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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

for energy and capacity 10 with "resource recovery facilities" that utilize environmentally beneficial generating technologies. 11 In Oregon, electric utilities must offer to purchase energy and/or capacity from qualifying facilities, 12 at a price not less than the utility's avoided costs. 13 Under Minnesota law, a utility must purchase all energy and capacity from an interconnected qualifying facility at a rate equal to the utility's "full avoided capacity and energy costs as negotiated by the parties, as set by the commission, or as determined through competitive bidding approved by the commission." 14 In Florida, an electric utility must purchase all electricity offered for sale by cogenerators or small power producers in its service area at a rate set by the commission equal to the purchasing utility's full avoided costs. 15 And in Illinois, electric utilities must enter into long-term contracts to purchase electricity from qualified solid waste energy facilities 16 within the utility's service area 17 at a price equal to the average amount/kWh paid by local government entities, minus amounts paid for street lighting and pumping service. 18

Like PURPA, these state laws compelling power purchase agreements fail to state explicitly whether the seller/generator or the purchaser/utility is entitled to the environmentally beneficial attributes of the purchased electricity. And so, the same arguments for allocating green tags to the generating facilities under PURPA contracts also apply to these state-required power contracts. For example, in states like Oregon and Minnesota that require purchase of capacity and energy, one might argue that green tags associated with the energy sold should stay with the generating facility, because the state statute specifically limits the purchase to capacity and energy. Green attributes, unmentioned in these statutes, are simply not part of the sale. Moreover, many of these state laws were enacted during a time of heightened national environmental awareness; had state legislatures intended the transfer of green attributes, the statute would have said so in a straightforward manner. Finally, because these state laws do not account for environmental benefits in the calculation of "avoided cost," those environmental benefits are not included in the products purchased pursuant to those laws.

Yet just as the converse argument-all of the components of "electricity" produced by the generators, including the environmental attributes, are required to be sold to the utility-can be made under PURPA, so too can it be made under these state statutes. This argument is stronger in states that require utilities to purchase electricity, as opposed to the component parts. Utilities can further bolster the argument by pointing to the fact that they were statutorily required to enter into purchase contracts for their power, and thus had to bear the cost of environmentally beneficial generating technology-and so should be compensated with the receipt of green characteristics related to that technology.

Calculations of "stranded costs" 19 in state public utility commission proceedings related to electric restructuring statutes could provide some further insight into the allocation of green environmental attributes by the energy industry. In states that are moving to a competitive power environment, these costs can include the price