PUC shares PURPA primer and an overview of Renewable Energy Credits

On Valentine’s Day, Idaho Public Utilities Commissioners Marsha Smith and Paul Kjellander briefed the House Environment, Energy & Technology Committee with some background information on the Public Utilities Regulatory Policies Act (PURPA) and Renewable Energy Credits (REC).

Commissioner Smith discussed PURPA which was passed in 1978 to encourage conservation of electric energy and to promote greater use of domestic renewal energy   The law forced regulated monopoly electric utilities to buy power from other small producers of renewable energy.  The Federal Energy Regulatory Commission (FERC) delegated primary authority to the states.

There are two classed of generation facilities:  small production facilities (like small hydro projects) and co-generation facilities that produce electric power and heat.  Utilities must purchase the power at avoided costs from the generating facilities.

FERC still has primary jurisdiction.  One important factor is what it would cost the utility to build or buy a project; however avoided cost does not take into account federal or state tax credits.  FERC does the rates for wholesale power and the states do the rates for retail sales.

If the utility buys power, the cost is passed through to the ratepayers.  If the utility builds the power source, the cost is passed on through the rates as well as a 10% rate of return.

Commissioner Kjellander reviewed renewable energy credits (RECs) which exist with or without PURPA.  A REC is a piece of paper which represents the equivalent of 1 mw pf power that has been generated by a renewable energy source.  RECs can be sold separately from the project or decoupled.  The question is whether the producer owns the REC or the utility which buys the power gets the REC.

RECs are important when a state has a renewable portfolio standard (RPS) which mandates that utilities must produce a certain amount of power from renewable sources.  Utilities in states with an RPS comply by showing that they are holding enough RECS to meet the standard.

Customers can choose to buy renewable power without a renewable portfolio standard.  The project that produces that power can sell the RECs to someone who needs to comply with an RPS.  RECS are traded through direct transactions or through a broker.  A REC can be used only once.