Jim Mitchell of our DC Office provides the following report:

The Federal Energy Regulatory Commission ruled last week that the sale of renewable energy credits (“RECs”) as part of a bundled transaction that also includes the sale of electricity is subject to its regulatory jurisdiction under Part II of the Federal Power Act.  However, the unbundled sale of RECs in a transaction that is independent of a wholesale electric energy transaction is not subject to FERC jurisdiction. Earlier this year,  WSPP, Inc. (formerly, the Western Systems Power Pool) applied for authorization to establish a new service schedule for sale of RECs as part of the WSPP Agreement on file at the FERC.  WSPP asked the FERC either to confirm that it lacks jurisdiction over the sale of unbundled RECs, or to provide advice on how WSPP should proceed in the event that the FERC has such jurisdiction.  In the recent order on RECs, the FERC found that when a transaction is a bundled transaction that includes both the sale of electricity at wholesale (which is clearly subject to FERC jurisdiction) and the sale of RECs, the price at which the RECs are sold may affect the price of electricity.  For that reason, the FERC concluded that it “has jurisdiction over the wholesale energy portion of the transaction as well as the RECs portion of a bundled REC transaction under FPA sections 205 and 206 (regardless of whether the contract price is allocated separately between the energy and RECs).”   The FERC further ruled that it has jurisdiction over the sale of RECs that are sold in conjunction with a wholesale electricity sale, even if the sale of RECs and the sale of electricity are the subject of separate agreements.

The order states, conversely, that “when an unbundled REC transaction is independent of a wholesale electric energy transaction, … the unbundled REC transaction does not affect wholesale electricity rates, and the charge for the unbundled RECs is not a charge in connection with a wholesale sale of electricity.”

The order leaves for future determination the manner in which the FERC will regulate the sale of RECs when they are being sold as part of a bundled transaction.  Among the issues that presumably will need to be resolved are:  (1) where the electricity is being sold at cost-based rates, how will he FERC will determine the costs of the RECs that are included in a bundled transaction?   (2) how will the FERC regulate the bundled sale of RECs when electricity is being sold pursuant to a market-based rate power sales tariff.  (3) will the FERC assert jurisdiction over the bundled sale of RECs by Qualifying Facilities whose wholesale electricity sales have been exempted from regulation under the Federal Power Act?   Additional FERC guidance may be needed to resolve these issues.