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BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

Petition for a Declaratory Order Regarding : The Ownership of Alternative Energy Credits : And Any Environmental Attributes Associated : P-00052149 With Non-Utility Generation Facilities Under : Contract to Pennsylvania Electric Company : And Metropolitan Edison Company :

INITIAL DECISION

Before Susan D. Colwell Administrative Law Judge TABLE OF CONTENTS

I. HISTORY OF THE PROCEEDINGS...... 1 II. FINDINGS OF FACT...... 4 III. DISCUSSION...... 12 A. Introduction...... 12 B. The Issue...... 13 C. The Statutes: PURPA and AEPS...... 13 1. PURPA...... 13 2. AEPS Act...... 14 a. Commission Orders...... 14 b. Analysis...... 17 c. Holding...... 22 D. Finding for the EDCs does not require a contract interpretation...... 23 E Commission jurisdiction /Subject matter jurisdiction...... 29 1. Determination of ownership of AEC’s falls to the states...... 30 2. The provisions of the Act confer subject matter jurisdiction to the Commission...... 30 3. The provisions of the Public Utility Code when read with the Act convey jurisdiction...... 31 4. Commission lacks jurisdiction over generation issues – electric competition...... 33 5. Decisions of Other Jurisdictions...... 33 F. A Declaratory Order is Appropriate...... 37 1. Fitness of the issues for judicial decision...... 40 2. The hardship to the parties of withholding consideration...... 41 G. Policy...... 41 IV. CONCLUSIONS OF LAW...... 51 V. ORDER...... 56

i I. HISTORY OF THE PROCEEDINGS

On February 22, 2005 Pennsylvania Electric Company (Penelec) and Metropolitan Edison Company (MetEd) (jointly “Petitioners”) filed a Petition for Declaratory Order (Petition) pursuant to 66 Pa. C.S. § 331(f) seeking a Commission Order determining that the Petitioners are entitled to the ownership of all alternative energy credits (AECs), as defined in the Alternative Energy Portfolio Standards Act, Act 213 of 2004, 73 P.S. §§1648.1-1648.8 (AEPS Act or Act 213) and any environmental attributes associated with the non-utility generation (NUG) facilities from which they are currently purchasing electric energy and/or capacity pursuant to executed and fully effective long-term power purchase agreements (PPAs), which were entered prior to the effective date of the AEPS and which do not mention AECs. The Petition alleges that the declaratory order is necessary to protect the interests of the Petitioners’ customers who pay through a competitive transition charge for the above-market costs associated with the NUG PPAs.

The Petition alleges that the declaratory order is necessary to resolve an existing dispute with a NUG owner and operator regarding the ownership of the AECs and environmental attributes of certain NUG facilities under contract to the Petitioners. The Petition asks that the Commission publicly state, both by notice in the Pennsylvania Bulletin and in a Secretarial letter to all jurisdictional electric distribution companies and electric generation suppliers that any transactions entered into pending the outcome of this proceeding are at the risk of the contracting parties.

The Petition was served upon the NUG in question, York County Solid Waste and Refuse Authority (York County), as well as the Office of Small Business Advocate (OSBA), the Office of Consumer Advocate (OCA), the Commission’s Office of Trial Staff (OTS), and Pennsylvania’s electric distribution companies and other parties believed to be affected by the Petition.

York County filed a Motion for Admission pro hac vice for Benjamin L. Willey, Esquire, as well as a Motion for Extension of Time in which to Answer on March 11, 2005.

2 These motions were granted by Secretarial letter dated March 16, 2005, which also directed that answers, petitions to intervene and other responsive pleadings be filed on or before April 20, 2005.

Notice was published in the Pennsylvania Bulletin on April 2, 2005, at 35 Pa. B. 204, that the proceeding was assigned to the Office of Administrative Law Judge for proceedings necessary to support a recommended decision. April 20, 2005 was set as the deadline for filing petitions to intervene and responsive pleadings.

