Testimony of Dr Ernst Ha bict, Jr , and Dr Wil-Ilam Vlckery for the Envi ronmental Defense Fund,

Colorado Publ ic Utlllties Commiss ion Invest igat ion(Op Clt )

2 d-H 42 { ) - 13

186 Ž Solar Technology to Today’s Energy Needs

rate structure a solar heating system that re-duced energy requirements by 70 percentwould reduce electricity bilIs by only 35 per-cent. 20 The Colorado Utility Commission ini-tially granted the utility’s request for therate change, but reversed the decisionfollowing a rehearing and ruled that theissue was sufficiently complex to be ad-dressed in a generic rate hearing. ” 22

Lifeline rates have been adopted in a fewStates. ” Under this system, the charge is lowfor the first units of energy. The goal is toease the burden on low-income consum-ers. 24 This rate may incidentally benefitsolar users whose needs for supplementalsources of energy are small enough to fallwithin the “Iifeline” amount.

A final type of utility pricing is interrupti-ble rates, This traditionally has been avail-able only to industries willing to accept therisk of service interruptions in return forlower costs, Some studies have pointed outthat a solar user willing to accept the risk ofgoing without utility service on infrequentoccasions could save the utility substantialamounts in capital requirements, justifyinga lower rate. I f the peak occurred onIy rare-ly, this alternative might be considerably

‘[) Gary MIIIs, “Demand for Electrlc Rates A New

Problem and Challenge for Solar Heating, ” ASH RAE

journal, january 1977, p 42

I’ In the matter of proposed Increased rates andc h a r g e s c o n t a i n e d In tariff revlslons filed by PubllcS e r v i c e C o m p a n y of Colorado, Declslon No 87460(Colo. P u b Utll Comm’n , Oct 21, 1975)

“ Home Bui lders Ass ‘n of Metropol i tan Denver vPub/Ic Serk Ice Co of Co/oracfo, D e c i s i o n N o 8 9 5 7 3(Colo Pub Utll Comm’n , Oct 26, 1976)

11 E g , Miller-Warren Energy Lifeline Act, 1975, CalStats ch 1010 For other examples, see Energy UsersReport (f3NA), Dec 16, 1976, p A-25

‘4 See “Llfellne Rates – Are They Useful?”, EnergyConservation Project Report, No 4 (January 1976), p13 (ECP Report IS a publication of the Environmental

Law Institute, Washington, D C ) Some authoritiesquestion whether the Ilfellne concept IS an effectivemethod to ald lower Income groups since these per-sons often consume relat ively h igh a m o u n t s o fenergy

less expensive than additional units of stor-age or collector area. 25 The National EnergyPIan proposes that utility companies be “re-quired” to offer interruptible rates to allcustomers. 26

Selling Energy to a Utility

As of today, few utilities are willing topurchase power from customers, althoughspecial arrangements have been made withseveral large industrial customers.27

I n somecases, the price the utility pays for surpluspower reflects only the cost of the fuel theutility would burn to generate an equivalentamount of energy. I n other cases, the pricereflects both fuel costs and the cost ofequipment the utility would have to installto generate the power. However, there areso few arrangements for sale of surpluspower that clear patterns are difficult toidentify.

Southern California Edison Co., for exam-ple, recently proposed a rate schedule underwhich it wouId buy energy from large in-dustrial customers at “the lowest cost ofenergy provided by any generating equip-ment in the BonnevilIe Power District.” 28

This is about 3 mills per kwh, a rate thatreflects a minimum energy displacementfee. However, in the same proposal the utili-ty offered to purchase energy from a Iimitednumber of residential and smalI commercialfacilities at a rate that is essentially identicalto the rate the utility charges residentialcustomers. 29

The Gemini Co., which sells devices toconnect onsite wind generators and otherequipment to utility distribution Iines, iden-

‘5 Feldman and Anderson, Uti/ity Pr/cing, p 120

“ National Energy Act, SectIon 513

“ Thermo E Iectron Corporation, A Study of /rip/antPower Generation in the Chernica/ Petroleum Refiningand Paper and Pulp Industries, june 1976, U S Dept ofCommerce, NTIS PB-255-659

“ S o u t h e r n C a l i f o r n i a Edison r a t e s c h e d u l echanges proposed In a letter to the Cal Ifornla PubllcUtilltles Commission, Feb 2, 1977

‘9 Southern California Edison, op cit., ExperimentalSchedule DC and AC

Ch. VI Legal Aspects of Onsite So/ar Facilities ● 1 8 7

tifies widely varying patterns of proposedsurplus-power prices. Some New EnglandutiIities are wiIIing to buy electricity at theirown sales price because fuel represents alarge fraction of their overall costs. Utilitieswith low baseload fuel costs have beenmore reluctant to buy surplus power. 30

Regulations Covering Discrimination

The rates just described were, except forColorado, not designed to discriminateagainst solar equipment, although their im-pact is not diminished by the lack of an in-tent to discriminate.

