20040406Decision Memo.pdf

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DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:APRIL 5, 2004
SUBJECT:CASE NO. IPC-04-2 (Idaho Power)
PETITION FOR DECLARATORY ORDER
OWNERSHIP OF MARKET ABLE "ENVIRONMENTAL ATTRIBUTES"
ASSOCIATED WITH PURPA QFS.
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"l associated with a PURP
qualifying facility (QF) when Idaho Power enters into a long-term, fIXed rate contract to
purchase the energy produced by that QF. Reference IDAP A 31.01.01.101.
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.
1 Idaho Power does not defme "environmental attributes." A good defInition 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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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 210(b) ofPURPA, 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 in
excess of the incremental cost to the electric utility of alternative electric
energy. Section 21 O( d) of PURP A, in turn, defrnes "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 QF), 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 qualifyingfacility. . . .
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
and small power production facilities. 18 CFR 9 292.304(a)(I) (2003).
The regulation further provides that nothing in the regulation requires any
electric utility to pay more than the avoided costs for purchases-;---l-8-GFR
9 292.304(a)(2) (2003). "Avoided costs" is defrned 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;
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(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 ofQF, 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.
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 frnd 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
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green tags" to certified renewable energy producers. Green tags are also known as green
certificates, renewable energy credits (RECs) and tradable renewable certificates (TRCs). A
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, 105 FERC ~ 61 004, 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
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 for the facility'
environmental attributes and the additional risks associated with the investment in and the design
and operation of a renewable energy resource plant.
Idaho Power Company, in this Petition, 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.
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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.
On February 20, 2004, the Commission issued Notices of Petition and Modified
Procedure in Case No. IPC-04-2. The deadline for filing written comments was March 19
2004. Timely comments were filed by PacifiCorp, Avista, Bonneville Environmental
Foundation (BEF), Exergy Corporation, the Northwest Energy Coalition and Advocates for the
West, Bob Lewandowski and Mark Schroeder, and Commission Staff. All commenters
recommend for different reasons that the ultimate relief requested by Idaho Power, i., that the
Company be provided a "right of fIrst refusal" to purchase the environmental attributes or green
tags associated with required QF purchases, be denied. PacifiCorp and Avista maintain that the
environmental attributes or green tags associated with renewable resources are the property of
the purchasing utility. The Bonneville Environmental Foundation, Northwest Energy Coalition
and Advocates for the West recommend that the Commission confirm that qualifying facility
developers own the environmental attributes associated with their projects, free from rights of
first refusal. Exergy Corporation, Bob Lewandowski and Mark Schroeder and Commission Staff
contend that the Commission has no jurisdiction or authority stemming from either PURP A
FERC implementing regulations or Idaho state law to grant the requested relief. Should the
Commission decide not to dismiss Idaho Power s Petition, Mr. Lewandowski and Schroeder
contend that the Company s Petition is not appropriate for Modified Procedure and request that
the Commission schedule an evidentiary hearing. The comments and recommendations of the
parties are more particularly described as follows:
PacifiCorp
By way of background, PacifiCorp notes that the utility has 13 long-term fixed rate
contracts with QFs in Idaho, ranging from 80 Kw to 6 MW. None of the QF contracts are
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levelized. PacifiCorp requests that the Commission deny Idaho Power s request for a "right for
first refusal" and instead issue an Order declaring that, pursuant to obligations imposed by
PURP A, ownership of all renewable credits associated with energy produced and delivered by a
QF pass to the utility that purchases that output of the QF.
Renewable energy credits (RECs) identify generation as having come from a
renewable resource. Historically, PacifiCorp contends, QF developers have effectively sold the
entire output of their QFs to the purchasing utilities under PURP A-mandated contracts. This
bundled output, PacifiCorp contends, includes those characteristics that are now separately
identified as renewable energy credits. PacifiCorp characterizes Idaho Power s request as an
unbundling of RECs from the overall output of the facilities and the transfer of ownership to the
QF without compensation to the purchasing utility. To deny a purchasing utility the RECs
associated with the QF purchase, PacifiCorp contends that the QF would then be effectively
selling "null" or generic power to the utility. This it states is not the intent of the PURPA
requirement. Ratepayers and utilities continue to bear the risks, the utility contends, not QFs. To
grant ownership of the renewable energy credits to QFs, PacifiCorp maintains, would result in a
windfall to QF developers at the expense of ratepayers.
