Colorado PUC Gets It Wrong on REC Ownership

On Wednesday, September 10, the Colorado PUC deliberated on docket 13AL-0958E in which the state's major utility, Xcel Energy, filed for a new method to determine the rate at which it would purchase power from small power producers defined in the Public Utilities Regulatory Policies Act (PURPA) as Qualifying Facilities (QFs).  Although net metering isn't mentioned in PURPA per se, it is widely credited with enabling net metering.  But, many utilties have required these small power producers to surrender RECs to the utility as a condition of interconnection and without additional compensation.  Xcel has maintained that net metering is an incentive and, just like rebates and other incentive payments under the Renewable Energy Standard (RES), the utility should be awarded the RECs associated with any QF generation.

In their deliberation on Wednesday, the PUC commissioners in fact awarded to the utility all RECs associated with any QF generation (could be PV, small wind, biomass, etc.) without compensation.  This was wrong for a couple of reasons. First, RECs are instruments created by the RES, not PURPA, and have financial value.  In the RPS world, or even in the voluntary market place, small generators under the RES receive either rebates or other incentive payments from the utility in return for the the RECs associated with renewable generation.  Thus, RECs are a financial asset that may be bought and sold and their sale is how the developer is compensated for the above market costs of building a renewable energy facility.  To take that financial asset from the small power producer simply as a condition of interconnection without compensation is plainly wrong.  Next, while the RES does require that RECs must be transferred to the utility when the developer takes advantage of RES incentive programs, there is no language in either the state RES or federal PURPA statutes that require RECs to be turned over to the utility as a condition of interconnection. Thus, the Commission got it wrong.

To put this in the context of a more concrete example, PURPA is the legislation that requires a utility to purchase power from a QF, such as a small hydro project, at the utility's avoided cost rate.  The Colorado RES is the legislation that created RECs and requires a utility to purchase them when it acquires renewable resources for compliance with the RES.  But, the PUC's recent decision awards the RECs from our hypothetical hydro project to the utility simply because it purchased the power at avoided cost.  But for that, the QF generator could have sold those RECs to any utility with a compliance obligation or even on the open market to people who want to make green claims.  Utility acquisitions made under PURPA do not necessarily imply a purchase made for compliance with the RES. When such a purchase is made at the utility's avoided cost rate, the PUC's decision effectively awards the associated RECs to the utility for free and without compensation to the generator.