One of the major purposes for public reg-ulation of electric utilities is the preventionof unreasonable discrimination or unduepreferences. 31 Nearly every State has astatute prohibiting conduct that favors oneclass of customer while harming another.Typical statutes proscribe policies that are“unreasonable,” “unjust,” “undue,” or “un-lawful.’’” Discrimination is a question offact to be determined on a case-by-casebasis by the State utility commission, and itis very difficult to predict precisely how anygiven discriminatory practice will be ana-lyzed,

As the previous chapter showed, deter-mining fair rates for electric utility power isan extremely difficult process. Uneven solardemands on the utility can result in relative-ly poor utilization of expensive generatingand transmission equipment, but it must berecognized that demands imposed by manynonsolar customers are also very irregular;the only fair measure of the cost of pro-

1’] Ben W/o If, Gernl nl Corporation, private communl-cat Ion, Apr 17, 1977

‘) To e[ onoml$ts, “ p r i c e dlscrlmlnatlon” IS v a l u eneutra I and In( Iudes any case where the same prod-uct IS sold ~t more than one price For purposes of thisdlscusslon, “dlscrlmlnatlon” is used [n its more gener-a I 5en$e to refer to any dlstlnctlon [n favor o f o ragainst a person The economists’ deflnltlon pinpointsthe I~~ue nicely what 15 the relevant “product” orservl( e? The way the product IS d e f i n e d WI]] deter-mine a talr price

‘2 Pr iest , Prlnclp/es of Public Uti/ity R e g u l a t i o n ,1 2/36-88

viding backup power to an onsite solar facil-ity is to accurately compute the marginalutility costs incurred in providing suchbackup.

The parallel question involving a deter-mination of the rate which the utilities canbe expected to pay for excess onsite poweroffered for sale is equally difficult; severalvery sensitive issues must be resolved. Forexample, how shouId the costs of transmis-sion lines be allocated between the price ofutility sales and the price charged by onsitegenerators? Should the utility be expectedto purchase energy at rates reflecting themarginal cost of providing the same amountof energy from new utility equipment orsimply for the average cost of utility powergenerated. It will usually not be possible forutilities to pay a rate high enough to meettypical industrial revenue requirements oncapital invested in new energy projects. It ispossible, however, that special rates couldbe established which would permit utilitypurchases at required rates, and it also ispossible that, if a utility could sign a con-tract with a firm guaranteeing purchasesover 10 to 20 years, the firm could accept asmaller rate of return on funds invested inthe generating equipment. A simple tech-nique for determining the amount which anelectric utiIity can pay for energy purchasedwas discussed in the previous chapter.

I n general, the cases and State utility deci-sions suggest that utilities have substantialfreedom to treat different classes of custom-ers differently. 33 Two general pr inc ip les

3‘ See, e g , Re Paclflc Cas & E Iec Co , 9 P U R 3d 97(Cal publ Util Comm’n 1955), R e p r o m o t i o n a l Ac-tlvltles by Gas and Electrlc Companies, 68 P U R 3d163 (N Y Pub Serv Comm ‘n 1967), Re PromotionalPractices of E Iectrlc and Gas Utllltles, 65 P U R 3d 40s

( C o r m Pub Utll Comm’n 1966), lle C i t y I c e & F u e lCo , 260 App DIV 537, 23 N Y S 2d 376 (1940) Bututll Ity comm Isslons have not been reluctant to strikedown promotional practices they found to be of littlevalue to the utll Ity or the bulk of Its cus tomers Re

Southwest Gas Corp , 61 P U R 3d 467 (Cal Pub UtllComm’n 1965), Re Carollna Power & Light Co., 52P U R 3d 469 (N C Utll Comm’n 1964); Re Port landGeneral Elec Co , 67 P U R 3d 417 (Ore Pub UtilComm’n 1967)

188 ● Solar Technology to Today’s Energy Needs

emerge: (1) preferential treatment is moreacceptable if it produces indirect benefits toall customers; and (2) utilities may treat cus-tomers differently if there is a reasonableeconomic basis for doing so, that is, costs tothe utility are clearly different. For exam-ple, discrimination in favor of solar usersthat would reduce rates for all customers byreducing the utility’s costs would be accept-able.

It seems clear that public utilities maydiscriminate either against or in favor of on-site solar users if the discrimination eitherbenefits all customers or is based upon areasonable economic basis. Discriminationcould be either as service practices (e. g.,specific times at which backup power couldbe used) or as rate practices (e.g., higherrates for less energy use).