PacifiCorp maintains that any entity that relies on a mandated purchase at a price that
is protected from market forces, such as the QFs, is by defmition unlikely to be competitive
economically.Otherwise, it argues, the project would stand on its own without PURPA
protection. To transfer the right to RECs from the purchasing utility to the QF developer
PacifiCorp contends, would exacerbate this perverse incentive.
PacifiCorp contends that utilities and their ratepayers bear the risks associated with
QF generation and should receive the benefits arising therefrom. QFs come into existence, it
maintains by choosing not to participate in the market, but rather trigger PURP A, which requires
utilities to enter into contracts with them at the utility's avoided costs.
Over the past few years, PacifiCorp notes that a secondary market has developed in
the identifying feature of the electricity as having come from the QF as a renewable resource.
This new market, it contends, has not created anything that was not there before, i.e., a certificate
that shows that renewable power was generated and delivered to the grid; rather, it just permits
an owner of a renewable resource to sell the certificate generated by that resource into a nascent
market that accords positive frnancial values to the certificate, which until now has always gone
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with that power. The Commission in this case, PacifiCorp contends, is being asked to permit
QFs to withhold from the purchasing utility the very essence of what, under PURP A, requires the
utility to purchase the power from the QF in the first place. Renewable energy credits should not
be given to the QF to separately sell, PacifiCorp contends, unless the QFs right to require
ratepayers to pay avoided costs for the power is also taken.
Traditional regulatory principles, PacifiCorp contends, dictate that rewards should
follow risks, or that the bearer of risks and costs should likewise obtain the benefits. Ratepayers
have consistently borne the risk of PURP A-mandated contracts, PacifiCorp argues, and should
therefore retain the benefits of those contracts. Ratepayers should not be deprived of a benefit
they have always gotten for the past quarter-century under PURP A, simply because a secondary
market has developed for that portion of the power that identifies it as having qualified under
PURP A in the fITSt place. Any other determination, PacifiCorp contends, would result in double-
billing the ratepayer and a windfall for the QF.
PacifiCorp notes that utilities do not voluntarily enter into QF contracts. The price
for QF energy is based on avoided costs, not market costs, which PacifiCorp contends Congress
has determined adequately compensates QFs that would otherwise be unable to compete in the
market. Requiring a utility s ratepayers to pay avoided costs as well as the market rate for
renewable energy credits, PacifiCorp contends, would result in increased energy costs.
While acknowledging that Idaho dQes not currently have a renewable portfolio
standard (RPS) program that issues green tags, PacifiCorp notes that such programs are intended
to promote renewable energy in the market place by attracting the most efficient renewable
energy competitors. Resources must compete against each other rather than against a set level of
avoided costs. The approach ofPURPA, PacifiCorp contends, is inherently less efficient since it
does not require competition among similar resources. For load serving entities, one of the
potential future benefits of QF contracts, PacifiCorp contends, is that they can help meet future
RPS goals, whether at the national or state level. Typically, load serving entities are required to
purchase renewables up to a mandated percentage of total load served.
PacifiCorp contends that QFs have voluntarily withdrawn from the market, and
utilities bear the risk of that decision. Idaho Power s requested Order, it states, would be a direct
detriment to ratepayers. The benefits should follow risks, and the approach proposed by Idaho
Power would set in motion a process whereby QFs can set aside non-power features with
DECISION MEMORANDUM
positive market value for sale, leaving the ratepayers with generic power equivalent to power
generated from a non-renewable resource against the intent ofPURP A for utilities to buy cleaner
power. Further, PacifiCorp contends that granting RECs to QFs can reduce the effectiveness of
future national and/or state renewable programs that intend, in part, to incentize more plant
investment for local economic development.
