20040319Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A PETITION FILED BY
IDAHO POWER COMPANY FOR AN ORDER
DETERMINING OWNERSHIP OF THE
ENVIRONMENTAL ATTRIBUTES
ASSOCIATED WITH A QUALIFYING
FACILITY UPON PURCHASE BY A UTILITY
OF THE ENERGY PRODUCED BY A
QUALIFYING FACILITY.
CASE NO. IPC-O4-
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COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Petition for Declaratory Ruling, Notice of Modified Procedure and Notice of CommentlProtest
Deadline issued on February 20, 2004, submits the following comments.
On February 5, 2004, Idaho Power Company (Idaho Power; Company) filed a
Petition with the Idaho Public Utilities Commission (Commission) requesting an Order
determining ownership of the marketable "environmental attributes" 1 associated with a PURP A
qualifying facility (QF) when Idaho Power enters into a long-term, fixed rate contract to
purchase the energy produced by that QF. Reference IDAPA 31.01.01.101.
1 Idaho Power does not derIDe "environmental attributes," A good defmition is included in a white paper prepared
by the Energy Trust of Oregon Inc,- Green Tag Ownership and Disposition (September 17, 2003), See attached
Appendix A."
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Background
In June 2003, the Federal Energy Regulatory Commission (FERC) received a
Petition for Declaratory Order from PURP A QFs seeking FERC interpretation of its avoided cost
rules under PURP A. Specifically, Petitioners sought an Order declaring that avoided cost
contracts entered into pursuant to PURP A, absent express provisions to the contrary, do not
inherently convey to the purchasing utility any renewable energy credits (RECs) or similar
tradable certificates. It was the contention of Petitioners that the power purchase price that the
utility pays under such a contract compensates a QF only for the energy and capacity produced
by that facility and not for any environmental attributes associated with the facility. Reference
FERC Docket EL03-133-000.
In an Order issued on October 1 , 2003 (105 FERC ~ 61 004), FERC granted the
Petitioners request for a declaratory order, to the extent that the petition asked the Commission to
declare that Commission s avoided cost regulations did not contemplate the existence of RECs
and that the avoided cost rates for capacity and energy sold under contracts entered into pursuant
to PURP A do not convey the RECs, in the absence of an expressed contractual provision.
FERC's Order made the following specific findings:
19. Section 210(a) of PURPA requires the Commission to prescribe rules
imposing on electric utilities the obligation to offer to purchase electric
energy from QFs. Under Section 21 O(b) of PURP A, such purchases must
be at rates that are: (1) just and reasonable to electric consumers and in
the public interest; (2) not discriminatory against QFs; and (3) not
excess of the incremental cost to the electric utility of alternative electric
energy. Section 21 O( d) of PURP A, in turn, defines "incremental costs of
alternative electric energy" as "the cost to the electric utility of the
electric energy of which, but for the purchases from (the QFJ, such utility
would generate or purchase from another source.
20. The Commission implemented the purchase obligations set forth in
PURPA in Section 292.303 of its regulations, 18 CFR 9 292.303(a)
(2003), which provides:
Each electric utility shall purchase in accordance with Section 292.304
any energy and capacity which is made available from a qualifying
facility. . . .
Section 292.304, in turn, requires that rates for purchases shall: (1) be just
and reasonable to the electric customer of the electric utility and in the
public interest; and (2) not discriminate against qualifying cogeneration
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and small power production facilities. 18 CFR 9 292.304(a)(1) (2003).
The regulation further provides that nothing in the regulation requires any
electric utility to pay more than the avoided costs for purchases. 18 CFR
9 292.304(a)(2) (2003). "Avoided costs" is defined as the "incremental
costs to an electric utility of electric energy or capacity or both which, but
for the purchase from the qualifying facility or qualifying facilities, such
utility would generate itself or purchase from another source." 18 CFR 9
292.101(b)(6) (2003).
21. Section 292.304 sets forth what factors are to be considered in
determining avoided costs. See 18 CFR 9 292.304( e) (2003). The
factors to be considered include:
(1) The utility s system cost data;
(2) The availability of capacity or energy from a QF during the
system daily and season peak periods;
(3) The relationship between the availability of energy or capacity
from the QF to the ability of the electric utility to avoid costs; and
(4) The costs or savings resulting from variations in line losses from
those that would have existed in the absence of purchases from
the QF.
