On April 24, 2012, FERC declined a request by the owners of two Qualifying Facilities to initiate an enforcement proceeding against the Public Service Commission of West Virginia (“West Virginia Commission”) under the Public Utility Regulatory Policies Act of 1978 (“PURPA”).  In November 2011, the West Virginia Commission found that an electric utility purchasing power, not the qualifying facility (“QF”), owns the renewable energy certificates (“RECs”) associated with energy and capacity bought under a power purchase agreement with a QF.  Although FERC chose not to act against the West Virginia Commission, FERC did state that the West Virginia Commission made some statements in its November 2011 decision that are inconsistent with PURPA requirements. 

In reaching its determination regarding REC allocation, the West Virginia Commission relied primarily on the fact that the electric utilities paid avoided cost rates to the QF, so it reasoned that the purchasing utility owned the RECs as a result of that purchase.  Morgantown Energy Associates (“Morgantown”) and the City of New Martinsville, West Virginia (“New Martinsville”) are two certified QFs that sell all of their energy and capacity in return for avoided costs in accordance with PURPA.  Both Morgantown and New Martinsville are also certified under state laws to produce RECs, and Morgantown asserted that it needs its own RECs in order to comply with West Virginia’s renewable energy portfolio standard (“RPS”).  The RECs serve as a demonstration that a percentage of generation comes from a renewable resource.  However, when a utility does not produce power from a renewable source, that utility may then purchase RECs from other facilities to meet its state-mandated RPS requirement.  Morgantown and Martinsville appealed the West Virginia Commission’s decision to the Supreme Court of Appeals of West Virginia, and they both filed a petition for enforcement with FERC seeking declaration that the West Virginia Commission violated PURPA.

PURPA is silent on the issue of REC ownership and transferability.  In its April 24th order, FERC declared that a state may determine that a sale of power at wholesale may transfer the ownership of a state-created REC, but that authority must be found in state law, not PURPA.  FERC also cited to an earlier decision, American Ref-Fuel, which held that absent a specific provision in the contract, the sale of QF energy and capacity does not convey RECs to a purchasing utility.  FERC explained the avoided cost rates must be just and reasonable, in the public interest, and non-discriminatory to QFs.  Also, a purchasing utility is not required to pay a QF more than the avoided costs of generating the power itself or the cost of purchasing the power from another source, and those avoided costs “are not intended to compensate the QF for more than energy and capacity.”  Thus, FERC stated the West Virginia Commission’s finding that a purchasing utility’s payment of avoided costs also compensates for RECs is inconsistent with PURPA.  

FERC noted that although the Commission does not intend to go to court to enforce PURPA on behalf of Morgantown Energy or New Martinsville, both are free to pursue further action in district court. 

A copy of the Commission order is available here.