On April 8, 2005, the Office of Trial Staff filed a Notice of Appearance.

On March 28, 2005, The Met Ed Industrial Users Group (“MEIUG”) and the Penelec Industrial Customer Alliance (“PICA”) filed a Joint Petition to Intervene. On April 20, 2005, Citizens’ Electric Company (“Citizens”) and Wellsboro Electric Company (“Wellsboro”) filed a Joint Petition to Intervene.

Separate timely Petitions to Intervene were filed by: The Harrisburg Authority, Pennsylvania Renewable Resources, Associates, and Integrated Waste Services Association, (collectively HBG/PRRA/IWSA), PPL Electric Utilities Corporation (“PPL), Allegheny Power, Viking Energy of Northumberland (Viking), and ARIPPA.

On April 20, 2005, Scrubgrass Generating Company, L.P. (“Scrubgrass”) and Northampton Generating Company, L.P. (“Northampton”)(collectively “Cogentrix”) filed an Answer in Opposition to the Petition for Declaratory Order.

Timely Answers to the Petition for Declaratory Order were also filed by OSBA and ARIPPA1.

1 ARIPPA is a Pennsylvania trade association whose members own and/or operate generating facilities that burn coal refuse for fuel.

3 On April 20, 2005, York County (YCSWA) filed an Answer and Motion to Dismiss the Petition for Declaratory Order. Motions to Dismiss and Answers in the Alternative were separately filed by IWSA, PRRA and Harrisburg Authority.

OSBA filed an Answer to New Matter and the Motions to Dismiss on May 10, 2005.

On May 13, 2005, the Companies filed their Reply to New Matter of York County and an Answer to the Motions to Dismiss.

OTS filed a notice of appearance. OSBA and OCA filed notices of intervention and answers.

The petitions to intervene were granted and the motions to dismiss denied by Order issued May 23, 2005.

A prehearing conference was held on June 16, 2005, at which time the Parties suggested that they be given until August 1, 2005 to stipulate to whatever facts agreeable, and then return for a second prehearing conference. An Order was issued on June 16, 2005 which directed the Petitioners to coordinate the efforts to stipulate the facts and submit them on or before August 1, 2005, in addition to suggestions for proceeding. Any party which did not agree with the suggestions could submit alternative suggestions by noon, August 1, 2005.

On July 26, 2005, the parties sought two additional weeks in which to prepare the submissions. Also on July 26, 2005, an Order postponing the due date for the stipulated facts and alternative suggestions was issued setting the new due date for submissions for August 16, 2005 and scheduling the second prehearing conference for August 17, 2005.

At the August 17, 2005 prehearing conference, the parties indicated that they could not reach a comprehensive stipulation of facts and that evidentiary hearings would be

4 necessary. A procedural schedule was set and on August 19, 2005, an order was issued which provided for hearings on February 22 and 23, 2006 and lifted the discovery suspension.

Three additional prehearing orders were issued: two orders denying motions to compel discovery requests, and one protective order.

Direct testimony was filed by Met Ed/Penelec, PPL, OSBA, OTS, HBG/PRRA/IWSA, YSCWA, Cogentrix and Viking. Rebuttal testimony was filed by Met Ed/Penelec, PPL, OTS and OSBA. Surrebuttal was filed by PPL, Cogentrix, and YSCWA. Ultimately, only one day of hearings was necessary since the parties did agree to stipulate their testimony into the record. In addition, the parties provided witnesses to respond to specific questions raised by the presiding officer prior to the hearing.

Main Briefs were filed on or before April 28, 2006, and Reply Briefs were filed on or before May 26, 2006, by the following parties: Met Ed/Penelec, PPL, OCA, OTS, OSBA, HBG/PRRA/IWSA, YSCWA, Cogentrix, and Viking.

The matter is now ready for decision.