22. Significantly, what factor is not mentioned in the Commission
regulations is the environmental attributes of the QF selling to the utility.
This is because avoided costs were intended to put the utility into the
same position when purchasing QF capacity and energy as if the utility
generated the energy itself or purchased the energy from another source.
In this regard, the avoided costs that a utility pays a QF does not depend
on the type of QF, i., whether it is a fossil- fuel-cogeneration facility or a
renewable-energy small power production facility. The avoided costs
rates, in short, are not intended to compensate the QF for more than
capacity and energy.
23. As noted above, RECs are relative recent creations of the states. Seven
states have adopted renewable portfolio standards that use unbundled
RECs. What is relevant here is that the RECs are created by the states.
They exist outside the confines of PURP A. PURP A thus does not
address the ownership of RECs. The contracts for sales of QF capacity
and energy, entered into pursuant to PURP A, likewise do not control the
ownership of the RECs (absent an express provision in the contract).
States, in creating RECs, have the power to determine who owns the REC
in the initial instance, and how they may be sold and traded; it is not an
issue controlled by PURP A.
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24. We thus grant Petitioners' Petition for Declaratory Order, to the extent
that they ask the Commission to declare that contracts for the sale of QF
capacity and energy entered into pursuant to PURP A do not convey
RECs to the purchasing utility (absent an express provision in a contract
to the contrary). While a state may decide that a sale of power at
wholesale automatically transfers ownership of the state-created RECs
that requirement must find its authority in state law, not PURP A.
Petition for Declaratory Ruling
Regional organizations, Idaho Power contends, exist to facilitate green energy
transactions from resources that have been certified as green energy compliant by those
organizations e., Bonneville Environmental Foundation (BEF). These entities issue tradable
green tags" to certified renewable energy producers. Green tags are also known as green
certificates, renewable energy credits (RECs) and tradable renewable certificates (TRCs).
green tag represents the environmental and other non-power attributes associated with
megawatt hour (MWh) of electricity generated from a renewable resource. Some of the QFs
from whom Idaho Power anticipates making purchases in the future, the Company contends
have indicated an intention to obtain marketable green tags as a result of entering into contracts
with Idaho Power. Green tags avoid the need to package the electricity with its environmental
attributes. The tags provide a way in which to "unbundle" the environmental attributes from the
electricity and permit the sale of the environmental attributes of renewable generation separately
from the electricity generated. In effect, the Company states that green tags are a currency that
can be traded to individuals and entities wishing to support "green" energy. Example: Idaho
Power Schedule 62 Green Energy Purchase Program (Case No. IPC-00-, Order
No. 28655).
Referencing the foregoing FERC Order, Idaho Power states that FERC suggested
that individual states may decide ownership of the green tags. As a result, the Company seeks
guidance from the Commission as to ownership of potentially marketable certificates in Idaho.
Idaho Power contends that in Idaho , a utility and its customers confer additional
value on QFs by virtue of the long-term, levelized, fixed rate contracts that the utility enters into
with the QFs. That value, it asserts, is in addition to the avoided costs paid to the QFs for the
energy produced. Vesting the utility with some ownership interest in the green tags, it states
would remunerate the utility for the additional value conferred to the QFs. The QF position, the
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Company represents, is that QF ownership of the green tags provides the incentive they need to
invest in the production of energy from a renewable resource. They assert that the sale of the
green tags associated with the generation of green power compensates the QF with the facility
environmental attributes and rewards the additional risks associated with the investment in and
the design and operation of a renewable energy resource plant.
In this Petition, Idaho Power Company requests a declaratory order from the
Commission clarifying ownership of these green tags. The "respective arguments" of the
Company and QFs are presented in the Company s Petition.
Despite Idaho Power s interest in owning the green tags, the Company acknowledges
that retention of those tags by the QF developers may encourage the development of additional
green energy resources in Idaho without the need to increase energy purchase prices. Given the
heightened public interest in the development of new renewable resources, Idaho Power
respectfully recommends that the Commission determine that the developers of such generation
facilities receive full ownership rights in any green tags issued to them conditioned upon the
requirement that the QF developers who qualify for green tags and from whom Idaho Power
purchases energy grant the Company a "right of first refusal" to purchase those tags.