A public utility is subject to State regula-tion in addit ion to antidiscr imination laws,

by v i r tue of be ing a publ ic ut i l i t y . F u n -damental to the concept of a public utility isits dedication of property to serve the publicwithout discrimination. AImost every Statehas a statutory provision requiring utilitiesto “furnish adequate and safe service,” 35

“provide such service, instrumentalities, andfacilities as shall be safe and adequate andin all respects just and reasonable,” 36 o r“furnish reasonably adequate service and

f abil i t ies.”] ’

A p u b l i c u t i l i t y “ m a y n o t p i c k a n dchoose, serving only the portions of the ter-ritory covered by their franchises which it ispresently profitable for them to serve.”38 A s

‘4 Priest, Pr inciples of Public Utility R e g u l a t i o n ,1 2 8 8

‘5 Or Rev Stat $757020 (1974)

‘b N Y Pub. Ser Law $65 (McKlnney)

‘7 WIS Stat Ann $196,03(1) (West) For a general

discussion of a utility’s duty to serve, see Note, “Utili-ty’s Duty to Serve, ” C o l u m b i a L a w R e v i e w 6 2(1962) 312; and Donald P. Hodel and Ronald G.Wendel, “The Duty and Responsiblllty of Oregon

Public Agencies to Provide Adequate and SufficientE Iectrical Utillty Service, ” Oregon Law Review 54(1975). 539

with most issues in public utility regulation,the duty-to-serve requirement is interpretedon a case-by-case basis with “reasonable-ness” and the “publ ic interest” as thetouchstones.

A public utility cannot refuse to providebackup power to onsite facilities unless itcan demonstrate a compelling case thatbackup service would cause substantialharm to the utility’s existing customers.Refusal to provide service would violate notonly Federal antitrust laws, but also the utili-ty’s common law and statutory duty to pro-vide utility service, Of course, the duty toprovide adequate service has some limits;utilities may be excused from providingservice when prevented by acts of God,labor disputes, and shortages of fuel sup-ply. ” In some cases, utilities have been ex-cused from providing service where to do sowould be unusually expensive, althoughthere is substantial precedent to the con-trary."40

These laws would not, however, preventadoption of a policy which would discrim-inate against new utility customers who didnot use solar equipment. Existing statutesappear to permit a regulation which wouldprevent a utility from providing new service

to a customer not using solar energy equip-ment.

Some States have taken measures to re-strict gas to certain customers or to elimi-nate its availability for some uses. For exam-ple, New York banned the use of gas inswimming pools and in buildings withoutadequate insulation. ” A few States havebanned its use in decorative lighting.

‘8 New York & Queens Gas Co. v McCall, 245 U S345, 351 (191 8).

‘9 Priest, Principles of Public Utility Regulat ion,

a :237-238.

40 I bid., pp. 240-242.

4 ’ New York Pub. Serv. Comm’n, Case 26286 [Apr.16, 1974]; and Nat ional Swimming Pool Inst i tute vA/fred Kahn, 364 N.Y S 2d 747,9 P U.R 4th 237 (1974).

See also “Ban on Heated Pools Leaves CaliforniansBoil lng,” New York Times, Feb. 5,1975

Ch. VI Legal Aspects of Onsite Solar Facilities ● 1 8 9

The legal pr inciples involved in rateregulation are similar to those discussed forservice discrimination. The same prohibi-tions on discriminating among customercategories apply, as do the ambiguities as towhat constitutes “disc rumination.” 42

A rate structure that adversely affectssolar energy users, however, may be difficultto challenge under current case law. Severalcases have upheld the legality of rate struc-tures that subsidize a particular class ofcustomers (al l-electric customers) despiteantidiscrimination laws. I n 1965, a court in-terpreted an antidiscrimination statute asbarring only “unjust” discriminations, andconcluded that only arbitrary d incrimina-tions are unjust:

If the difference in rates is based upon areasonable and fair difference in conditionswhich equitably and logicalIy justify a dif-ferent rate, It IS not an unjust discrimina-tion 4 3

Part of the difficulty results from the factthat the utility can argue that its cost struc-ture justifies a discriminatory rate and thechalIenger is hard-pressed to rebut the ex-tensive analysis which can be conducted bythe utility about its unique cost structure,although in cases requiring a calculation ofa fair backup charge for solar energy (and afair price to pay for excess onsite energy)utilities can be as confused as the in-terveners.

