June 2005
Pennsylvania and New Jersey Join The Growing Number of Utility Commissions To Litigate REC Ownership
by Robert Olson  and Maria Reinemann --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 2005/07/04)

The Pennsylvania Public Utilities Commission is currently determining whether utilities or non-utility generators (“NUGs”) own the environmental attributes of NUG generation under established, long-term contracts for the sale of NUG power. The Commission opened Docket No. P- 00052149 in response to a petition filed by Pennsylvania Electric Company (“Penelec”) and Metropolitan Edison Company (“Met Ed”) to resolve a dispute between these utilities and the York County Solid Waste and Refuse Authority, which owns and operates a 34.7 MW trash- to-energy facility and sells the energy produced at the facility to the utilities under a 30-year PURPA contract. Penelec and MetEd have claimed that, because their contract with the Authority is silent on the transfer of environmental attributes, those attributes were transferred to the utilities as part of a bundled transaction. The utilities further argue that there is no public policy reason to compensate NUGS for the environmental attributes of their generation when the avoided cost rates that they receive are above market. According to Penelec and MetEd, a ruling that PURPA contracts transfer ownership of the environmental attributes of NUG generation is necessary to protect the utilities’ ratepayers. The Authority has taken the position that the attributes were not mentioned in the contract because they were not bargained for or paid for by the utilities and so remain the property of the Authority. Although the Commission would not issue a general notice to all Pennsylvania NUGs that their contracts would be affected by the Commission’s eventual ruling, the Commission has permitted a number of NUGs and trade groups to intervene and participate in the proceeding. The Commission has designated an administrative law judge to hear the matter, and to decide whether to conduct separate hearings on the general issue and on utility-specific contracts. The administrative law judge will hold the first pre-hearing procedural conference in mid-June.

Meanwhile, the New Jersey Board of Public Utilities, Division of Energy issued an opinion in BPU Docket No. EO04080879 in which the Board held that under New Jersey’s legislative scheme and rules for the approval of PURPA contracts, a sale of energy from a renewable resource includes the renewable attributes of that energy. In support of its ruling, the Board found that the avoided costs in New Jersey PURPA contracts included a payment for renewable attributes, because avoided costs for qualifying facilities (“QFs”) were set 10% higher than the marginal cost of incremental power within the PJM specifically to reflect the value of the energy efficiency and renewable attributes associated with such facilities. Because the price set for QF power included this premium, the environmental attribute of QF generation could not be separated and separately traded from energy and capacity. As a matter of policy, the Board reasoned that allowing QFs ownership of environmental attributes under existing PURPA contracts would not fulfill the New Jersey legislature’s goal of encouraging development of new renewable generation. The Board was also of the belief that avoided cost rates in existing contracts tend to be highly favorable to QFs and that fairness and equity required a determination that RECs belong to utility customers who must pay above market prices for QF power.

Regulatory boards in Maine and Connecticut have issued rulings similar to the ruling issued by the New Jersey BPU. Order, Investigation of GIS Certificates Associated with Qualifying Facility Agreements, Docket No. 2002-506 (Sept. 6, 2002); Order, Application of Minnesota Methane, LLC, Docket No. 96-07-21RE01 (March 19, 2004).

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:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716