Staff Analysis
Idaho Power has requested a Commission Order determining ownership of the
marketable "environmental attributes" associated with the sale of renewable energy from a
PURP A qualifying facility to Idaho Power. The Company acquiesces to the ownership of
environmental attributes being confirmed as belonging to the developer but requests a "right of
first refusal" should the developer choose to sell. In Idaho the environmental attributes of
renewable power are generally referred to as "green tags." Reference Idaho Power Schedule 62
Green Energy Purchase Program (Case No. IPC-00-, Order No. 28655). The Company
Green Energy Program is a voluntary program for customers. Idaho Power was not required by
the State or any regulatory authority to offer the Program.
Staff contends that the initial question before the Commission is one of jurisdiction.
Does the Commission have the statutory authority and jurisdiction to determine who owns the
environmental attributes" associated with a QF project that requests a PURP A contract and
proposes to sell capacity and energy to a regulated utility? If PURP A and FERC rules do not
address and do not require a QF developer to sell "environmental attributes " to the purchasing
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utility can the Commission in its implementation of PURP A restrict their sale to other parties?
the Commission has the authority under PURP A, should it restrict their sale? Can the
Commission require as a PDRP A contract condition that a QF grant a purchasing utility a "right
of first refusal" to purchase the "Green Tags" associated with the QF facility?
It is well settled that the Idaho Commission is a creature of statute and derives its
general authority vis-a.-vis electric utilities from Title 61 , Idaho Code. Under State Law, the
Commission has authority over retail electric service.Wholesale power transactions are
regulated by the Federal Energy Regulatory Commission (FERC). The Federal Power Act
defines "sale at wholesale" as any sale to any person for resale. 16 D.C. 9824(d). Therefore
all QF sales to an electric utility are wholesale transactions. Under federal authority, i.
PURP A and the implementing regulations of FERC, the Idaho Commission has the authority to
set avoided costs, to order electric utilities to enter into fixed term obligations for the wholesale
purchase of energy from qualifying facilities and to implement FERC rules regarding such
purchases. PURPA Sections 210, 210(a), 210(f); 16 D.C. 99 824a-, 824a-3(a)(f); accord:
Afton Energy, Inc. v. Idaho Power Company, 107 Idaho 781 (1984). FERC in the Order cited by
Idaho Power in its Petition (105 FERC ~ 61 , 004) states that the contract sale of QF capacity and
energy entered into pursuant to PURP A does not convey renewable energy credits (RECs) to the
purchasing utility (absent an express provision in the contract to the contrary). FERC notes that
RECs are relatively recent creations of the States and suggested that "States, in creating RECs
have the power to determine who owns the REC in the initial instance, and how they may be sold
and traded.
" "
It is not " FERC states
, "
an issue controlled by PURPA." Staff notes that Idaho is
not a State that has established a renewable energy portfolio standard for electric utilities. Nor is
it a State that has by legislation created green certificates, green tags, renewable energy credits
(RECs) or tradable renewable certificates (TRCs) or established a market for same. Nor also is
Idaho presently a state that has provided tax incentives or credits for the development of
renewable energy. 2 In short, there appears to Staff to be no hook that gives the Commission
2 Staff notes the following bills introduced in the 2004 Idaho legislative session:
Idaho HB 760 - Income tax credit (capital investrnent)/alternative energy;
Idaho HB 761 - Income tax credit (generation)/alternative energy;
Idaho HB 827 - Alternative energy/sales tax exemption (equipment/supplies),
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jurisdiction over "environmental attributes " not under PURP A or federal law (including the
Energy Policies Act of 1992), and not under Title 61 of the Idaho Code.
The avoided cost rate methodology in Idaho does not include an adder for
environmental attributes" associated with QF renewable energy. Environmental attributes are
not an identified factor affecting rates for purchases. 18 C.R. 9 292.304. Under PURPA, the
avoided cost is the utility's avoided cost. It is the incremental costs to an electric utility of
electric energy or capacity or both which, but for the purchase from the qualifying facility the
utility would generate itself or purchase from another source. 18 c.F.R. 9292.101(b)(6). In the
context of PURP A wholesale transactions, FERC has barred state commissions from establishing
different wholesale prices for otherwise qualified cogeneration or small power production
facilities. 18 C.R. 9292.304(a)(ii). Accordingly, contracts for renewable resources cannot be
at a higher price than for non-renewable resources, nor can the requirements of contract be
different. Discrimination either directly or indirectly is not permitted.
