More on Electric Car Charging Stations – for Community Associations

A reader of  my post here sent me an e-mail message raising concerns about whether installing charging stations could make a community association an unlicensed electric power re-seller.  The reader raised an important issue.  As renewable/green energy infrastructure develops, so will statutes and regulations pertaining to it.  Any association interested in such things as electric vehicle charging stations or solar energy will want to be particularly sure to consult with legal counsel to ensure that contracts for such improvements address these evolving legal issues.   

 Specifically regarding electric vehicle charging stations in California, as part of its efforts to implement recently enacted Senate Bill 626 (requiring the PUC to develop policies to develop infrastructure for plug-in hybrid and electric vehicles) the California Public Utilities Commission (CPUC) very recently issued a decision that companies which sell electric vehicle charging services will not be regulated as public utilities pursuant to the Public Utilities Code and that, unless the charging station provider procures electricity on the wholesale market, utility sales of electricity to electric vehicle service providers do not constitute a “sale for resale” under the Federal Power Act.  In fact, the CPUC decision states, as a Conclusion of Law, that “condominium associations that provide electric vehicle charging on the premises as a service to the condominium owners . . . that have not dedicated their equipment to public use” are also not public utilities.  Notwithstanding this, the CPUC does, of course, have authority to dictate the terms under which the utility providing the electricity to power the charging stations provides service, so regulations requiring, for example, that customers notify a utility of anticipated increased connected load would need to be followed.  Again, it will be important for community associations installing charging stations to consult with legal counsel to address these issues during the contracting stage.

 With respect to rates, since the CPUC has decided that electric vehicle charging service providers will not be regulated as public utilities it will not be directly regulating the rates charged to use charging stations.  Insofar as the cost to purchase the electricity to power the charging station is regulated by the CPUC, however, and will be the largest business expense for the charging station’s owner (whether the association or a third party), the CPUC’s decisions regarding tariff rates will, of course, have an indirect impact.     

Failure to understand and address these sorts of regulatory issues can really throw a monkey wrench into the works of what should be a successful effort to “green” a community.  For example, earlier this year it was reported in local (Los Angeles area) media that a $25 million “solar farm” installed in the vast campus parking lots of a community college were sitting “unplugged”.  The solar equipment, owned by a third party, was intended to supply electricity to the Los Angeles Community College District via a Power Purchase Agreement (PPA), but the Los Angeles Department of Water and Power (DWP) would not agree to the arrangement, since the Los Angeles city charter bars the sale of power by any entity other than the DWP.  (This differs from state law pertaining to investor-owned utilities, which generally do approve PPAs).  Last I heard the LACCD was working on another financing arrangement, but these issues would, of course, have been more easily (and, I am sure, more cost effectively) addressed before the solar system was installed, not after.

Electric Car Charging Stations for Private Garages

I recently stumbled upon an interesting article about a California-based company which installs electric car charging stations in private parking garages.  Having been contacted by several California community associations looking for a way to accomodate their members’ desire to buy electric cars and charge them in the associations’ private garage, I was excited to see that Coulomb Technologies sells its “ChargePoint” charging stations, which are about the size of a parking meter, for about $2,000, and, according to the article , they are easily installed in most garages which are already wired for lighting.

But wait, it gets better!  According to the article, a charging station may actual generate revenue for the association.  The electric car owners purchase a subscription from Coulomb Technologies, which entitles them to receive a key fob that activates the charging station, and the association receives 80% of the subscription fee.  Of course, to determine whether or not this is a fiscally prudent thing to do, the board of directors would need to determine the cost of the electricity typically needed to charge an electric car as it compares to 80%  of the subscription fee.  If those numbers don’t add up (if in addition to the cost of the charging station itself the association will be “subsidizing” the cost of the electricity to charge a car), then it strikes me that it would not be fair to the majority of the owners (who don’t have electric cars) to share that expense.  According to Coulomb Technologies’ founder and CEO, however, a condo or co-op community could expect not only to break even but to begin seeing a return on investment in about five years. 