II. FINDINGS OF FACT

1. Petitioner is Metropolitan Edison Company (Met Ed) Pennsylvania Electric Company (Penelec), a jurisdictional public utility organized and existing under the laws of the Commonwealth of Pennsylvania which provides transmission, distribution and provider of last resort services to over 510,000 retail customers in the southeastern and south central portions of Pennsylvania. Met Ed/Penelec Stmt. No. 1 at 4, Met Ed/Penelec Brief, Appendix A at 6.

2. Pennsylvania Electric Company (Penelec), a jurisdictional public utility organized and existing under the laws of the Commonwealth of Pennsylvania which provides transmission, distribution and provider of last resort services to over 585,000 retail customers in

5 the northeastern and north central portions of Pennsylvania. Met Ed/Penelec Stmt. No. 1 at 4, Met Ed/Penelec Brief, Appendix A at 6.

3. From the early 1980’s through the early to mid 1990’s the Companies acquired energy and capacity from NUG sources through long-term PPAs. PE/PN Stmt. 2, p. 7.

4. Most of the Companies’ current NUG PPAs have terms of ten to thirty years. ME/PN Stmt. No. 2, p. 7.

5. The Companies have 13 active NUG projects in Pennsylvania totaling about 717 MW that may qualify as alternative energy sources under the AEPS. ME/PN Stmt. 2, p. 8, Exh. KAH-6.

6. The NUG PPAs are full requirements contracts under which the Companies are required to purchase and the NUG operators are required to sell all of the electric output from their respective generating facilities. ME/PN Stmt. 2, p. 8, Exh. KAH-1.

7. All of the Companies’ existing NUG PPAs were entered into and executed pursuant to the Commission’s regulations at 52 Pa. Code § 57.32(c) that allowed NUGs and electric utilities to enter into PPAs with pricing and terms different from those required by the Commission’s PURPA regulations. ME/PH Stmt. 2, p. 9.

8. The pricing in the NUG PPAs with the Companies is not based on “avoided cost.” ME/PN Stmt. 2, p. 9.

9. All of the Companies’ NUG PPAs were approved by the Commission. ME/PN Stmt. 1, p. 9; Stmt. 2, p. 10.

10. Costs incurred by the Companies under their various NUG PPAs were initially recovered through the Energy Cost Rate (ECR), a Commission-approved automatic

6 adjustment clause that allowed the Companies to recover their actual costs of fuel, purchased power and similar costs of generation, including NUG purchases. ME/PN Stmt. 1, p. 8.

11. On January 1, 1997 the ECR was rolled into the Companies’ base rates with customers continuing to support the NUG projects via embedded base rates through December 31, 1998. ME/PN Stmt. 1, p. 8.

12. As part of the Companies’ restructuring settlement, a provision was made for the complete recovery from customers through 2020 all costs incurred under the existing NUG PPAs. ME/PN Stmt. 1, p.10.

13. PPL Electric Utilities Corporation is a jurisdictional public utility providing service in the Commonwealth of Pennsylvania.

14. PPL has two types of NUG contracts: Pioneer Contracts and PURPA Contracts. PPL Stmt. 1, p. 4.

15. Pioneer Contracts were entered into pursuant to the terms and conditions set forth in PPL Electric’s Pioneer Rate tariff provision which was approved by the Commission on May 26, 1981 at PUC Docket No. R-811515. PPL Stmt. 1, p. 4.

16. PPL’s Pioneer Rate was designed to encourage the development of renewable resource projects. PPL Stmt. 1, p. 4.

17. Under PURPA, NUGs were entitled to guaranteed, long-term contracts at a rate equal to the purchasing utility’s full avoided cost. PPL Stmt. 1, p. 12.

18. PURPA was intended to reduce reliance on foreign energy supplies by encouraging alternative sources of energy. PPL Stmt. 1-R, p. 12.

7 19. All the fuel sources that allow the NUG projects under contract to PPL to qualify as small power production facilities under PURPA also are included as Tier I and Tier II sources under Act 213. PPL Stmt. 1-R, p. 11.

20. Included in PPL’s stranded cost claim was an allowance for the projected above-market prices paid to the NUGs for energy. PPL Stmt. 1, p. 8.

