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In re Ownership of Renewable Energy Certificates Under the Electric Discount and Energy Competition Act

January 10, 2007

IN THE MATTER OF THE OWNERSHIP OF RENEWABLE ENERGY CERTIFICATES ("RECS") UNDER THE ELECTRIC DISCOUNT AND ENERGY COMPETITION ACT, AS IT PERTAINS TO NON-UTILITY GENERATORS AND THE BOARD'S RENEWABLE ENERGY PORTFOLIO STANDARDS.


On appeal from the Board of Public Utilities, Agency Docket No. EO04080879.

The opinion of the court was delivered by: Coburn, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued: December 5, 2006

Before Judges Coburn, Axelrad and R.B. Coleman

These consolidated appeals challenge an April 20, 2005, final decision and order of the New Jersey Board of Public Utilities ("BPU"). At issue was ownership of a commodity created in this state for the electric power industry by the BPU: Renewable Energy Certificates ("RECs"). One Renewable Energy Certificate represents the environmental benefits or attributes of one megawatt-hour of generated renewable energy. In essence, renewable electric energy is energy derived, not from fossil fuels, but from, for example, the heat of the sun, or the movement of wind or water, or from the incineration of solid waste. Once issued, a Renewable Energy Certificate may be bought and sold in a public market or may be used by an electric utility to help satisfy its regulatory obligation to purchase increasing amounts of renewable energy each year.

The BPU decided to introduce the concept of Renewable Energy Certificates into New Jersey's electric power regulatory system to increase reliance on renewable energy in general, but its decision in this case was limited in scope: it only applies to ownership of these certificates for long-term contracts for the sale and purchase of renewable energy made before the BPU created the certificates in this state. Those contracts did not anticipate and consequently do not mention the certificates.

The BPU assigned initial ownership of the certificates in that limited contractual context to New Jersey's four electric utilities, the largest of which are respondents Jersey Central Power & Light Company and Public Service Electric & Gas Company. Each contract is between an electric utility as a renewable energy purchaser and a company that produces renewable energy. Wheelabrator Falls, Inc., and the other appellants are all renewable energy producers.

Most electricity in New Jersey is produced by companies other than appellants and is purchased by the utilities in annual auctions conducted pursuant to regulations issued by the BPU. The BPU's decision in this case does not control ownership of the certificates in that context.

The issue of initial ownership of Renewable Energy Certificates for existing contracts that did not anticipate their creation has arisen in at least nine other states. Each state has ruled as the BPU did here; namely, that as applied to existing contracts for the sale of power to utilities by renewable energy producers, the certificates are the property of the purchasing utility rather than the producer. Edward A. Holt et al., Who Owns Renewable Energy Certificates? An Exploration of Policy Options and Practice, at xiv (Ernest Orlando Lawrence Berkeley National Laboratory 2006).*fn1

Appellants claim ownership of the Renewable Energy Certificates and argue that the BPU's decision violates a federal statute, a state statute, and is arbitrary and capricious.

The Rate Counsel, Department of the Public Advocate, supports the BPU's decision as a fair resolution of the conflicting interests with the ultimate and just beneficiaries being the retail purchasers of electricity. We affirm.

I.

In recent years, partially as a result of federal action, New Jersey, like other state governments, substantially altered the electric power industry by separating the production of electricity from its delivery at retail. The Legislature chose that course to reduce the cost of electricity and to increase the industry's use of renewable energy. The method chosen had two basic elements: creating a competitive market for the ...


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