FERC declares that RECs generated by QFs are not purchased by avoided cost payments

On April 24, 2012, the Federal Energy Regulatory Commission (FERC) issued the latest in a string of declarations on the ownership of renewable energy credits (RECs).  Morgantown Energy Assoc., 139 FERC ¶ 61,066 (2012).  The dispute arose in West Virginia where the state utility commission (Public Service Commission of West Virginia) attempted to resolve ownership of RECs between PURPA qualifying facilities (QFs) and utilities purchasing output from the QFs.

After a West Virginia law imposed a renewable portfolio standard on utilities, the utilities and QFs were left to argue over who got credit for RECs from pre-existing power purchase agreements that were silent on RECs. In this action, the utility had been purchasing from QFs under long-term contracts that made no mentions of REC ownership.  The utility asked the West Virginia commission to resolve ownership.  The West Virginia commission found that RECs belonged to the utility, offering several justifications including that avoided cost contracts already offer considerable consideration to QFs and that to award RECs to QFs would be an unfair burden on rate payers and a windfall for QFs.

The QFs sought enforcement against the West Virginia commission before FERC, arguing the state commission’s order was inconsistent with PURPA.  FERC declined to initiate an enforcement action against the state commission, but cautioned the state commission that PURPA avoided cost rates cannot be considered to compensate for RECs.  FERC stated that PURPA avoided cost rates compensate only for energy and capacity.

FERC left open for states the ability to determine ownership of RECs, recognizing that RECs are created by state law and PURPA is silent on RECs.  The only clear path left by FERC for states to provide QF RECs to utilities at no additional cost is to make state law that transfers RECs to the purchaser automatically on any wholesale sale.  The ruling suggests that FERC would be opposed to a state law that treated RECs from QFs differently from RECs from other independent renewable generators.

As mentioned here, the Oregon Public Utility Commission is implementing a two-tiered scheme where QFs can elect higher renewable energy avoided cost rates, but in exchange must assign RECs to the purchasing utility.

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