The Santa Fe City Council wants to embark on a project that will generate electricity from the sun at eight city facilities. Even though councilors voted to sign contracts to move the alternative-energy deal forward Wednesday, the plan is in limbo while state energy regulators decide how to treat it.

A hearing officer from the New Mexico Public Regulation Commission is soliciting legal briefs on whether state law allows a utility customer like the city to contract for renewable power generation from a third-party company. The commission will consider the testimony before ruling.

The city's contracts call for SunEdison, a solar-energy developer and operator, to pay for, build and operate the project on city land at the wastewater treatment plant, airport, Santa Fe Community Convention Center, police headquarters, Salvador Perez Recreation Center, Fort Marcy Complex, LaFarge Branch Library and the Transit Division building on Siler Road.

The city would pay SunEdison for the energy it uses from the sites and would apply to receive credits from Public Service Company of New Mexico for its mandated renewable-energy standard. Public utilities must generate 10 percent of all power from renewable sources such as solar by 2011 and 20 percent by 2020.

City energy specialist Nick Schiavo calculated that the project would allow the city to reduce its carbon footprint by more than 5 percent per year, or about 4,001 tons of carbon dioxide.

It would provide power to meet between 13 and 93 percent of demand at each facility, depending on the size of the solar panel system and the building's energy use.

Schiavo said Santa Fe is the first city to agree on details of a major, third-party energy project. He's worried, however, that the concept won't move ahead given the current political climate at the PRC.

"I've gone through it as an exercise that we needed to do anyway. It brings this issue to a head," he said. "We are 100 percent ready on this end ... The only holdout is PNM, and they are going to fight it because they want to make the money themselves and they don't want to see it go anywhere else."

But PNM spokesman Don Brown said the power company is most concerned about the "legality" of Santa Fe's proposal to purchase power generated by a private firm.

"We have not made a determination on the city's application," he said Wednesday. "It's our view that state law does not allow a company to generate power and sell it to one of our customers, but that issue is going to be decided by the PRC."

Schiavo said Santa Fe chose the power-purchase agreement route because it does not have the expertise or staff power to maintain its own system. The plan is also attractive because it eliminates up-front capital expenses.

Brendan Miller, the green-economy manager for the state Economic Development Department, said several local government officials in the state have asked him about how alternative energy credit programs could work for them if they want to pursue a third-party plan.

While he defers an opinion on New Mexico's policy to the Governor's Office, Miller said such arrangements can have advantages for nontaxed and institutional entities because they don't have expertise in operating energy systems.

"There are a lot of things to consider, but from a clean-energy, economic-development perspective, third-party partnerships are something that has stimulated growth in other states. We do have some evidence of that," he said.

No one at the governor's press office responded to repeated inquiries about the issue this week.

The state's public utilities and rural electric cooperatives raised the question of third-party energy providers again several months ago, according to PRC Commissioner Jason Marks. But the question has been around for a few years following the PRC's ruling that utilities have to diversify their sources of renewable energy to include utility-scale solar installations.

Utilities have argued that allowing third parties, such as a solar-energy company, to install a system, hook into the power grid and collect money from one of the utility's customers would infringe on the utility company's franchise rights. Power companies like PNM, which provides electricity to Santa Fe and other parts of north-central New Mexico, contend state law prohibits other energy providers from poaching on their service territories.

Marks said Las Cruces and Albuquerque also want to pursue third-party renewable-energy contracts. He said other states, such as Oregon, have said third-party energy provider contracts are allowed. But each state's laws are different.

"In my opinion, this is not just about renewables. From a utility perspective, this part of the law is applicable to any third party supplying any kind of power," he said. "The utilities would not like to open the door to anyone coming in and selling to their customers."

Contact Julie Ann Grimm at 986-3017 or jgrimm@sfnewmexican.com.