41 Co lorado P u b Utll Comm’n Declslon No 87640(Oct 21, 1975), Leroy Fantas ies, /rrc. v Swindler, 4 4APP DIV 2d 266, 354 N Y 5 2d 182, 4 P U R 4th 334(1974), appeal cfenfed, 34 N Y 2d 519, 316 N E 2d 884(1974)

43 88 N j Super 233, 236, 211 A 2d 806, 808, 60P U R 3d 210, 212

44 From 1956 to 1970, the average cost of electricityIn the United Stdtes decllned from 261 cents per kWh

to 210 cents While average rates decllned, the costsof supplylng electr ic i ty to certain types of loads and

to cus tomers du r i ng peak hou rs I nc reased rap id l y

Utilltles subsidize s o m e c u s t o m e r s b y o v e r c h a r g i n gothers Since 1970, costs have Increased steadily; the

average cost per kWh in 1975 was 3 21 cents, despitea n e q u a l l y s t e a d y rise In c o n s u m p t i o n d u r i n g t h esame pe r i od Samuelson, “ R e f o r m o f Electrlc Ut i l i tyRates, ” p 1475 See a/so Paul joskow, “lnflatlon and

Until the late 1960’s, cost per unit of elec-tricity for at least some types of powerplantsdeclined steadily, Utilities could thereforeargue that promotional rate structureswould, over time, bring new businesses thatwouId justify additional powerplants. Thesenew plants would then lower the bills of allcustomers of the utility. More recently, thelack of new sites for low-cost hydroelectricpower, changes in regulatory practices, andincreased environmental costs have forcedthe cost of new power to rise steadily.44

In these circumstances, promotional rateslose much of their appeal. A New York courtrecognized the common impact of risingfuel prices in a recent decision overturning asubsidy for all-electric homeowners. 45 Thesubsidy, which was to run for a year, was in-tended to lessen the impact of higher elec-tric rates on residential customers who hadpreviously been induced to buy all-electrichomes by favorable rates. The court heldthat the subsidy “constituted undue pref-erence and advantage” in violation of theState antidiscrimination laws.46

Several uti l i ty commissions have already

authorized programs to f inance the instal la-

tion of insulation to conserve natural gas. 47

Since it can be reasonably claimed that con-servation by some consumers contributes tothe eventual economic benefit of all, earlierprecedent in support of promotional prac-tices should be applicable. Some States

Envi ronmental Concern. St ructural Change In theProcess of Public Utillty Price Regulation, ” )ourna/ ofLaw and Economics 17(1 974): 291

4’ Lefkowitz v. Publ ic Serv. Comm’n, NO 593 [N. Y.Ct. App., Dec. 28, 1976), affg 377 N Y S 2d 671, 50App Div. 2d 338 (Sup. Ct. 1975).

4’ 377 N.Y S 2d at 674

47 E g , Re Pacific Power & Light Co , Case NoU-1046-29, Order No 8567, 69 P U R 3d 367 (IdahoPub Ut{l Comm’n 1967), In the Matter of the Appllca-tlon of Mlchlgan Consol Gas Co for Authorization ofa Program for the Conservation of Natural Gas, 1P U R 4 t h 2 2 9 (Mlch P u b Utll Comm’n 1 9 7 3 )Related decisions by publlc util ity commissions haveallowed the restriction of energy to approved usesand the prohlbltlon of energy use by uses consideredwastef u I.

190 ● Solar Technology to Today’s Energy Needs

have adopted legislation specifically au-thorizing conservation programs, elimi-nating any doubt about their validity.48

If rate structures that encourage conser-vation are valid and mandated, subsidies foruse of solar energy, which employ a non-depletable, nonpolIuting energy source,should also be valid. Use of solar energy issupported by the same public interest andpublic policy as conservation–decreaseduse of fossiI fuels.

State antidiscrimination statutes are notthe only factor to consider in d incriminatorypractices by utilities. The Federal antitrustlaws may also outlaw rates or services thatsingle out the owners of solar energy sys-

tems for special treatment. The longstand-ing antitrust exemption for State action willnot totally immunize public utilities fromantitrust Iiability.49

There are several grounds on which utilityrate and service discrimination toward solarusers could be deemed anticompetitive, andtherefore a violation of antitrust laws. Autility may be deemed a monopoly if itcharges a very high price or even refuses toprovide backup service to solar customers. 50An antitrust violation might also be found ifa utility subsidizes its entrance into the solarheating and cooling market by distributingits losses across all utility customers, givingit an overwhelming advantage. 5‘

48 Cal Pub Utll Code $325007, 2781-88 (West); N JStat Ann ~~ 482-4823 (West)

49 In Cantor v D e t r o i t Edison C o . , 9 6 S Ct 3110(1 976), the Supreme Court said that a privately owned

publ IC utll Ity IS not exempt f rom poss ible ant i t rustIiablllty w h e n It furnl~hes Its c u s t o m e r s with Ilghtbulbs tree ot charge, even though the Ilght bulb pro-motional practice had been approved (as part of theut I I Ity’s rate structure) by the State public ut I I Ity com -m Isslon

50 Refusa/s to deal area classic kiolatlon of section 2of the Sherman A c?, 15 U. S C. $2 (Supp IV 1974) See,e g , Otter Tall Power Co. v United States, 410 U S 366(1972), where a publlc utlllty wds found to have vlo-Iated section 2 of the Shermdn Act by refusing to sellelectricity to a municipally operated distributionsyJtem

