The Monongahela Power and Potomac Edison units of FirstEnergy (NYSE: FE) lost a Sept. 20 FERC decision related to a protracted fight over whether they could claim renewable energy credits generated by a coal-fired power plant in West Virginia.
Notable is that under West Virginia law, this power plant qualifies for the credits because it burns waste coal. Plants burning newly-mined coal don’t qualify. The commission on Sept. 20 denied the request by the utilities for reconsideration of a commission order issued on April 24 declining to initiate an enforcement action pursuant to section 210(h) of the Public Utility Regulatory Policies Act (PURPA).
On April 24, the commission issued an order responding to petitions for enforcement under section 210(h) of PURPA filed by Morgantown Energy Associates and the city of New Martinsville, W.Va. In the April 24 order, the commission gave notice that it declined to initiate an enforcement action.
In response to Morgantown Energy’s and New Martinsville’s petitions, the commission also declared that certain statements contained in a Nov. 22, 2011, decision by the West Virginia Public Service Commission—which held that under an electric agreement with a qualifying facility (QF) formed in accordance with PURPA, the utility rather than the owner of the QF owns the renewable energy credits (RECs) associated with that purchase—are inconsistent with the requirements of PURPA and FERC regulations implementing PURPA.
On May 6, the utilities filed a pleading styled as a motion for clarification or, in the alternative, a request for rehearing of the April 24 order. The utilities claimed that the April 24 order failed to identify which particular statements in the West Virginia order are inconsistent with PURPA, and that FERC erred by determining that the West Virginia order contained findings stating that the avoided cost rate contracts between QFs and electric utilities compensate the QF for not only the electric energy and capacity associated with a QF, but also the RECs produced by a QF.
The power purchase agreements (PPAs) between the parties are silent with respect to RECs. In the underlying state proceeding, the utilities filed a joint petition for declaratory order and interim relief with the West Virginia commission seeking a declaration that the utilities are entitled to own, in the first instance, the RECs produced by three QFs. On Nov. 22, 2011, the West Virginia commission issued the order at issue here, addressing two questions raised by utilities.
- First, the West Virginia commission asked whether the electric utilities own the RECs produced by the QFs operating under PURPA avoided cost rate contracts between the QFs and their respective electric utility counterparties when these contracts are silent on RECs.
- Second, the West Virginia commission, assuming that the electric utilities own the RECs, asked whether it has the authority to deem the QFs to be qualified energy resources under West Virginia state law, thus allowing the QFs to produce RECs.
Addressing the first question, the West Virginia commission held that the RECs attributable to energy purchases by the utilities from certain PURPA QFs are owned by Monongahela Power and Potomac Edison during the terms of the PPAs. In response to the second question, the West Virginia commission held that it has jurisdiction and authority over the waste-coal-fired Morgantown project to deem the facility certified to generate credits under West Virginia rules.
FERC took issue with certain findings in the West Virginia order
In its April 24 order, FERC exercised its discretion and issued a Notice of Intent Not to Act, declining to go to court to enforce PURPA on behalf of Morgantown Energy and New Martinsville, which produces power from a hydro project. The commission, however, declared that certain statements in the West Virginia order are inconsistent with the requirements of PURPA and the commission’s regulations implementing PURPA.
The commission explained in the April 24 order that PURPA, and the commission’s regulations implementing PURPA, require electric utilities to purchase energy and capacity made available by QFs. The commission further explained “that rates for these purchases must be just and reasonable to the electric customer of the electric utility and in the public interest, and not discriminate against QFs.” The commission then noted that the electric utility is not required to pay a rate that exceeds the avoided costs of generating the energy itself or of purchasing from another source, and that avoided cost rates, “in short, are not intended to compensate the QF for more than capacity and energy.”
The commission concluded that “[t]o the extent that the West Virginia Order finds that avoided-cost rates under PURPA also compensate for RECs, the West Virginia Order is inconsistent with PURPA.” The commission explained, in this regard, that the West Virginia order points to the avoided cost rate contracts between the electric utility and the QF as justification for the West Virginia commission’s holding that RECs produced by QFs are owned by the purchasing electric utility in the first instance. For example, FERC noted that “the West Virginia Order states that avoided cost rate contracts under PURPA provide a substantial consideration to the QF sufficient to compensate not only for the energy and capacity contemplated in those contracts, but also for the RECs produced by the QFs.”
Morgantown Energy and New Martinsville each filed an answer stating its support for the April 24 FERC order and further stating that the utilities’ pleading offers nothing to cause the commission to grant the utilities’ requests. On June 14, Morgantown Energy and New Martinsville filed a request to lodge a West Virginia Supreme Court of Appeals opinion, filed June 11, 2012, affirming the West Virginia order.
The issues here don’t involve small change in terms of money. The West Virginia commission has said that the RECs produced by the QFs are valued at about $50m.
Morgantown Energy Associates owns and operates a 53-MW generating facility in Morgantown, W.Va. Mon Power has purchased all of the electrical capacity and energy generated by the facility since April 1992 and will continue to do so under the PPA until 2027.
Said FirstEnergy’s Aug. 7 Form 10-Q report about the April 24 FERC decision: “On April 24, 2012, the FERC ruled that the FERC-jurisdictional contracts are intended to pay only for electric energy and capacity (and not for RECs), and that state law controlled on the issues of determining which entity owns RECs and how they are transferred between entities. The FERC declined to act on the complaints and instead noted that the City of New Martinsville and Morgantown Energy Associates could file complaints in the U.S. District Court. FERC also noted there may be language in the WVPSC decision that is inconsistent with PURPA. MP filed for rehearing of the FERC’s order taking the position that the WVPSC order is consistent with PURPA. New Martinsville filed a complaint in the U.S. District Court on June 4, 2012, alleging that the WVPSC order violates PURPA.”