Last year, we reported on the resolution of a longstanding dispute between Xcel Energy and 46 renewable energy generators about the ownership of Renewable Energy Credits (RECs) when the Power Purchase Agreement (PPA) is silent. In an Order released September 9, 2010, the Minnesota Public Utilities Commission decided that 1) generators own the RECs produced under PPAs signed under the 1978 federal Public Utilities Regulatory Policy Act (PURPA) and 2) Xcel owns the RECs produced under PPAs signed under Minnesota’s 1994 wind and biomass mandates, unless the generator could demonstrate that the PPA was not silent. Today, the Commission released an Order offering more clarity to PPAs in the latter category.
Following the September 2010 Order, two generators (St. Paul Cogeneration LLC and Mission Funding Zeta) with contracts under the wind and biomass mandates sought to demonstrate to the Commission that their PPAs were not silent on REC ownership. Both PPAs at issue contained language allocating to the generator the benefit of “any tax credits, allowances or other credits” related to the generation facility. In today’s order, the Commission determined that this language unambiguously includes RECs. As a result, the Commission found that St. Paul Cogeneration and Mission Funding Zeta own the RECs under the terms of their PPAs. The Commission also found that Xcel owns the RECs under any remaining unsettled wind and biomass mandate PPAs, unless the generator demonstrates that the PPA is not silent within 30 days.
Following our post from a couple weeks ago, the Minnesota Public Utilities Commission released its Order today regarding ownership of renewable energy credits in a group of "silent" power purchase agreements (Docket No. 08-440). The Order is available here and our previous post describing its substance is here.
On Thursday March 11, 2010, the California Public Utility Commission (the "CPUC") created a market for tradable renewable energy credits ("TRECs") in the state. That's big news. In its 149-page decision, the CPUC stated that investor-owned utilities ("IOUs"), energy service providers, and community choice aggregators may now use TRECs to comply with California's ambitious renewable portfolio standard ("RPS"). These entities are now permitted to purchase a portion of their RPS compliance from generation sources other than those they own (e.g., distributed solar generation facilities within the state and certain out-of-state facilities).
Think of a renewable energy credit as the "green" portion of a unit of electricity generated from an RPS-eligible facility (e.g., wind, solar, geothermal). Together, the "green" renewable energy credit and the unit of electricity that it came with are bundled; separate them, and they become unbundled. The CPUC's decision allows an RPS-eligible generator to unbundle the renewable energy credits and sell them separately from the electricity they were generated with. Thus, the renewable energy credits become tradable (i.e., TRECs).
The CPUC made its decision to allow the unbundling of renewable energy credits for two main reasons, both of which seem perfectly reasonable in light of California's push toward distributed solar generation and the conflict that is created when utilities need to meet ever-increasing RPS requirements in an atmosphere of stringent siting regulations for new projects under the California Environmental Quality Act.
- First, the CPUC created a market for TRECs to aid utilities with RPS compliance.
- Second, the TREC market is intended to incentivize development of more RPS-eligible generation, like rooftop solar modules.
A few highlights of the CPUC decision deserve particular attention:
25% Cap on TRECs: IOUs may only meet 25% of their RPS requirement with TRECs under the program. However, that 25% cap will be lifted in 2011 (unless the CPUC changes its mind).
Interim Price Cap: The CPUC set a price cap of $50 per TREC that is used for compliance by an IOU. However, that price cap will also be lifted in 2011 (unless the CPUC changes its mind).
3-Year Tradable Life: To count TRECs toward its RPS requirement, a participating utility must meet CPUC requirements for TREC-trading and Western Renewable Energy Generation Information System ("WREGIS") requirements for TREC-tracking. During the first 2-3 years of the program, the CPUC does not expect much activity in the market; so to ensure liquidity, new TRECs must be retired with WREGIS within 3 years from the date the TREC was created. "Retiring" a TREC means that the ultimate owner has applied the TREC's compliance value to the owner's California RPS requirement with WREGIS and the TREC is taken out of the market. However, once retired, a TREC's compliance value may be banked indefinitely.
TRECs Under Existing Contracts: TRECs generated in future years under existing RPS contracts (i.e., TRECs generated from this day forward) may be unbundled and sold separately under certain conditions set out in the CPUC's ruling.
Out-of-State Suppliers & Bundled Transactions: Bundled transactions must benefit California-customer load. Therefore, only electricity that comes from (1) California-connected generators and (2) out-of-state suppliers that can demonstrate that the bundled product that they deliver to California is not "shaped" using non-RPS-eligible resources, may qualify.
No Bundled Transactions for In-State Generators Selling Out-of-State: When an IOU purchases renewable energy credits (whether bundled or unbundled) from a generator located in California that sells its electricity outside of the state, the CPUC will consider that an unbundled purchase for purposes of reporting and retiring the credits. Therefore, renewable energy credits bought from an RPS-eligible generator serving out-of-state loads will count toward the IOU's 25% cap.
From an economic standpoint, the CPUC hopes that creating a market for TRECs will increase the overall efficiency of the RPS program. By allowing the market to set separate prices for TRECs and for the electricity associated with generating them, the CPUC believes that the public will benefit because the price of each will reflect its actual value.
The California Public Utilities Commission ("CPUC") issued a proposed decision on December 23, 2009 that would, if adopted, allow California investor-owned utilities, energy service providers, and community choice aggregators to purchase renewable energy credits alone, without the associated energy (sometimes referred to as "unbundled renewable energy credits ("RECs)" or "tradable RECs"), to satisfy their obligations under California's RPS. California's largest investor-owned utilities—Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric—would be limited to meeting no more than 40% of their annual procurement targets under the RPS with tradable RECs, and a price cap of $50 would be imposed. The CPUC will revisit both the percentage cap and the cost cap and whether those caps should be revised within 24 months of the decision.
Out-of-state renewable energy projects could be adversely impacted if the proposed order were adopted. The proposed decision would define all renewable generation purchased from out-of-state facilities1 as the purchase of unbundled or tradable RECs, making any out-of-state renewable energy sale subject to the cap that bars the large investor-owned utilities from using such sales to meet more than 40% of their overall RPS obligation. Although the proposed decision states that this classification would apply only to contracts signed on or after the effective date of the decision, contracts signed prior to the effective date would be considered REC-only contracts from the effective date forward, and would be "subject to the limits and rules applying to REC-only contracts" according to the proposed decision. Furthermore, although the purchase of tradable RECs from out-of-state facilities would be permitted, the delivery requirement in the RPS legislation would still have to be met, so a comparable amount of power would have to be imported into the state, along with the RECs. The jurisdiction to determine whether and how this delivery requirement is met, however, still remains with the California Energy Commission.
Comments on the proposed decision are due on January 19, 2010, and reply comments are due January 25, 2010.
For additional information about the history and effect of the proposed decision, see our Stoel Rives alert on the topic.