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<title>February 2007: Pennsylvania Public Utility Commission Rules That
Alternate Energy Credits Are Owned By The Electric Distribution Companies</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"><b><u><br>
<br>
February</u></b><u><b> 2007</b></u><font size="6"><b><br>
</b></font></p><b>
<p class="MsoNormal" align="left"><font size="6">Pennsylvania Public
Utility Commission <br>
Rules That Alternate Energy Credits Are <br>
Owned By The Electric Distribution Companies<br>
<br>
</font>By Robert A.
Olson, Esq. and Becky Oleson<strong>-- Brown, Olson and Gould, P.C.<br>
</strong>
</b><font face="Arial" size="2"><i>(</i><em>originally published by PMA OnLine Magazine:
2008/01/19</em><i>)</i></font></p>
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<p align="left">In a February 12, 2007 ruling, the Pennsylvania Public Utilities Commission held
that power purchase agreements entered into pursuant to the Public Utility
Regulatory Policies Act of 1978, 16 U.S.C. � 8241-3(a)-(j) (“PURPA”) prior to
the State’s adoption of the Alternative Energy Portfolio Standards Act, 73 P.S.
�� 1648.1-1648.8, (“AEPS Act”) transferred the ownership of the environmental
attributes of the associated electricity, including renewable or alternative
energy credits (“AEC’s”), to the purchasing electric distribution company (the “EDC”).
<i>Petition for Declaratory Order Regarding Ownership of Alternative Energy
Credits Associated with Non-Utility Generating Facilities Under Contract to
Pennsylvania Electric Company and Metropolitan Edison Company</i>. The
Commission’s order results from a petition filed by Metropolitan Edison Company
(“Met Ed”) and Pennsylvania Electric Company (Penelec) seeking a ruling
regarding York County Solid Waste and Refuse Authority (“York County”)’s
intended sale of the AECs associated with the electricity it generates at its
waste-to-energy facility to a third party. </p>
<p align="left">Over the objections of York County and a number of intervenors, the Commission
determined that the AEPs Act granted the Commission authority to determine the
issues raised by the Met Ed and Penelec petition. According to the Commission,
the AEPS Act directed the Commission to establish an alternative energy credits
program “as needed to implement this act,” 73 P.S. � 1648.3(3)(1), which must
“include, at a minimum, a process for qualifying alternative energy systems and
determining the manner credits can be created, accounted for, transferred and
retired.” 73 P.S. � 1648.3(e)(2)(i). Reasoning that “one cannot determine
creation and transfer unless the issue of ownership is also decided” the
Commission held that it has the authority to determine AEC ownership issues. </p>
<p align="left">The Commission interpreted the Act to create AECs as the tool for measuring EDC
compliance with the Act and presumed that existing PURPA contracts satisfied
compliance. The Commission reasoned that permitting generators to sell the AECs
associated with existing PURPA contracts to third parties would force the EDCs
to purchase additional AECs from other sources to confirm compliance or to pay a
penalty for non-compliance even though, according to the Commission, the EDCs
had already complied with the AEPs Act. </p>
<p align="left">The Commission briefly discussed rulings from Connecticut,
Maine, New Jersey, Texas, and California. These jurisdictions are
split on the issue, with the first three jurisdictions holding that existing
contracts transferred ownership to the purchasing utility. The Commission
found decisions from Texas and California to be distinguishable because
Texas regulations state specifically that “A REC will be awarded to the
owner of a renewable resource when a MWh is metered at that renewable
resource.” <i>Petition of Southwestern Public Service Company for
Declaratory Order Interpreting Commission Subst. R. � 25.173 Implementing
Public Utility Regulator Act � 39.904, </i>Order entered March 16, 2005 at
Docket No. 29815. No similar regulation currently exists in Pennsylvania.
The California decision cited by the Commission did not address generation
facilities subject to the provisions of PURPA.</p>
<p align="left">Prior to issuance of the Commission’s final order, Vice Chairman James H. Cawley
issued a dissent. According to the dissent, contract law governs whether AECs
were bargained-for in PURPA contracts entered into prior to adoption of the AEPs
Act. The dissent concluded that existing PURPA contracts did not transfer
ownership of AECs because AECs did not exist at the time of contracting, the
avoided cost pricing upon which the contracts were based included only energy
and capacity, and there was, therefore, no mutual assent or bargained-for
exchange for those environmental attributes.</p>
<p align="left">The dissent also stated that the majority’s decision would frustrate the intent
of the Act to “encourage development of new alternative energy systems and the
continuation and expansion of existing alternative energy sources.” Notably,
the EDCs would own sufficient AECs as a result of the Commission’s holding that
they would not likely have to purchase many AECs to fulfill their Tier II
obligations under the Act. Finally, the dissent believed that the petitioners’
argument that it would be unfair to require ratepayers to pay “above market”
rates under PURPA contracts and also to buy AECs blurred the distinction between
the differing purposes of PURPA and the AEPs Act. </p>
<p align="left">The AEPs Act is Pennsylvania’s equivalent of a renewable portfolio standard, and
an AEC is the Commonwealth’s equivalent of a renewable energy certificate in
other states. <font FACE="Palatino" SIZE="2">
</font></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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