The conference committee on the Na-tional Energy Act has, at this writing, takensteps toward resolving these rate issues, butfailed to completely clarify the situation.While most of the President’s proposals fordictating rate reform at the Federal levelfailed to gain conference approval, the con-ferees did allow the Federal Energy Regula-tory Commission (FERC) to prescribe rulesrequiring electric utilities to offer to sellpower to or to buy power from qualifyingcogenerators or small power producers andprevent discrimination against such pro-ducers. (Small power producers in this casea r e f a c i l i t i e s g e n e r a t i n g l e s s t h a n 8 0megawatts from sol id waste or renewableresources; the definition of a qualifyinggenerator is left to the FERC. ) While this pro-vision permits Federal regulation of the rela-tionship between utilities and small solargenerating facilities, it leaves the difficultproblem of determining just rates up to theFERC.

ARE ONSITE SOLAR SYSTEMS SUBJECTTO REGULATION AS PUBLIC UTILITIES?

If an onsite solar system is found to be apublic utility, it must file reports and ac-counts, 52 serve all customers who demandservice within a given area, submit its rateschedules to the utility commission for ap-proval ,53 continue providing service untilgiven permission to discontinue,54 providesafe and adequate service, 55 comply with

‘) Such conduct could be viewed as temporaryprice-cutting to put rival solar firms out of business.See Puerto Rican American Tobacco Co. v American[obacco Co., 30 F 2d 234 (2d Clr 1929) Or, It ml~htbe viewed as an Illegal tying arran~ement In situationswhere a solar customer’s receipt of favorable treat-ment IS conditioned on hls acceptance of the utilltyservice Tying arrangements are another classic an-titrust violation See 15 U S C. $ 14 (1 970), /rrterrra-tional Busines$ Machine Corp. v United States, 298U S 131 (1936)

“ E g , Fla Stat Ann $366 06(1) (West)

‘) E g , Cal Pub Utll Code 454 (West)

54 E g , WIS Stat Ann 19681 (West)

‘5 E g., Cal Pub Utll Code 761 (West)

Ch. VI Lega/ Aspects of Onsite So/ar Facilities ● 191

l imitations on the issuance of securit ies, ”and apply for certificates of public c o n v e -nience and necessity. State utility reguIatorystatutes universally require that every pub-lic utility obtain a certificate before begin-ning operation or even construction of itsequipment. 57

Meeting these requirements would be aprohibitive burden for most potential own-ers of solar equipment, since the proceed-ings are frequently long and expensive, Evenif a solar owner were wilIing to undertakethe trouble and expense to file as a utility,he would have to recognize that an existingutility will be able to maintain a monopolyin its geographical area unless the courtsdetermine that public convenience and ne-cessity require otherwise

A new utility is therefore rarely permittedin an area already served by an existing utili-ty. Even where the existing utility is pro-viding woefully inadequate and inefficientservice, it wi I be permitted to exercisemonopoly control over its service area if itpromises to correct its shortcomings.

The ini t ia l factor in determinat ion ofwhether an onsite solar system is a publicutility is who owns the system? Ownershipcan range from the privately owned solarsystem on a privately owned residence, t o

cooperatively owned systems for a smallcommunity, to a corporate-owned colIectorf ie ld on corporately leased or publ iclyowned property to utiIity-owned systems onprivate residences. Clearly, somewhere inthe continuum of owners the onsite solarfacility and its owners became subject toreguIation as a public utiIity.

“ E g , [id Stat Ann ]66 O-I ( W e s t )

“ ‘ E g , I I I t?E’V Stat , ch 1112 3, 56

‘“ See, e g , KentucA y Ut/i C 0, v Pub/Ic $erv Com-m n, 252 S W 2d 885 (Ky )

5 ’ f g , F la Stat Ann $ 36601, Mlch Comp 1 awsAnn $460-6, Cal Pub Utll Code ~ 21 6(a)

‘“ W I \ S t a t A n n $ 1 9 6 0 1 (West), Ill Rev Stat ch111 2 ; Q 10, e g , A //en v California R /? Comm ‘n, 179Cal 68, 175 p 466(1918)

Ownership

Most State statutes define a public utilityto include any person, corporation, partner-ship, association, or other legal entity andtheir various representatives.59 A solar faciIi-ty owned by a landlord, or a private proper-ty owner, as well as any partnership or cor-porate entity would qualify as a public utili-ty, if the other qualifications are met,

Where there is no sale of electric powerinvolved, but rather the owner and user arethe same legal entity, State regulations gov-ern. Federal regulations concern only thewholesale rate for interstate electr ici tysales, Rarely will owner-used energy be sub-ject to Federal regulation as a public utility.This is true whether the owner is a singlefamily, a joint venture composed of the vari-ous users, or a corporation which suppliesits own corporate needs.