21. PPL’s NUG contracts were filed with and approved by the Commission. PPL Stmt. 1, p. 4.

22. The Office of Consumer Advocate (OCA) is empowered to represent the interests of consumers before the Commission by 71 P.S. § 309-2. Notice of Intervention.

23. Because the contracts at issue in this case predate the AEPS, the PPAs make no mention of AECs. ME/PN Stmt. 1, p. 13; ME/PN Stmt. 2, p. 10; PPL stmt. 1, p. 9; PPL Stmt. 1-R, p. 10; Viking Stmt. 1, pp. 8-9; HBG/PRRA/IWSA Stmt. 1, p. 9.

24. PPAs have provided NUG owners with a guaranteed market and a guaranteed revenue stream for their electrical output. ME/PN Stmt. 2, p. 8; PPL Stmt. 1, pp. 4-6; PPL Stmt. 1-R, pp. 5, 14-15; OTS Stmt. 1, p. 7.

25. The Office of Trial Staff (OTS) is an office of the Commission charged with representing the public interest in Commission proceedings. 66 Pa. C.S. § 306.

26. The Office of Small Business Advocate (OSBA) is a state entity authorized and directed to represent the interest of small business consumers of utility services in Pennsylvania. 73 P.S. §§ 399.41-399.50.

27. The total Tier II energy requirements under AEPS for Met Ed and Penelec would be met by their contractual NUG energy purchases, although the percentage would vary by year and by company. For Met Ed, the percentage would range from 208% in 2011 to

8 39.23% in 2020. The percentage would remain in excess of 100% through 2015. For Penelec, the percentage would range from 236.4% in 2011 to 19.59% in 2020, with the percentage remaining in excess of 100% through 2017. OSBA Stmt. No. 1, p. 6-7.

28. The aggregate payments in excess of market value of the Companies’ PPAs combined total nearly $1.1 billion from 1999-2004. OSBA Stmt. 1, p. 5.

29. The York County Solid Waste Authority (YCSWA) is a public corporation organized and existing under the provisions of the Pennsylvania Municipality Authorities Act of 1945, 53 P.S. § 301 et seq., and established by resolution of the Board of County Commissioners in 1971 for the benefit of the health and safety of the people of York County. YCSWA Brief at 5; Answer and New Matter, p. 17.

30. The YCSWA facility itself produces enough electricity annually to meet the needs of approximately 23,000 to 30,000 York County homes, and using solid waste as an alternative, renewable fuel source saves approximately 550,000 barrels of oil. YCSWA Stmt. 1, at p. 7; YCSWA Brief at 7.

31. YCSWA and Met Ed entered into a 30-year PPA on November 24, 1987, pursuant to which Met Ed is purchasing all of the electric energy and capacity from the facility. ME/PN Stmt. 2, p. 304, Exh. KAH-1.

32. In 1981, the YCSWA Advisory Committee decided that landfills would no longer be the primary method of disposal of solid waste in York County. Bonds in the amount of $130 million were issued to finance development of the small power production facility. YCSWA Stmt. 1, p. 4:20-5:2.

33. The facility provides a myriad of social and environmental benefits, many of which are listed in the Commission’s Order approving the PPA between it and Met Ed. YCSWA Main Brief at 7, citing Re Metropolitan Edison Company, Order Granting Rate Recognition of Purchased Power Costs, 64 Pa. P.U.C. 60 (1987), YCSWA Exh. WAE-2, at 3-4.

9 34. Annually, the facility saves fourteen acres of landfill which would be filled to thirty-five feet. YCSWA Stmt. 1, p. 7:1-17.

35. Scrubgrass Generating Company, L.P., is a NUG and an alternative energy system as defined in the AEPS. The facility is located in Venango County and is fueled by bituminous waste coal. It produces and sells approximately 87 megawatts of electricity annually to Penelec under a PPA. Scrubgrass Answer, p. 5.