It also seems to me that, as I have discussed regarding solar panels, a power purchase agreement or lease would be another way to fund the cost of installing these charging stations.  The investors purchasing the stations, of course, would receive the subscription fees, not the association, but it would be a way for the association to make this service available to its members without any capital outlay by the association.

Solar Energy for Community Associations – Looking Forward

It doesn’t take a crystal ball to know that one thing is certain, electricity costs will continue to rise.  Historically, over the past 20 years or so, commercial tariff rates have risen 5% per year on average.  We can anticipate similar increases over the next 20 years or so, at a minimum. 

 Given this, I think another thing is certain.  Community associations, particularly in states such as California with ample sunlight and a State government which has identified alternative energy as an important public interest, will become increasingly interested in installing their own solar power projects.  In response, I predict that commercial solar system installation companies will form funding partnerships, or will create their own funding entities, to establish solar lease and power purchase programs to specifically address the needs of community associations.  I’m out there advocating for that, and will be happy to link here to any solar installer who does so.   

 I also predict that as photovoltaic (PV) systems become smaller and more efficient, multi-unit community associations such as condominium associations will want to expand their solar energy systems from supplying power for common areas to supplying power for individual units as well.  There is some precedent for this.  As opposed to installing a separate net meter and inverter for each individual unit, virtual net metering (which allows for allocation of credits from one solar system across multiple accounts on site) are currently available in the State of California (albeit for affordable/low income housing projects only).  In 2008, the California State Senate approved a bill (SB 1460) which would have required utilities to establish virtual net metering programs for all multifamily residential projects (not just affordable housing), but it languished in the legislature.  Given sufficient political will, however, this could change.  Community associations will need to commit themselves to applying pressure to our state legislature if they want this to change, though.

What should board members of community associations who are interested in solar power be doing now to prepare?  In my opinion, they should be giving careful consideration to their association’s architectural review guidelines and rules as they pertain to solar panel installations in their community.  At a minimum, compliance of the governing documents with California’s Solar Rights Act should be confirmed.  In addition, to the extent that the association’s architectural rules impose conditions or restrictions on solar power installations such as prior approval requirements, restrictions on placement of equipment, setback requirements, height restrictions, restrictions pertaining to architectural style, etc., consideration should be given to revising those rules to ensure that they will not hamper the association’s contemplated installation of its own solar system. 

And, last but not least, consider consulting with an attorney like me, who has an interest in facilitating solar energy projects for community associations, and experience helping associations successfully navigate the kinds of complex contractual risk management and insurance issues such projects will entail.  

Solar Energy for Community Associations – Contract Formation and Risk Management

It is important for any community association considering pursuing a solar lease or power purchase agreement (PPA) to budget for the cost of two important preliminary matters, a feasibility analysis and legal costs.  Skimping on either could ensure the ultimate failure of your efforts, costing the association considerably more money in the long run. 

With respect to a feasibility analysis, I am not talking about the relatively simple analysis performed by single family residential solar installers, comparing a home’s annual electric power use and applicable tariff rates to the anticipated cost and rate reductions of a solar system.  A community association’s solar power needs will be the equivalent of a larger scale commercial solar system, and the cost/benefit analysis for such a system is considerably more complex.  Investors (the prospective system owner for the lease or PPA) will want to see a detailed feasibility analysis in order to determine whether the numbers work for them from an investment standpoint.  Project scale and net metering challenges must be addressed in such a study, so that it can then be used as the basis for the financial terms of a proposed PPA.  Typically, a project which cannot achieve close to a zero balance net metering result is not economically feasible.  As the cost of solar energy system installations drops, and with the passage of AB 920 requiring utilities to roll over or buy surplus production credits effective January 1, 2011, investors will likely be placing less emphasis on achieving zero balance and more emphasis on tax incentives and other benefits of the investment, so exact scaling should become a less critical factor, but investors will still be unwilling to fund a system the feasibility of which has not been determined by a qualified professional.  Unfortunately, unlike our neighbors in Canada, there is currently no funding available to help subsidize the cost of a multi-unit residential solar project feasibility study (with the exception of affordable housing projects).  Nevertheless, it may be necessary for an association to incur the cost in order to attract investors.  A large scale solar installer may be willing to share in the cost, however, and some large scale installers have their own in-house professional engineering staff to perform detailed feasibility studies. 

