Controversy over renewable energy claims

If an electric utility generates power from renewable resources and sells renewable energy certificates representing the renewable attributes of that energy, can it still call the underlying power "renewable"? No, according to the U.S. Federal Trade Commission.

Solar panels in the Utah desert.

While this question may seem metaphysical, it arises from the structure of most U.S. renewable energy markets.  Most states have adopted renewable portfolio standards, which require utilities and competitive electricity suppliers to source some of their power from renewable resources.  In most cases, utilities and suppliers can satisfy this requirement by using renewable energy certificates or credits known as RECs.  While each state's program differs, these RECs typically represent the renewable attributes of electric energy -- the right to claim that energy is renewable -- but are distinct from that underlying energy.  As a result, a renewable generator can sell RECs to one buyer and the underlying energy to another.

Vermont utility Green Mountain Power Corporation recently found itself at the center of controversy over its claims regarding renewable energy.  The utility owns and is involved with a variety of renewable energy generation projects in Vermont, including wind and solar projects.  It sells energy produced from these projects to Vermont customers, while simultaneously selling some of the RECs generated by these sources to out of state utilities.

In 2014, concerns over "double counting" of renewable energy attributes led Connecticut to ban the use of RECs from renewable generation that also is counted toward another state’s renewable goals for meeting Connecticut's requirements, and REC marketer NextEra Energy to notify New England market participants that it would no longer buy Vermont RECs.

On September 15, 2014, a group of petitioners asked the Federal Trade Commission to investigate Vermont utility Green Mountain Power Corporation's claims that it is providing its customers with electricity from renewable sources such as commercial wind and solar projects, given its separate sale of the RECs to out of state utilities.  The Federal Trade Commission regulates claims about the environmental impacts of commerce under Section 5 of the Federal Trade Commission Act, including claims regarding the production, sale, and use of renewable energy.  In their complaint, the petitioners claimed that "Vermont customers are being misled into thinking that they are buying 'renewable energy,' when in fact what they are getting is 'null' electricity consisting of a mix of fossil fuel, nuclear, gas and other 'brown' sources of electricity from the regional grid."

The FTC responded to this petition in February 2015 by issuing a letter to Green Mountain Power's counsel expressing concern that the utility might have created confusion for its customers about the renewable attributes of the power they purchased by not “clearly and consistently communicating” that it sells RECs for most of its renewable energy-generating facilities to entities outside Vermont.  In the letter, the FTC said that it had not found that any Green Mountain Power statements violated the Federal Trade Commission Act.  However, the Commission urged Green Mountain Power in the future to prevent any confusion by clearly communicating the implications of its REC sales for Vermont customers and REC purchasers.

The FTC letter represents the latest salvo in efforts to regulate claims regarding the production, sale, and use of renewable energy.  To help marketers avoid making deceptive environmental claims, for over 20 years the FTC has issued "Green Guides" providing its administrative interpretation of the law. The Green Guides outline general principles that apply to all environmental marketing claims and provide guidance regarding many specific environmental benefit claims, including renewable energy claims.  The Green Guides, as well as the recent FTC letter, illustrate the importance of caution in making claims about renewable energy in business activities.

FERC OKs sale of Dominion merchant power plants to Energy Capital Partners

Federal regulators approved yesterday the sale of three fossil fuel-fired power plants from energy company Dominion Resources Inc. to Energy Capital Partners LLC for $650 million.  The order by the Federal Energy Regulatory Commission moves the deal closer to fruition.  Is the transaction part of a trend in the U.S. energy industry?

Dominion is a major player in the U.S. energy business, serving customers in 15 states with its holdings in both the electricity and natural gas sectors.  Dominion owns a portfolio of about 27,000 megawatts of electric generation and 6,400 miles of electric transmission lines, as well as vertically-integrated electric utilities like Dominion Virginia Power.  Dominion also owns a large natural gas storage system as well as about 11,000 miles of natural gas transmission, gathering and storage pipelines.

Buyer Energy Capital Partners is a private equity firm focused on investing in North America's energy infrastructure.  The firm has recently acquired other electric generation plants, including the 830-megawatt combined-cycle natural gas-fired Red Oak power plant in Sayreville, New Jersey, and the 847-megawatt Broad River simple cycle, natural gas-fired power plant in South Carolina.

Over the past several decades, Dominion added merchant power plants designed not to serve the load of its affiliated utilities.  These plants produced electricity from coal, oil and other fossil fuels, and sold the power into regional wholesale markets such as those managed by ISO New England and mid-Atlantic grid operator PJM.  But with tighter environmental regulations, and more competitive electricity markets thanks to low-cost natural gas, many New England coal and oil-fired power plants have a hard time succeding in the current markets.  As an apparent result, in 2012 said it would sell or close its merchant coal-fired plants to realign its portfolio and improve return on invested capital and shareholder value, and sold the coal- and oil-fired Salem Harbor Power Station in Massachusetts.

In March 2013, Dominion announced a deal to sell its interests in three power plants to Energy Capital Partners.  1,528-megawatt Brayton Point Power Station, in Somerset, Massachusetts, is the largest remaining coal-fired power plant in New England.  It has three coal-fired units and one unit capable of being firing oil or natural gas, as well as the coal-fired 1,158-megawatt Kincaid Power Station in Illinois..  Dominion also offered its stake in 1,424 megawatts of capacity at the Elwood Power Station outside Chicago, which is powered by nine 158-MW natural gas-fired combustion turbines.

The deal price announced was $650 million.  At least one analyst has noted that after removing tax benefits, the deal implied an underlying price paid per kilowatt of capacity of just over $100, a price 30 times lower than the the cost of building a new coal-fired plant according to the U.S. Department of Energy.

The Federal Trade Commission approved the deal from an antitrust perspective under the Hart-Scott-Rodino Act in March 2013,  so the Federal Energy Regulatory Commission approval today was among the final approvals needed.

Fossil fuel and electricity markets are experiencing changes, from tighter air emissions to the prospect of federal carbon regulation.  Assuming the Dominion deal actually happens, does it signal a trend of utility divestiture of merchant fossil fuel-fired power plants?  Will other utilities exit the merchant electricity generation business?  Will we see increased transactional activity, as utilities sell their fossil fuel-fired plants?  For how much longer will the buyers run these plants?  In the case of the Salem station Dominion sold last year, buyer Footprint Power LLC is demolishing the old plant and redeveloping the site as a natural gas-fired power plant.  Will Energy Capital Partners choose to keep Brayton Point operating in a market where margins are often tight?  Or is this just the rationalization of Dominion's asset base, with no similar ripples throughout the sector?