36. Northampton Generating Company, L.P., is a NUG and an alternative energy system as defined in the AEPS. The plant, located in Northampton County, is fueled primarily by anthracite waste coal and also uses other alternative fuels including petroleum, high-carbon coal ash and residual paper fiber. It provides 110 MW of electricity annually for Met Ed and process steam for use in a recycled paper mill. Scrubgrass Answer, p. 5.

37. Scrubgrass and Northampton have, during their first 25 years of operation, saved the Commonwealth more than $20 million by eliminating 15 million tons of waste coal. Scrubgrass Answer, pp. 5-6.

38. In 1989, Met Ed entered into a PPA with Northampton’s predecessor, Wheelabrator, for approximately 110 MW of electricity annually, generated primarily by anthracite waste coal. The PPA was assigned to Northampton on May 29, 1991. Scrubgrass Main Brief at 6, Exh. 2-G.

39. The Cogentrix facilities represent more than $500 million in capital investment in Pennsylvania and provide enough energy to the Companies to power more than 200,000 homes. Cogentrix Stmt. 1, at p. 2, Brief at 7.

40. The Cogentrix facilities are responsible for providing family wage jobs to more than 280 people, and contribute approximately $17.5 million per year to their local

10 economies through payroll and purchases of local goods, services, and materials. Cogentrix Stmt. 1 at 3.

41. Positive environmental results include the consumption of over 103 million tons of coal refuse; the use of over 67 million tons of alkaline ash for abandoned mine land reclamation; the reclamation of more than 3,700 acres of abandoned mine lands; the elimination of acid mine drainage that pollutes approximately 2400 miles of streams and rivers; and the reduction of emissions of mercury, nitrogen oxide, and sulfur dioxide. Cogentrix Stmt. 1 at 3-5.

42 The Harrisburg Authority, Pennsylvania Renewable Resources, Associates, and The Integrated Waste Services Association (HBG/PRRA/IWSA) filed Briefs jointly but intervened as separate parties.

43. The Harrisburg Authority owns and operates a Municipal Waste Combustion facility in Harrisburg. As a NUG, it converts waste to steam and electricity with 16 MW of capacity. This is scheduled to increase to 24.75 MW. Petition to Intervene, p. 2; HBG/PRRA/IWSA Ex. 1.

44. The Harrisburg Authority has had a PPA with PPL since 1985, pursuant to which PPL agrees to purchase up to 16 MW of the electrical output of the Authority’s facility. The PPA expires December 31, 2009. Petition to Intervene, p. 2; HBG/PRRA/IWSA Ex. 1.

45. Pennsylvania Renewable Resources, Associates owns and operates the Conemaugh Hydroelectric Plant in Indiana County. The Plant is a NUG with a nameplate capacity of 15 MW. Petition to Intervene, p. 2; HBG/PRRA/IWSA Ex. 2.

46. PRRA has a PPA with Penelec, pursuant to which Penelec agrees to purchase all of the electrical output of PRRA’s Conemaugh Plant. The PPA expires February 9, 2008. Petition to Intervene, p. 2; HBG/PRRA/IWSA Ex. 2.

11 47. IWSA is a national trade group representing the public and private sectors of the waste-to-energy industry, which promotes integrated solutions to municipal solid waste handling. Its membership includes public authorities and private companies that own and/or operate waste-to-energy facilities, including those in Pennsylvania, and more than fifty local governmental bodies and organizations. IWSA Petition to Intervene, p. 2; HBG/PRRA/IWSA Ex. 3.

48. Viking Energy of Northumberland A Limited Partnership (Viking) operates a cogeneration facility and entered a PPA with PPL for all of the total net energy up to 18, 500 KWH per hour. Viking Exhibit JTK-2, Viking Brief at 3.

49. Substantial benefits are derived from the use of woody biomass as a fuel source. ARIPPA Cross Exh. 1, p. 15; PPL Stmt.1-R, p. 14.