When it comes to negotiating and drafting the lease or PPA itself, board members must understand and appreciate that, unlike the vendor, maintenance and repair contracts they are accustomed to, a solar power lease or PPA will by no means be a “one size fits all” or “industry standard” contract.  The array of issues which must be addressed, just a few of which I will touch on below, and the very long term nature of the agreement, will require careful negotiation and drafting.  Missing or inadequate contract terms will be fertile ground for future disputes between the parties, undermining the viability of the parties’ long term relationship.  Any association interested in pursuing solar power should, therefore, budget for the necessary legal costs associated with the formation of a complex legal agreement such as a PPA. 

The very long contract duration will also require the careful selection of contracting “partners” (the system installer and owner), and the maintenance of  a cooperative and collaborative relationship over the term of the contract.  Because of the length of the contract, due diligence regarding the financial health and long term viability of the system owner will also be vital.

With respect to the terms of the agreement itself, the scope and complexity of a PPA is much more akin to the construction agreements for a new development than to any contract the board of directors will have previously entered.  Installation, maintenance and operation risks will need to be identified, managed and insured.  In addition, the agreement will have to address such financial issues as buy out options and costs at the end of the contract term, warranty coverage and costs, system performance and monitoring (and how attendant risks are allocated between the parties) and dispute resolution mechanisms.  Liability risks and insurance coverage (both property and liability) must also be addressed, and in a way which accommodates the fact that risk exposures for solar power projects and, therefore, the commercial insurance market to cover such exposures, is evolving, and will likely continue to evolve over the term of the agreement.  The insurance issues in particular will need to be carefully considered since, while property and liability insurance coverage for owners, maintainers and users of solar power systems has become increasingly available since insurers first began issuing “green” commercial insurance endorsements in 2006, such coverage is often provided via “manuscript” as opposed to standard form policy provisions, and not all insurance brokers understand the risks or available coverage options. 

Finally, issues specific to community associations will need to be understood by all parties and carefully addressed.  Membership approval will be required due to the long term nature of the lease or PPA, and easement or license agreements will also be required, both of which will require time to achieve.  Since government granted financial incentives are as important (or more so) to system investors than expected revenues from sale of the power produced, and some incentives are time sensitive (requiring completion of the project within a specified time frame), failure to address the time required to satisfy these community association specific legal requirements may not only undermine the relationships between the parties, but resulting damage to the financing entity may expose the association to potential legal liability for which no insurance coverage is available.  This risk must, therefore, be adequately identified and managed by the parties.

The good news is that all of this is achievable, and has been successfully navigated in the context of PPA agreements for commercial and institutional building solar projects.  There is no reason why these issues cannot be addressed for community association solar energy projects as well, if community associations are careful to work with investors and installers who are familiar with such projects, and have legal representation to help them through the process.

Solar Energy for Community Associations – Funding

If you have volunteered for (or been assigned) the task of arranging for the installation of a solar alternative/renewable energy system for a California community association, you are a trailblazer.  That is because, with the exception of new construction and MASH (Multifamily Affordable Solar Housing) Program projects, I am not aware of any community association solar power installations having been completed in California to date.  If I have anything to do with it, however, there will soon be several under development. 

The first step a community association must take in order to obtain its own solar energy system is, of course, to determine how the purchase, installation, maintenance and monitoring of the system will be funded.  As discussed below, multi-unit residential communities which are community associations face particular issues when it comes to funding such a project.  I strongly believe, however, that we have reached a “tipping point” here in California at which these issues can be overcome. 

 The good news is that solar energy systems for multi-unit residential projects here in the United States have, indeed, been successfully funded.  For example, a 1,200 unit apartment co-op recently installed solar panels atop an older 20-story building in Manhattan, to become the largest multi-family residential solar array in New York City.  You can read about the project here.  With respect to funding the project, however, the story notes that the community, Kips Bay Towers, received financial incentives both in the form of a 50% rebate from the State of New York, and via tax credits, neither of which are available for non-profit community associations here in California. 

