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On April 20, 2012, the Federal Energy Regulatory Commission
("FERC") issued an order accepting proposed revisions to
the WSPP Agreement addressing sales of renewable energy
certificates ("RECs") made pursuant to that agreement. In
the course of issuing this order FERC confirmed something
participants in the U.S. energy markets had long suspected: that
FERC's jurisdiction extends to sales of RECs made in
conjunction, or "bundled," with a sale of wholesale
electric power, but does not extend to sales of RECs alone, which
FERC refers to as "unbundled" REC sales. The WSPP
Agreement is a form of agreement used by hundreds of sellers of
electric energy along the West Coast of the U.S. and Canada, and
amendments to that agreement are subject to FERC approval.
The Western Systems Power Pool's ("WSPP")
revisions create a new Schedule Q to the WSPP Agreement, which will
allow parties to purchase RECs either bundled with physical
electric energy, as is required of parties subject to
California's renewable energy standard, or as an independent
product unbundled from the physical electric energy, as may be used
to satisfy the renewable energy standards of most other
jurisdictions.
In filing its latest proposed revisions to the WSPP Agreement,
WSPP asked FERC to confirm that unbundled REC transactions are not
subject to FERC jurisdiction because those transactions do not
include the sale of electric energy at wholesale. In support of its
request WSPP referred to previous FERC orders in which FERC
concluded that similar sales of unbundled products did not fall
within FERC's jurisdiction. For example, WSPP noted that FERC
previously held that qualifying facilities ("QFs") may
contract for the purchase or sale of RECs based on the renewable
energy attributes of energy produced from the QF separately from
sales of physical power generated by the same QF. WSPP argued that
unbundled REC transactions are analogous to transactions for the
sale of emission allowances in that such transactions both are
distinct and independent of any wholesale electricity sale. One
commenter, the North Carolina Utilities Commission ("North
Carolina Commission"), more broadly argued that neither
unbundled nor bundled REC sales at wholesale should be subject to
FERC's jurisdiction.
FERC agreed with WSPP, but declined to adopt the North Carolina
Commission's broader view. FERC stated:
[W]e conclude that unbundled REC transactions fall outside of
the Commission's jurisdiction under sections 201, 205 and 206
of the [Federal Power Act ("FPA")]. We further conclude
that bundled REC transactions fall within the Commission's
jurisdiction under sections 201, 205 and 206 of the
FPA.1
FERC described RECs as "state-created and state-issued
instruments certifying that electric energy was generated pursuant
to certain requirements and standards," and from that
concluded:
Thus, a REC does not constitute the transmission of electric
energy in interstate commerce or the sale of electric energy at
wholesale in interstate commerce. Therefore, RECs and contracts for
the sale of RECs are not themselves jurisdictional facilities
subject to the Commission's jurisdiction under FPA section
201.2
FERC did note, however, that a sale of RECs bundled with a sale
of electricity for resale would have a direct connection with the
sale of electric energy, and so would fall under its jurisdiction,
analogizing to its previous reasoning in the Edison Electric
Institute case.3 In that case FERC concluded that a
sale of an emissions allowance that is required to be made
alongside the sale of physical electric energy would constitute a
FERC-jurisdictional sale. FERC further noted that a party may not
escape FERC's jurisdiction over bundled REC transactions simply
by making the sale of RECs and electricity in separate
documents.
FERC accepted WSPP's amendments to the WSPP Agreement
subject to WSPP making a compliance filing to clarify its rate
treatment of bundled versus unbundled RECs.
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Discussion With FERC Chairman Jon Wellinghoff