Absent the renewable energy credit, PacifiCorp maintains that power generated by
QFs is undifferentiated from other power a utility utilizes to meet its obligation to serve and
therefore, the facility that produces this undifferentiated power should no longer be considered a
QF. The REC is an essential aspect of a generation facilities output that resulted in the facility
being designated a QF under PURP A in the first place.
Avista
A vista expresses concern that any Order issued by the Commission in Idaho Power
docket will be precedent with respect to other companies. A vista recommends that the
Commission s Order be limited in effect to Idaho Power and expressly not apply to Avista
Corporation. Alternatively, A vista recommends that the Commission declare that ownership of
renewable energy credits associated with QF renewable resources be vested or conveyed to the
purchasing utility as a condition of a QF receiving a contract.
QFs located in Idaho, A vista contends, receive a benefit and incentive when they
contract to sell to a utility at a long-term, fixed rate contract. The QF developers, it states
receive the benefit of the utility s credit standing, and the likely certainty of a steady continued
cash flow over a long period of time. Avista submits that ownership of RECs should remain
with the purchasing utility company when the utility is compelled to purchase power from the
QF.
Avista contends that the foundation principle of PURPA is that the power that a
utility purchases at avoided cost rates from QF projects is intended to displace power from
resources that the utility otherwise would have had to construct or purchase. The utility and its
customers, Avista contends, should incur no more costs, and receive no less economic benefit
from a QF purchase, than had the utility owned the generating unit and operated it for its
customers. A purchasing utility, Avista contends, normally expects to acquire all of the
attributes and value of the output that it purchases from a QF pursuant to a published avoided
cost rate. If the utility does not acquire all of the value of the QF output then A vista contends
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there is not an equivalence of value between a QF project and a comparably sized utility owned
resource. Utility customers will receive less value from QF purchases, it maintains, if the
monetary benefit of RECs is assigned to the proj ect developer instead of flowing with the power
to the benefit of utility customers. It is consistent with the principles of PURPA, Avista
contends, that the monetized value of QF renewable resource development be retained by the
utility customers, in the same manner that the customers would benefit from monetized value of
RECs associated with utility generation.
QF development, Avista contends, would not be significantly deterred if renewable
energy credits are retained by utilities that purchase power from QFs at published avoided cost
rates. QFs, it states, are not precluded from taking their electricity output and RECs to the
wholesale markets, if they perceive that the wholesale markets offer greater rewards then they
will receive at Commission determined avoided cost rates.
The monetary value ofRECs, Avista contends, are not preserved to the utility and its
customers, if the QF developer retains ownership of the renewable energy credits, even if the QF
developer assigns a "right of first refusal" to the utility. The utility and its customers, A vista
contends, should be able to benefit from any increase in the value over time of RECs
irrespective of whether the renewable energy credits are associated with utility owned
generation, or are acquired by purchase from a QF at published avoided cost rates.
Bonneville Environmental Foundation (BEF)
BEF is non-profit business that markets green tags representing the environmental
attributes of the output of certain renewable power generating facilities. BEF supports and
encourages the Commission to adopt the general proposition that the environmental attributes or
green tags, associated with the output of renewable power facilities are and remain the property
of the owner of that facility until and unless the owner consents to a transfer of those green tags
to another party. Similar to federal or state tax credits or other incentives employed by the owner
to develop its facility, BEF contends that unless otherwise specified, these incentives are
intended by the public bodies that established them to be employed in aggregate by a developer
of a renewable facility, in recognition that often the economic disincentives act in aggregate to
discourage such developments. Thus, the federal government does not deJ;J1and custody of the
green tags from a project that takes advantage of federal tax credits and decelerated depreciation.
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Thus, also a cogeneration facility that uses fossil fuels and may have no green tags to sell is not
disqualified from exercising its QF rights under PURP
BEF applauds Idaho Power s recognition of the compelling value to the State of
Idaho of incenting prospective facility developers to proceed with their renewable projects.
Oregon, Washington and other states in which renewable facilities are being actively developed
BEF notes, do not challenge the owners' green tag rights.