Where the owner is not the sole user,State statutes vary, The general rule is that acompany which supplies energy “to the pub-lic” will be found to be a public utility,whereas a device which is not producing

energy for public use will escape utilityreguIat ions, 60 Law in this area is very unclearand the ambiguity may be a barrier to the in-troduction of solar equipment,

A facility can be judged to be dedicatedto “public use” if its owners 1 ) demonstratea wiIIingness to serve alI who request serv-ice;61 2) voluntarily submit to State regula-tion; or 3) attempt to exercise the power ofeminent domain.62

‘1 “The pr incipal determinat ive charactlstlc of apublic uti i Ity is that of service to, or read lnes~ to ierve

an Indef in i te publ ic which ha~ a legal right to de-mand and receive its services or corn mod I t I es ‘‘Motor

C a r g o , /nc. v. Boarcf of ~own.~hlp Trustee\, 5.2 O h i oOp 257, 258, 117 N E 2d 224, 226 (C P Summit County1 9 ’ 5 2 ) S e e gerrera))y A J C Prle$t, “ S o m e [J~ses ofPubllc Utility Regulation, ” MIssI~sIppi Law journa/ 36

[1965) 18 See, e g , Peoples Gas Light & Coke C o vAme$, 359 I I I 132, 134 N [ 2W (19 35), Story vF?icharc]son, 186 Cal 162, 198 p 1057 (1921)

“ See Dow Chemical Co , et al , Energy IndustrialCenter Study, p 373 and cases cited therein

192 ● Solar Technology to Today’s Energy Needs

Even activities which do not clearly in-volve a dedication to public use may be de-clared by the courts to be “so affected withthe public interest” that utility commissionjurisdiction is justified. In one recent case,the owner of a shopping center was notallowed to sell energy to stores in the shop-ping center without being regulated as aut i I ity. 63

Electricity, Steam, or Heat?

Another factor in determining whether anonsite solar use is subject to regulation as apublic utility is the form in which energy issupplied to the users —electricity, thermalenergy (steam or hot water), or chemicalenergy. Solar equipment may become avail-able which will produce energy in each ofthese forms. Again, State statutes vary, Forexample, some States do not vest juris-diction over production and sale of steam intheir ut i l i ty commission.64 State statutesvary greatly, however, and generalIy thermalenergy is not regulated simply because thereis no explicit mention of the issue in thestatutes,

Still another aspect of this question iswhether the sale of energy by an onsite pro-ducer subjects the owner of the onsiteequipment to regulation. Sale to a presentlyregulated utility should be interpreted aswould sale to any other category of user.Under most State statutes, sale of excesssteam or electricity to a specified publicutility probably would not meet the test ofdedication to public use which is required indetermination of public utility status. In anumber of cases, industries that generate ex-cess electricity or steam or selI it to publicutility companies have been held not to bepublic utilities.65 However, in some Statesthe opposite has resulted.

The congressional revision of the Na-tional Energy Act takes some action in ex-

‘ i Cottonwood Mall Shopping Center, inc. v UtahPower & Light Co., 440 F 2d 36 (lOth Clr 1971).

‘4 Mlch Comp Laws Ann $460501 , Fla S t a t A n n .Ej 36602

‘5 See Dow Chemical Co , et al., op. cit., pp.374-376, and cases cited therein

empting onsite owners from regulation, butleaves many issues unresolved. The con-ference agreed to exempt cogenerators andsmall powerplants producing up to 30 mega-watts of electric power from State utilityregulations (apparently granting the FERCthe authority to overrule States in theseissues) and exempts biomass generatorssmaller than 80 megawatts from the PublicUtilities Holding Act. The act would, how-ever, apparently not permit exemptions forsubsidiaries of utilities since small gener-ators qualifying for the exemption must beowned by organizations whose primary busi-ness is not energy generation,

CAN A UTILITY OWNAN ONSITE SOLAR FACILITY?

The above discussion has assumed thatthe owner of the onsite solar system wasalso the owner of the land and buildingupon which the solar system is located. Is itpermissible for utilities or other corpora-tions to own onsite solar facilities on Iandwhich the utility does not own, such as theproperty of the user?

The short answer to this question seems tobe yes, although antitrust laws and Statepolicies designed to promote competitionwould probably prevent utilities from estab-lishing exclusive marketing rights for solarequipment. Utilities probably would be re-quired under existing law to compete withother distributors of solar systems.

