If an electric utility is under long-term contract to purchase power from, say, a non-utility hydroelectric generator, who owns the newfangled renewable energy “credits” that are created when that power is generated?
That question of the modern electricity era can be worth millions of dollars, even tens of millions.
It has had to be resolved in states across the nation and, on Nov. 22, the Public Service Commission of West Virginia decided it in favor of the utility.
But it may not be over.
The Portfolio Standard
The “credits” are Alternative and Renewable Energy Resource Credits established, in West Virginia, by the state’s 2009 Alternative and Renewable Energy Portfolio Act, or AREP Act.
The act requires electric utilities to obtain growing shares of their power from a defined set of alternative and renewable sources on a schedule: 10 percent by 2015, 15 percent by 2020 and 25 percent by 2025.
Credits are the means of tracking and documenting compliance. The generation of each megawatt-hour of electricity from those defined sources – including, in West Virginia, such renewable sources as hydroelectric and wind as well as those the Legislature defined as “alternative,” such as waste coal and lower-carbon-emitting natural gas – generates with it a unique credit that may be bought and sold.
Starting in 2015, the state’s utilities – AEP’s Appalachian Power Co. and Wheeling Power Co. and FirstEnergy’s Monongahela Power Co. and Potomac Edison Co., as well as the New Martinsville and Philippi municipal utilities, the Craig-Botetourt Electric Cooperative and the Harrison Rural Electrification Association – will each year have to own and retire credits equal to the mandated percentage of total retail power sales for the year.
Who Owns Which Credits?
For alternative and renewable power the utilities generate themselves, it’s straightforward: They own the associated credits. The AEP companies will create and own credits from several qualifying generators.
For utilities that don’t generate any such power, it’s straightforward, too: They’ll buy the credits. Craig-Botetourt, for example, anticipates buying 315 credits for 2015 compliance at an estimated cost of $15 each.
And if utilities contracted recently to purchase such power, the disposition of the associated credits would have been negotiated.
But Mon Power has been under long-term contract since the 1980s with three independent power producers: the city of New Martinsville for power from its Hannibal hydropower facility, American Bituminous Power Partners for power from the Grant Town coal and waste coal power plant in Marion county and Morgantown Energy Associates for power from its coal and waste coal plant in Morgantown.
The contracts were mandated as part of a 1970s federal effort to diversify generation.
Power from each of these sources creates credits under the AREP Act: an estimated 1.5 million credits altogether every year, $22.5 million worth if they’re valued at $15 each.
Because the city of New Martinsville is both a power producer and a municipal utility, it claimed the Hannibal credits in its compliance plan – as did Mon Power.
In February, the FirstEnergy companies petitioned the PSC to decide who owns them.
Mon Power and Potomac Edison pointed to similar recent cases in Connecticut, New Jersey, and Pennsylvania, which followed the majority of earlier states’ rulings the came out in favor of utilities.
In these old federally mandated contracts, Connecticut and New Jersey reasoned, the non-utility generators were given favorable rates. The utilities’ customers shouldn’t be required to pay further to obtain the credits, they found. Pennsylvania considered the credits a measure of the power purchased, a bookkeeping device, and for that reason saw them as following the power.
Intervenors the city of New Martinsville and Morgantown Energy Associates – American Bituminous Power Partners did not intervene in the case – made separate arguments.
New Martinsville argued that a 2004 revision of its agreement with Mon Power dates the contract after a 2003 federal ruling that put this decision about the credits on the states. Since the 2004 contract revision didn’t mention the credits, the city said, they should stay with the producer.
MEA looked to Minnesota, which found that these old power purchase agreements are for energy and capacity and nothing more.
The commission determined that the Mon Power and Potomac Edison case was more compelling and, on Nov. 22, ordered that the credits belong to them.
What credits will actually be worth can only be speculation until the compliance period starts.
“The price ultimately will be determined by how the Renewable Energy Credit markets evolve in the future,” said FirstEnergy spokesman Mark Durbin.
“However, as part of our filing with the PSC, we estimated the ratepayer impact of not having the … credits could be approximately $60 million from 2015 to 2025,” Durbin said.
That’s closer to $4 per credit than the $15 some have guessed at, and still comes to nearly $2 million a year for the Hannibal credits alone.
The decision could be costly for New Martinsville.
If other hydropower the city has contracted for goes into service on schedule at the end of 2014, it appears the city will meet its anticipated quota of 3,693 credits in 2015 naturally, according to the city’s attorney in the case, Robert Rodecker of Charleston.
But if those projects are delayed, it will have to buy credits for perhaps $15,000 to $55,000.
Further, while simply being able to comply with the AREP Act with sufficient credits is one thing, it has to be noted that surplus credits may be sold and could bring additional revenues to the owner.
Rodecker would not say whether the city would appeal the PSC’s decision to the Supreme Court of Appeals.
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