BEF parts company with Idaho Power on the narrower question of whether Idaho
Power should obtain a "right of first refusal" for the green tags from the facilities in question.
BEF understands the Company s reasoning in seeking to protect its customer access to the tags
but believes that the market will meet this concern. A right of first refusal, BEF contends
effectively diminishes the market value of the tags to the owners by discouraging a third party
from expending the effort and paying the opportunity cost of negotiating to purchase such tags
only to have Idaho Power exercise its right of first refusal. As a marketer, if BEF has an
equivalent opportunity to acquire tags from another seller not constrained by such a right of first
refusal, BEF will out of necessity prefer the unencumbered tags and seller.
Northwest Energy Coalition and Advocates for the West
The Northwest Energy Coalition is a multi-state association of energy efficiency,
clean energy, environmental and other public interest organizations engaged in promoting a
clean, reliable and economic energy future for the Pacific Northwest. Advocates for the West is
a non-profit conservation law and advocacy center, which supports renewable energy resources
and energy efficiency improvements. The commenters concur with the comments of Bonneville
Environmental Foundation. BEF's comments, they contend, deserve careful consideration in no
small part because BEF markets and sells green tags in Idaho for Idaho Power s green power
program.
The commenters appreciate and agree with the general position taken by Idaho Power
Company that green tag ownership should stay with project owners. Commenters base their
argument on the utility s obligation to price QF power at the utility's avoided cost and the
monopsonist power of Idaho Power. The commenters also note that green tags are just one
collateral value that PURP A QFs can have, apart from the production of electrons. Methane
digesters installed at dairies can improve overall waste management. Canal-drop hydro systems
can have independent value to their owners for channel maintenance, water flow management or
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other reasons. These values are real and separate from the production of electricity at QFs, but a
utility could not possibly claim ownership of them.
Regarding Idaho Power s request for "right of fust refusal" to purchase green tags
from QFs, commenters support BEF's position. Quite simply, they do not believe the Company
has presented any legal or other compelling basis to obtain such a right. The Northwest Energy
Coalition and the Advocates for the West recommend that the Commission conflTffi that QF
developers own the environmental attributes associated with their projects, free from rights of
first refusal.
Exergy Corporation
Exergy Corporation contends that one ruling should be the contemporaneous
authority on the subject of environmental attributes: the October 1 , 2003 , ruling by FERC
(Docket No. EL03-133- 00) dominates in elucidation. This Order, it states, clearly indicates
where and under what circumstances state authority for ascertaining ownership of environmental
attributes embedded in renewable programs exists. Under the tenets incorporated into PURP A
whereby the utility is required to purchase energy and capacity only, the environmental attributes
is not part of the protocol. Furthermore from the review of Exergy Corporation, no Idaho
enabling statute exists for a decision on the question of ownership of an environmental attribute
by the Idaho Public Utilities Commission.
With all due respect to the Idaho Commission, Exergy Corporation contends that
without a specific legislative; regulatory, or legal provision in the Idaho Code or in the Idaho
Administrative Rules, there appears to be no legal mechanism to authorize the Commission to
create new law. Absent of those provisions, without an existing statute to interpret, a directive
from the state legislature or superceded by federal mandate, Exergy contends that the
Commission cannot implement a decision deleterious to either the generator, the utility, or
contrary to FERC and PURP A. Where no state initiated mandatory guidelines are evident
Exergy contends that the environmental attribute remains with the generator.
But the question of whether law exists, Exergy contends, should be moot regardless.
Such a law is inappropriate based on the single fact that the QF bears the risk of compliance
(which-is born in capital cost and schedule when negotiating the energy sales agreement),
therefore, the QF should also have the benefit of environmental attributes. The QF is solely
responsible to mitigate pollution consequences, not the customer or utility, and all the liabilities
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or attributes of that generation lie with the QF. Indeed, it may be argued that if a renewable
resource generator is required to relinquish the environmental attributes to the customer of the
product, foreseen as possibly offsetting the cost of energy for the consumer, then the opposite, it
states, should also hold true.
