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The Green Controversy

Who should have "green tag" ownership under power purchase agreements, the buyers or the sellers?
Fortnightly Magazine - November 1 2002

PURPA transaction. Congress was aware of the environmental benefits of certain methods of power production when it enacted PURPA in 1978. And Congress certainly knew of the emissions characteristics of electricity generation, as evidenced by the enactment of the Clean Air Act in 1970. 8 Still, Congress was specific that energy and capacity, and not any environmental benefits produced by the QF, are the products to be sold under a PURPA contract. Moreover, the price paid for environmentally friendly power generated by a QF is based on the cost of producing power from any resource, not from an identical renewable resource-evidence that the environmental benefits of the power are not accounted for in the "avoided cost" paid under a PURPA contract. Accordingly, the environmental attributes should remain with the QF.

The alternative argument-that green attributes ought to transfer to utilities buying power under PURPA contracts-is that the sale of "energy" and "capacity" required under PURPA are not discrete components of electricity, but include all components of electricity. If energy and capacity were thought to encompass all such components in 1978, Congress would not have felt that it was also necessary to state explicitly that certain additional, environmentally beneficial components of electricity were intended in the transfer. The intent of PURPA, the argument goes, was for utilities to purchase all of the components of the power that was produced by the QF, including any environmentally beneficial attributes.

Those arguing that PURPA power purchasers also acquire title to the environmental attributes of the generation units, could also claim an economic justification for their position. Because utilities are statutorily required to buy power at avoided cost from QFs that obtain that status, partly as a result of their "green" characteristics, those utilities already are bearing a financial burden related to the QFs' environmentally beneficial generating technology. The QFs, on the other hand, already are receiving a financial benefit from their renewable generating technology, because it permitted them to qualify as QFs and required their power to be purchased at that avoided cost. Therefore, allocating the environmental attributes to the purchasers would simply follow the costs and benefits of the purchase and sale arrangements already required under PURPA. The Maine Public Utilities Commission has taken just this position, tentatively finding that the purchasers under existing PURPA contracts should receive the benefits of the environmental attributes of the plants generating under those contracts. 9

State Laws-More of the Same Muddle

PURPA, enacted decades prior to the idea of state retail choice, renewable portfolio standards, and fuel source disclosure laws that have created additional value for environmental attributes, does not dictate how green tags should be allocated in today's market. Unfortunately, PURPA-like legislation enacted more recently on the state level also does not address the allocation of green tags.

Various states, including Michigan, Oregon, Minnesota, Florida, and Illinois have enacted laws that, like PURPA, compel power purchase agreements that encourage greater use of renewable resources and the reduction of harmful emissions. For example, Michigan Public Act 2 of 1989 requires certain utilities to enter into power purchase agreements