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<title>March 2005: Debate Rages in the Court Over Ownership of RECs</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<p ALIGN="left"><u><b>March 2005</b></u><font size="6"><b><br>
Debate Rages in the Court
Over Ownership of RECs</b></font><strong><br>
by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
200</em>5/05/06)</font><font size="6"><b><br>
<br>
</b></font>Whether qualifying facilities (“QFs”) or purchasing
utilities own the renewable energy certificates (“RECs”) associated with
renewable QF generation is the subject of a number of cases currently
winding their way through the court system. One such case is Xcel Energy
Services Inc. v. Federal Energy Regulatory Commission, which is filed in the
United States Court of Appeals for the District of Columbia Circuit.
Briefing is complete, but the appeals court has not yet issued an opinion.<br>
<br>
This case is an appeal of FERC’s decision in American Ref-Fuel Co., 105 FERC
�61,004 (Oct. 1, 2003), reh’g denied, 107 FERC � 61,016 (Apr. 15. 2004). In
American Ref-Fuel Co., a number of QFs petitioned FERC for a declaration
that contracts entered into under the Public Utility Regulatory Policies Act
of 1978 (“PURPA”) do not inherently transfer RECs to utilities that purchase
QF electricity and capacity. FERC explained that PURPA is silent with regard
to RECs and that RECs are creations of state law. FERC ruled that RECs are
not transferred from QFs to purchasing utilities under PURPA contracts
absent a contract provision to the contrary or some independent basis under
state law.<br>
<br>
Xcel Energy appealed FERC’s ruling on the basis that FERC violated its own
rule that the price a utility must pay for QF energy may not exceed the
purchasing utility’s avoided costs. According to Xcel Energy, FERC did so by
recognizing that energy and the renewable attributes of generation are
separate products and by requiring utilities to purchase both. In summary
form, Xcel Energy argued that FERC was mistaken in determining that RECs and
electricity are separate products because a utility’s obligation to purchase
QF power arises from the renewable and environmental attributes of QF
generation; avoided cost rates, therefore, compensate QFs for a QF’s
renewable attributes, and FERC precedent prohibits states from requiring
utilities to pay an avoided cost rate plus an environmental adder.<br>
<br>
FERC argued that the appeals court has no jurisdiction to review its order
and that, assuming the court has jurisdiction, its order was reasonable.
According to FERC, its order was reasonable because PURPA only requires a
utility to purchase a QF’s energy and capacity at the utility’s avoided
cost. Although PURPA regulations specify the factors that states must
consider in setting a utility’s avoided costs, the environmental attributes
of QFs are not among those specified factors. According to FERC, the
environmental attributes of a QF are relevant only to a QF’s initial
qualification as a QF but have nothing to do with a utility’s avoided costs.
According to FERC, neither PURPA nor FERC’s interpretation of PURPA requires
utilities to make payments in excess of avoided costs by requiring utilities
to purchase and pay separately for RECs. On the contrary, state law controls
the creation and transference of RECs. Consequently, state law, not PURPA,
determines whether RECs and electricity are separate commodities and whether
the purchase of both would result in an aggregate payment that exceeds a
utility’s avoided costs.<br>
<br>
The California Public Utilities Commission filed a brief in which it agreed
that the court of appeals lacked jurisdiction to review FERC’s order. The
California commission also agreed with FERC that state law controls whether
RECs are conveyed to the purchasing utility under a PURPA contract. American
Ref-Fuel Company and a number of other interveners filed a joint brief
generally supporting FERC’s order. However, American Ref-Fuels argued that
FERC’s appeal argument that REC ownership must be decided under state law
went too far because FERC’s order explicitly decided that PURPA contracts do
not convey RECs to purchasing utilities, and FERC’s order did not leave that
issue open for further determination under state law. According to American
Ref-Fuels, avoided cost rates are squarely controlled by PURPA and FERC’s
rules, and FERC decided that PURPA contracts and the avoided cost rates paid
there under are insufficient to convey RECs to a purchasing utility.</p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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