The inception of the tradable renewable certificates or green tags derived from the
environmental attributes, Exergy Corporation contends, was designed towards proliferation of
renewable generation sources. The rationale was to provide to the generator, it states, an
additional source of income from the potential offset of fossil-fuel emissions and other
environmentally sensitive generators. Since renewable generation carries a disproportionately
larger installed cost with no ability to pass through fuel risk, any additional inducement results in
expanded opportunities to increase the amount of renewable resources.
Exergy Corporation notes that the decision behind the avoided cost rate for a QF in
Idaho is based on a natural gas-fired generator. There is no environmental attribute associated
with this baseline generator, only capacity and energy. They alone are the basis for the avoided
cost rate mandated by the Commission for QFs. No environmental attribute is associated with
this mandate. Equally as important, it states, not all QFs are necessarily renewable energy based
resources. Therefore, not all QFs in the less than 10 MW category can even demonstrate an
environmental attribute.
But there is a more germane argument to be voiced under the concept of Integrated
Resource Planning, Exergy Corporation states. Even if the environmental attribute is "stripped"
from the renewable resource generation, there still is no rational nexus which purports the
generating source to be anything other than nonpolluting. A renewable resource generator
stripped of the environmental attribute, is still a nonpolluting generator resource and displacing
fueled or hydro generation. No paper commodity will modify the evolution of the electrons
pTOduced. Given this transparency, Exergy Corporation contends that the environmental
attribute need not be part and parcel of any societal generation mix. The generator is
nonpolluting and the potential to offset existing facilities, new emission or social-impact
generation is tangible.
An environmental attribute, whether monetized or not, Exergy Corporation contends
is separate from the energy and capacity of generation source. Until such time as the State of
Idaho decides to enact legislation essentially (1) forcing PURP A projects to relinquish the
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environmental attribute to the ratepayer or utility, (2) creating a renewable portfolio standard or
(3) implementing another such mandate for renewable resource generation requirements into the
IRP of the utilities serving the Idaho customer (and the energy sales price reflects this
requirement), the irrefutable answer to the question posed by Idaho Power, Exergy Corporation
contends, is that the environmental attribute remains with the QF, unless otherwise mutually
agreed upon between QF and purchasing utility.
Bob Lewandowski and Mark Schroeder
Mr. Lewandowski is the current owner of Idaho s first commercial wind power
generating facility located south of Interstate 84 between Boise and Mountain Home. Mr.
Schroeder currently owns and farms several 1 000 acres contained within the Bell Rapids
Irrigation District. Given the cost of electric power to irrigate his farm and its location in a
desirable wind resource area, Mr. Schroeder is currently actively planning to construct a large
(under 10 MW) wind facility.
Commenters suggest that the Commission should reject Idaho Power s Petition for
right of first refusal" to purchase green tags from QFs. Idaho Power, they contend, has no
interest in, or right to, green tags created by QFs.
Commenters dispute the Company s contention that QF developers receive value
from Idaho Power for the electricity the QFs generate beyond the purchase price of the energy.
The Company s avoided cost rates, they state, are totally unrelated to a QFs' internal fmances.
Avoided cost rates are determined based on the utility's cost of bringing on a new resource. The
Company s assertion that QFs receive additional value over and above the avoided cost rates by
virtue of 20-year contracts, they contend, is simply wrong. Contract length, they state, is not at
all relevant to the question of whether or not the Company should be bestowed with the right of
first refusal. The commenters point out that 20-year contracts are not required in surrounding
states. Commenters state that it is worth noting that every single state that is adjacent to Idaho
has multiple tax incentives, including outright monetary grants to encourage the development of
renewable energy projects. The State of Idaho has no such incentives. If the assertions
contained in the Company s Petition relative to QFs in Idaho being over compensated remain in
the record, the commenters contend that Modified Procedure is inappropriate and request a full
evidentiary hearing.
