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”).  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.  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. 

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.

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. 

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.” Petition of Southwestern Public Service Company for Declaratory Order Interpreting Commission Subst. R. § 25.173 Implementing Public Utility Regulator Act § 39.904, 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.

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.

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.   

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.