 Here in Southern California, our state’s first solar-powered apartment community was completed in 2007.  Solara is comprised of 56 fully solar-powered apartments.  As with Kips Bay Towers, however, funding for the project came from a variety of sources which are generally not available to community associations (again, unless they qualify as affordable housing).         

In contrast, Canada encourages all condos and co-ops (not just those qualifying as affordable housing) to install renewable energy projects via government incentives which include grants in addition to tax credits and rebates.  Federal and local government assistance to subsidize the cost of feasibility studies is also provided.  And, in general, Canadian government incentives in the form of rebates for installation costs to encourage alternative/renewable energy projects for industrial, commercial and institutional buildings (schools and hospitals) are made equally available to MURBs (multi-unit residential buildings).  Not so in the United States, unfortunately.  Here, neither the incentives offered to single family residential consumers nor those offered to commercial building owners are of any assistance to community associations, since they are all tax credit based.  In fact, the American Recovery and Reinvestment Act of 2009, which gives the Treasury Department the power to make grant payments in lieu of tax credits to persons and entities putting “specified energy properties” in place, specifically excludes tax exempt organizations from its purview (in fact, the involvement of a tax exempt entity as a partner eliminates eligibility for the payment).   

In addition, community associations in California face funding barriers in their own governing documents and by statute (the provisions of the Davis-Stirling Act).  A capital expenditure of the magnitude required for a community association to fund the installation of a solar system of sufficient size to be financially viable would require a special assessment, a loan, or both, and membership approval of both the installation of the solar system and the special assessment or loan.

There are funding alternatives to address all of the issues described above.  They are either a Power Purchase Agreement (PPA) or a lease.  With a PPA, a separate entity finances the installation of the solar system, maintains and operates it, and sells the electricity it generates to the property owner (in this case, the community association) at negotiated rates.  A lease is similar, but more suited to a smaller project, in which the association would lease the system from the third party system owner (the financing entity).  Under either funding model, membership approval would be required, because either would require a long term contract (15-25 years).  There would be relatively minimal up-front costs (a feasibility study and legal costs to negotiate the contract), and the long-term nature of the contract would provide a substantial benefit to the association and its members, stabilizing an operating cost which would otherwise be unpredictable, and fixing electricity costs by agreement as a hedge against rising utility tariff rates.  The incentive for the third party purchaser/owner of the system is the ability to take advantage of the tax incentives, including credits and accelerated depreciation allowances, which the association cannot make use of, and the certainty that, unlike the owner of a commercial building, barring a cataclysmic event the community association is guaranteed to continue to exist for the duration of the contract.  

Some single family residential solar installers are offering PPAs and leases to their customers.  That is not what I am talking about here, though.  (And that brings me to another, related, topic.  If you have been trying to find a residential solar installer for a common area energy system for your community association, stop.  A community association’s system is going to need the size, scope and sophistication of a commercial solar installer.  It is more likely that a solar installer with commercial project experience will be willing and able to participate in a PPA, as well.)  I am talking about a contract like the PPAs used to fund the installation and operation of solar power systems for large commercial and institutional (hospitals, schools) complexes.     

So, are there third party investors who are interested in funding solar power installations for community associations?  Until fairly recently I was not sure, so focused my attention on smaller commercial PPAs and took a wait and see attitude.  Every so often over the past year and a half or so I would revisit the issue to see if I could generate interest in funding for community associations, and there were some nibbles here and there.  Then, about a month ago, Governor Schwarzenegger signed AB 920, which requires utilities to roll over net metering credits or pay for excess power consumption, into law effective January 1, 2011, and the interest level increased a bit.  I have also heard through the grapevine that a national bank expects to announce its own funding program for community associations next Spring (I am told to expect the “launch date” to be in March 2010).  Based on all of this, I believe that now is the time for community associations interested in solar power for common area consumption to pursue it.