DECISION MEMORANDUM
The commenters contend that the Idaho Commission has only limited authority and
has no authority to rule on the ownership of green tags. The Commission s jurisdiction they
state is limited and must be found entirely in its enabling statutes. It is clear, they state, that the
Idaho Courts view the Commission s jurisdiction relative to QFs as stemming solely from
PURPA and FERC's implementing regulations. It is also clear , they state, that this Commission
has no authority other than that conferred upon it by Idaho law or through its role as a state
agency regulating utilities under PURPA. What then, they query, are the FERC's PURPA
regulations this Commission is charged with implementing that deal with ownership of
(including rights of first refusal to) green tags. Simply put, they state that there are none. In fact
they note that FERC has ruled that in order for a state regulatory commission to exercise any
authority over green tag ownership there must be a state law bestowing that authority upon the
Commission. FERC has made it clear that there is nothing in PURPA or FERC's regulations
granting the Commission authority to adjudicate ownership of green tags. FERC has declared
that since states created RECs they may regulate how those credits are traded. Since Idaho has
not created RECs, commenters suggest that there is nothing for the state to regulate. A REC or
green tag, the commenters state, is private property owned and created by the QF. It is no
different, they argue, from any other ancillary benefit that might accrue to a QF as a result of
building a renewable energy resource. Idaho Power s request for right of first refusal they
maintain is different only in degree from asking for outright ownership. Commenters
recommend that Idaho Power s Petition be denied.
Commission Staff
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 with QF generation 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.
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
DECISION MEMORANDUM
environmental attributes" associated with a QF project that requests a PURP A contract and
proposes to sale capacity and energy to a regulated utility? If PURP A and FERC rules do not
address and do not require a QF developer to sale "environmental attributes " to the purchasing
utility, can the Commission in its. implementation of PURP A restrict their sale to other parties?
If the Commission has the authority under PURP A, should it restrict their sale? Can the
Commission require as a PURP A contract condition that a QF grant a purchasing utility a "right
of first refusal" to purchase the "green tags" associated with a QF facility?
It is well settled, Staff states, 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. All QF sales to an electric utility
are wholesale transactions. FERC in the Order cited by Idaho Power in its Petition (105 FERC ~
004) states that the contract sale of QF capacity and energy entered into pursuant to PURPA
does not convey renewable energy credits 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
credit in the initial instance, and how they may be sold and traded. "It is not " FERC states
, "
issue controlled by PURP A." 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 or tradable renewable certificates
or established a market for same. Nor also, it states, is Idaho a state that has provided tax
incentives or credits for the development of renewable energy. In short, Staff contends, that
there appears to be no hook that gives the Commission 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.
In the context of PURP A wholesale transactions, Staff notes that FERC has barred
state commissions from establishing different wholesale prices for otherwise qualified
cogeneration or small power production facilities. 18 C.R. 9 292.304(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.
DECISION MEMORANDUM
Arguably what Idaho Power proposes, Staff contends, 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.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 PURP A QFs are
mandatory. 18 C.R. 9292.303(a). The environmental attributes associated with renewable QF
projects, Staff contends, are currently separate from the capacity and energy sold to Idaho
utilities. They are not, Staff contends, 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, Staff contends that no argument has been advanced nor
authority cited to justify or require placing any regulatory restriction by this Commission on their
ownership.
COMMISSION DECISION
Idaho Power has requested a declaratory Order determining ownership of the
marketable "environmental attributes" 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. Idaho Power recommends that the Commission determine that the QF developers of such
facilities receive full ownership rights of any green tags issued to them, conditioned upon the
requirement that the QF developers from whom the Company purchases energy grant the
Company a "right of first refusal" to purchase those tags.
Does the Commission find that it has jurisdiction to determine the ownership of
marketable "environmental attributes ? Ifnot, should the Company s Petition be denied? If the
Commission believes that it does have jurisdiction, should the ownership of such environmental
attributes be confirmed in the QF or the purchasing utility? If in the QF, should the purchasing
utility as a condition of contract be granted a "right of first refusal"
Scott D. Woodbury
bls/M:IPCEO401 sw2
DECISION MEMORANDUM