The law is clear that utilities at leastwould not be barred from the solar equip-ment market. A recent analysis of the ques-tion of permitting gas utilities to invest inonsite conservation equipment concludedthat Federal antitrust statutes would not beviolated if the utility only purchased conser-vation devices (in this case, insulation ma-terial) from independent suppliers and didnot actually manufacture or install a majorshare. 66

“ Willlam G R o s e n b e r g , “ C o n s e r v a t i o n invest-ments by Gas Utilities as Gas Supply Option, ” PublicUtilities Fortnight/y, Jan 20, 1977, pp 19-20

Ch. VI Legal Aspects of Onsite So/ar Facilities ● 193

Exemption from Federal antitrust statutesis apparently permitted in some cases wherean expansion of utiIity operations is under-taken at the suggest ion of a State ut i l i tycommiss ion and not on a u t i l i ty ’s in i t ia -tive. 67 Precedents exist permitt ing uti l i t iesboth to expand their business to include ac-t iv i t ies under regulatory author i ty and toown subsidiaries which are not reguIated.

There have been cases where, at a utility’srequest, an unregulated industry was placedu rider reguIatory c o n t r o l . T h e P a c i f i cTelephone Co., in California, for example,owned an unregulated subsidiary for a num-ber of years which instal led and operatedmobile radio telephones. The company sub-sequently asked the California Public UtilityCommiss ion (PUC) to p lace th is act iv i tyunder regulatory control. The PUC acceptedthe application, but a private competitor ap-pealed the decision. The California SupremeCourt upheld the PUC approval, in a divideddecision. The court found that mobile tele-phone serv ice was c lose ly re la ted to theut i l i ty ’s regulated bus iness and that theequipment, used for telephone communica-t i o n , f e l l u n d e r t h e j u r i s d i c t i o n o f t h ereguIatory authority. 68

At the same time, there are cases whereuti l i t ies have not been able to place sub-sidiaries of this type under PUC reguIation.For example, the New York Service Commis-sion limited the activites of utilities in solidwaste d isposa l ventures ,69 a n d A T & T w a sprohibited from expanding its unregulatedbusiness as a part of a settlement.’”

b’ Cantor v Detro/t Edison Co. , 96 Sup Ct 3110(1 976)

“ Corrrrnerc/a/ Comrnunicat/orrr /nc v C a l i f o r n i aPub/Ic Uti//ty Cornrn/ssion, 50 Cal 2d 512 (1958)

“ P M Meler and T H McCoy, So/Ic/ Waste as anEnergy Source for the Northeast, prepared for theEnergy Research and Development Admlnlstratlon(Upton, N Y Brook haven National Laboratory, No50550, 1976], p 96

“) Un/tecf S?ate$ v W’estern E/ectr/c and AT&T, 13R a d Reg (P-H) $2143, 1956 Trade Reg Rep (CCH)571,13-4 (D N J 1956) (consent judgment)

I t is unclear whether an existing publicu t i l i t y w i I I be pe rm i t t ed t o own a so l a rsystem which is permanently placed on theroof or other property of a customer. Sincesuch a system is probably a fixture, the utiIi-ty would be required to leave the solar sys-tem in the home or office, even if the prop-erty is sold or leased. The most practical ap-proach is for the utility to finance the pur-chase of the solar equipment and thus per-m it its easy disposition as a fixture, but re-tain the usual metering, repair, and mainte-nance relationships with the customer.

Nonut i l i ty corporat ions could a lso ownonsi te so lar equipment . Probably , such acorporation would supply only equipment,and perhaps maintenance, but not energy.U n d e r m o s t S t a t e s t a t u t e s , p r o v i s i o n o fenergy equipment is not subject to uti l i tycommission jurisdiction.

The spec i f ic ar rangement between thesolar equipment leasing company or sellerand the property owner may alter the ques-tion of uti l i ty regulation. For example, theinclusion of a service agreement betweenthe lessor and the lessee might increase thel i k e l i h o o d o f r e g u l a t i o n , a s w o u l d m o r ewidespread adoption of solar devices. Addi-t ionalIy, to the extent that such an agree-ment requi res backup power f rom publ icuti l i t ies, the contracts and prices for theseprov is ions would be ind i rect ly subject toregulation as part of the normal utiIity ratereguIation.

Congress apparently has taken a dim viewof utility ownership and financing, since thecommit tee o f conference on the Nat iona lEnergy Act rejected the President’s proposalthat utilities be permitted to finance the in-stalIation of insulation and other expensiveres ident ia l conservat ion equipment . Whi lethe conference encourages uti l i t ies to per-form energy audits of residences, it prohibitsutiIities from instalIing conservation devicesother than furnace-eff iciency modification,c lock thermosta ts , and load-managementequipment. Loans to cover these devices areIimited to $300. (State commissions are per-

194 ● Solar Technology to Today’s Energy Needs

mit ted to ask for an exempt ion f rom th isprohibit i on.)

The field remains quite ambiguous, how-ever, and many possibilities remain open. Itmay be attractive, for example, for uti l i t iesto operate solar equipment as a part of anunreguIa ted subs id iary . Such an ar range-ment would el iminate concerns, expressedby some potential owners of cogenerationequipment, that equipment on their prem-ises, owned by a regulated utility, would notbe able to sell energy on an equitable basisbecause of special pressure to adjust utilityrates.

