On April 16, 2008, Northern States Power filed a petition with the Minnesota Public Utilities Commission for a determination that "Xcel Energy has all legal rights necssary to possess, use and dispose of any renewable energy credits (‘RECs’) arising from the production of renewable energy that Xcel purchases under its renewable energy power purchase agreements (‘PPAs’)."  NSP’s request was directed primary at "46 older PPAs that did not contain language explicity addressing the treatment of RECs."  Suprisingly, until 2003, Xcel Energy’s form of PPA for certain small facilities was silent on the question of which party–the generator or the utility–was entitled to the RECs associated with the renewable energy.  Xcel and the affected generators are now filing pleadings before the Commission to sort out the question of who gets to claim the RECs produced by these renewable energy projects–NSP, as the utility buyer, which needs more RECs to meet Minnesota’s RPS; or the generators, who wouldn’t mind being able make a little more money by selling reserved, unbundled RECs in a separate transction (some of them may have already done just that, and may be unpleasantly surprised if the Commission rules that Xcel is the true owner of those RECs).  The discussion rages on in Docket E-002/M-08-440. (To see the filings, go to the Minnesota Public Utility Commission’s e-docket and enter "08" in the year and "440" as the docket.)

So, what do renewable energy PPAs have to do with the lease of a green building?  Well, imagine this scenario.  A developer designs and builds a marvelous new high performance green building with a Platinum LEED certification.  The building’s developer/owner leases the building to a company that wants to enjoy the prestige of occupying a top-knotch green office space.  A couple of years later, the state recognizes and values "white tags" (energy efficiency credits); or, the federal government gets around to enacting a comprehensive carbon cap and trade law.  Suddenly, the green building may be yielding additional value in the form of white tags, carbon offset credits or other environmental attributes. 

So who gets that value?  The owner, who took all that risk to develop the green building?  Or the lessee, who is perhaps paying a higher than market rate to rent space in a very desirable green building?  Perhaps a lender has a claim that the value was pledged as collateral for its loan.  If the lease is silent on the point, the lessor and lessee may find themselves quarreling over who gets to own and sell the tags or offsets.  The same issue can crop up in agreements to sell "green" condominiums or other transactions in which some feature of a green building is conveyed to another party.

To avoid re-learning the lesson that Xcel and its generators are now absorbing in a different context, the simple fix is to make sure that the green building lease or transfer agreement directly addresses the question of who gets to keep (or receive) any credits or benefits that are recognized as a result of the building’s high performance, green status.  Some forethought about how these agreements are drafted can avoid disputes later on.