Cadwalader Clients & Friends Memo: FERC Confirms It Lacks Jurisdiction over Unbundled Renewable Energy Certificate Sales

Cadwalader Clients & Friends Memo: FERC Confirms It Lacks Jurisdiction over Unbundled Renewable Energy Certificate Sales

Cadwalader, Wickersham & Taft LLP

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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Please feel free to contact any of the following Cadwalader attorneys if you have any questions about this memorandum.

Gregory K. Lawrence +1 212 504 6171 greg.lawrence@cwt.com

Victoria M. Lauterbach +1 202 862 2215 tory.lauterbach@cwt.com

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1. WSPP Inc., 139 FERC ¶ 61,061, P 18 (2012).

2. Id. at P 21.

3. 69 FERC ¶ 61,344 (1994).

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