Municipal Utilities

S i n c e m u n i c i p a l u t i l i t i e s c a n f i n a n c eplants with relatively low-interest, tax-freebonds, the capi ta l costs assoc ia ted wi thp lants owned by munic ipa l can be lowerthan those of p lants owned by pr ivate lyowned ut i l i t ies . Lower ing capi ta l costs isparticularly important in the case of solarenergy systems where the bulk of the energycost results from the cost of capital. I n mostStates, however, municipal utilities are pro-h ib i ted f rom expending funds for “pr ivatebenef i t ” and th is has been in terpreted tomean that munic ipa l u t i I i t ies cannot pur-chase shares in generating facil i t ies whicha r e p a r t l y f i n a n c e d a n d o p e r a t e d b y aprivate util ity.

These prohibitions may also prevent mu-n i c i p a l f r o m o w n i n g o r o p e r a t i n g o n s i t egenerat ing sys tems. In the case o f so lardevices, however, i t would seem that themunicipal couId make a strong case that in-stallation of a solar device would benefitthe public at large even though it was pri-mariIy designed to meet the energy needs ofa single building. In fact, several municipalutilities have experimented with onsite solarenergy equipment in their districts. The legalpoint may be moot since, as one analyst putit, “Who’s going to complain?”

In any event, the laws preventing munic-ipal from owning part shares in generatingfac i l i t ies which wi l l be par t ly owned ando p e r a t e d b y p r i v a t e u t i l i t i e s a r e b e i n g

changed in many areas of the country toallow municipal to share the cost of con-s t r u c t i n g n u c l e a r - g e n e r a t i ng fac i l i t ies andother centralized energy equipment, which,like solar energy systems, have high capitalcosts. Prohibit ions aganist such “joint ac-tion” programs are often written into Stateconstitutions. The constitution of the Stateof North Carolina, for example, was recentlya m e n d e d b y r e f e r e n d u m t o p e r m i t j o i n t -a c t i o n f i n a n c i n g o f n e w e l e c t r i c u t i l i t yplants, Such amendments have been contro-versial in some areas. For example, in 1977,the Governor of Indiana vetoed legislationamending that State’s constitution to allowjoint action programs.

Cost-Sharing Issues

If a utility were to own or operate onsitegenerating facilities, contracts between cus-tomers and the utiIity wouId have to addressseveral important issues. They include:

●

●

●

●

●

●

Who would pay the property tax on theequipment? (This is particuIarly impor-tant because utility tax rates often ares e v e r a l t i m e s h i g h e r t h a n t h o s e f o rhomeowners.)

How would costs of insurance be dis-t r ibuted? Would ut i l i t ies be l iab le fordamage to onsite equipment caused bythe homeowner?

W o u l d a c o n t r a c t f o r o n s i t e s o l a requipment be binding on a new ownerif title to a buiIding were transferred?

How far would a uti l i ty’s maintenanceresponsibil i ty extend? Would a uti l i ty,for example, be responsible for keepinga roof on which a solar collector wasmounted in weatherproof condit ion?

Should a utility pay a customer for theuse of a roof or wall for install ing asolar co l lector? I f so, would the feedecrease for the use of walls and roofsthat did not permit optimum collectionof radiation?

Could a customer demand that a utilityremove onsite equipment? If so, whowouId pay for removal?

Ch. VI Legal Aspects of Onsite Solar Facilities . 195

None of these questions pose insolubleproblems, but all may require careful nego-tiation. All of the utilities interviewed by theGeneral Electric Co. said they preferred on-s i te fac i l i t ies on large bui ld ings, becausequestions would be easier to resolve than iflarge numbers of small buildings were in-volved. 7‘

WHAT RIGHTS WILL UTILITIES HAVE TOAQUIFERS AND OTHER GEOLOGICAL

FORMATIONS USED FORTHERMAL STORAGE?

S e v e r a l t e c h n i q u e s f o r s t o r i n g l a r g eamounts of thermal energy in ground water

71 General E Iectrlc Corp , Corrceputal Design andSystems Ana/ys/s of fhotovol?a~c Power Systems, April1977, ERDA contract E(ll-1 ) 2744, op cit

and in heated underground caverns havebeen proposed (see chapter Xl), and the useof subsurface regions for such purposes mayraise a number of diff icult legal questions.For example:

Would a utility need to purchase miner-al rights to use subsurface water or rockfor thermal storage?

What aspects o f water laws governwhich aquifers can be used, the con-taminat ion permi t ted, the heat ing ofaquifers which might be used for pota-ble water, etc. ?

Would the owner of heated water haveprotection from someone tapping thishot water supply?

What environmental laws would applyto large-scale thermal storage?