Arguably what Idaho Power proposes is an impermissible "taking" of property. The
Fifth Amendment of the U.S. Constitution states
, "
nor shall private property be taken for public
use without just compensation.This provision is called the "takings clause.Idaho Power
requests a Commission Order granting the utility by regulatory fiat a "right of first refusal." It
proposes no compensation to the QF for the right. Electric utility purchases of energy and
capacity from PURPA QFs are mandatory.18 C.R. 9 292.303(a).The environmental
attributes associated with renewable QF projects are currently separate from the capacity and
energy sold to Idaho utilities. They are not bundled together as a matter of law. Nor is the cost
to purchase environmental attributes included in an Idaho utility s avoided cost. To the extent
those attributes have value and provide additional developer incentive, Staff believes they should
remain with the developer. At this time, no argument has been advanced nor authority cited to
justify or require placing any regulatory restriction by this Commission on their ownership.
By way of aside, it is unclear from the Company s Application why Idaho Power
would purchase the tags of a QF that it has contracted with. The purchase of tags is not
mandated by any state, federal or regulatory requirement. The Company should not be permitted
to use such tags to satisfy its Tariff Schedule 62 obligations.Customers participating in
Schedule 62 are paying a premium to promote the development of renewable energy. The
purchase of QF green tags by Idaho Power does not promote the development of any additional
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renewables by the Company. The purchase of QF renewables is already mandatory. The
purchase price of green tags only increases the cost to the Company of QF energy.
RECOMMENDATIONS
Staff recommends that the Company s Petition for Declaratory Order be denied.
Alternatively, should the Commission determine that it has jurisdiction, Staff recommends that
the Commission issue a declaratory order stating that mandatory purchases from QFs under
PURP A do not convey ownership of any marketable environmental attributes. Accordingly, any
environmental attributes associated remain with the QF. Staff further recommends that the
Commission deny the Company s proposal to require that QF developers from whom Idaho
Power purchases energy grant Idaho Power a "right of first refusal" to purchase the
environmental attributes associated with the QF facility.
RESPECTFULLY submitted this /9'" day of March 2004.
Scott D. Woodbury
Deputy Attorney General
Vld/N:IPCEO402 sw2
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APPENDIX A
Energy Trust Green Tag Definition
Environmental Attributes" means any and all credits, benefits, emissions reductions, offsets,
and allowances, howsoever entitled, resulting from the avoidance of the emission of any gas,
chemical, or other substance to the air, soil, or water attributable to the Specified Resource,
which are deemed of value by a Green Tag purchaser. Environmental Attributes include but
are not limited to: (I) any avoided emissions of pollutants to the air, soil, or water such as
(subject to the foregoing) sulfur oxides (SOx), nitrogen oxides (NOx), carbon monoxide
(CO), and other pollutants; (2) any avoided emissions of carbon dioxide (CO2), methane
(CH4), and other greenhouse gases (GHGs) that have been determined by the United
Nations Intergovernmental Panel on Climate Change to contribute to the actual or potential
threat of altering the Earth's climate by trapping heat in the atmosphere; and (3) the Green
Tag Reporting Rights to these avoided emissions. Subject to the foregoing, Environmental
Attributes do not include any energy, capacity, reliability, or other power attributes from
the Specified Resource nor production tax credits or certain other financial incentives
existing now or in the future associated with the construction or operation of the Specified
Resource.
Green Tag" means the Environmental Attributes associated with the power generated from
the Specified Resource, together with the Green Tag Reporting Rights associated thereto.
One Green Tag represents the Environmental Attributes made available by the generation
of I MWh from the Specified Resource,
Green Tag Reporting Right(s)" means the right of a Green Tag purchaser to report
ownership of Green Tags in compliance with federal or state Law, if applicable, and to a
federal or state agency, or other parties at the Green Tag purchaser s discretion, and
include those accruing under Section I 605 (b) of the Energy Policy Act of 1992, or under any
present or future domestic, international, or foreign emissions trading program.
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF MARCH 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-04-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
MONICA MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RANDY C ALLPHIN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
~K~
SECRETARY
CERTIFICATE OF SERVICE