Disclaimer: this should be used as a starting point for legal discussions but should not be construed as legal advice and does not address all issues that may arise with respect to entering into a PPA in any particular jurisdiction.
Review Legal Considerations
A preliminary legal review is an important step to help local governments determine which strategies to pursue and can inform specific considerations that may need to be aligned with partners. As such, it is important for deal champions within local governments to consult with their legal and accounting teams—and possibly the procurement department as well—early in the process to identify any relevant requirements or constraints. Aggregation partners may find it useful to pool their legal and accounting knowledge in order to identify common issues and solutions.
Deal teams should not feel that they need to have all the answers at this stage, but there are several common issues that they should be prepared to address during these internal conversations. For example, physical PPAs and virtual PPAs have different legal considerations. Whether cities can enter into physical PPAs or virtual PPAs, along with how those contracts can be structured, is determined by state and local regulations. Local governments should start the legal process by evaluating these local regulations, reviewing what other cities in their state have done in the past, and determining if there are barriers to working with certain kinds of partners.
- More broadly, local governments should at a minimum include the following items in their legal review process:
- Are there any state or local prohibitions to entering into either type of PPA?
- Are there any requirements for or restrictions around entering into long-term contracts and competitive bidding?
- Do you need to pass an authorizing ordinance or resolution, and when in the process does it need to occur?
- Are there any legal barriers to working with corporations or public institutions?
Legal Considerations for Physical PPAs:
The legal ability for a local government to enter into a physical PPA will largely depend on state law.
In states that have not enacted retail choice, electric utility companies retain legal monopolies on the sale of electricity from the grid. As a result, local governments in these states are unable to sign physical PPAs with developers directly; instead, they can only do so in partnership with their local utility. The only exceptions to this rule are cities that operate their own municipal utilities or CCAs.
Local governments in states that have enacted retail choice can usually legally sign physical PPAs, either directly or via a retail electricity provider.
Legal Considerations for Virtual PPAs:
The legality of virtual PPAs for local governments is more nuanced and can be impacted by both state and local regulations. Local governments considering a virtual PPA should carry out a preliminary legal review.
The video below provides an overview of legal considerations to evaluate at this stage.
Additional guidance is available on the CRA website, including state-specific guidance for select states including Georgia, Indiana, Minnesota, Missouri, Ohio, and Virginia.