50. The cost of procuring woody biomass used as the fuel source for Viking’s Northumberland cogeneration Facility has increased significantly. Viking - JTK Testimony p. 17.

51. ARIPPA is a not-for-profit trade association incorporated in Pennsylvania whose members own and/or operate generating facilities which burn coal refuse for fuel. Eleven of the thirteen members sell power to a Pennsylvania EDC pursuant to a PPA. Seven of these are contracted with Met Ed or Penelec, and four with PPL. ARIPPA Brief at 3, fn. 2; p. 52.

52. The price of the PPAs was calculated to provide developers of qualifying NUG projects with sufficient revenue to construct and operate the facilities, as well as to guarantee a rate of return on their investment. OTS Stmt. 1, p.8.

12 III. DISCUSSION

A. Introduction

There are two clear positions to this issue: Petitioners argue that the AECs associated with the electricity generated under the long-term PPAs, entered into with the NUGs pursuant to the PURPA requirements, belong to the EDCs, and aligned with them are PPL, the EDCs’ industrial users and the public advocates (Met Ed/Penelec, PPL, OTS, OCA, OSBA, MEIUG). The opposition argues that the AECs must belong to the generators of the electricity and since they are not specifically transferred to the EDCs, they remain the property of the generator. The opposing parties are the NUGs (YSCWA, Cogentrix, Harrisburg Authority/PRRA/IWSA, Viking, and ARIPPA). Although the outcome is split squarely into two sides, the arguments vary significantly even among those supporting the same outcome. This Initial Decision attempts to address each argument raised by the parties, but the number of parties in this case and the multiple arguments raised by each make it likely that one or more may not be addressed. Similar or related arguments are grouped together and discussed as one wherever possible. Therefore, the following disclaimer applies: any argument not specifically discussed in this Initial Decision is denied.

B. The Issue

The basis of this case developed when YCSWA informed Met Ed by letter that it intended to sell the alternative energy credits (AECs) associated with the electricity generated at its facility to an entity other than Met Ed. Met Ed protested this intent since Met Ed and YCSWA had a long-term power purchase agreement (PPA), which had been mandated by PURPA and which required Met Ed to purchase all electricity generated by the plant. Under the AEPS Act, Met Ed is required to purchase or otherwise obtain sufficient AECs to meet the schedule which is set forth in that Pennsylvania legislation. Met Ed and Penelec filed this Petition for Declaratory Order to procure a determination of whether the EDC or the NUG could lay claim to the AECs associated with the electricity generated by a NUG facility under a long- term PPA which: (1) had been required by PURPA; and (2) were entered before the passage of

13 the AEPS; and (3) contain no mention of the AECs. For reasons explained more fully in this Initial Decision, the Petition is granted.

C. The Statutes: PURPA and AEPS

1. PURPA

The Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 8241-3(a)-(j) (PURPA) was enacted in 1978 in conjunction with four other pieces of legislation, collectively known as the National Energy Act, in response to the rising oil prices and natural gas shortage at that time. The Federal Energy Regulatory Commission (FERC) was directed to promulgate rules to encourage the development of the alternative sources of power, including rules requiring utilities to purchase electricity from qualifying cogeneration and small power production facilities (QFs). The FERC regulations of “avoided costs” was meant to assign the savings realized by the QFs to the producers themselves, not to the utility customers. The intent was to provide the maximum encouragement of development of the QFs. Barasch v. Pa. Publ. Util. Comm’n, 546 A.2d 1296 (Pa.Cmwlth. Ct. 1988), petition for allowance of appeal denied 523 Pa. 652, 567 A.2d 655 (1989).

The Commission adopted regulations to implement Section 210 of PURPA, 52 Pa. Code §§57.31-57.39.

As the parties all agree, PURPA did not cover alternative energy credits and could not, since they did not exist at the time that PURPA was enacted. It did, however, provide the reason that the EDCs entered into long-term power purchase agreements (PPAs) with the QFs, thus providing a factor in the present litigation.

14 2. AEPS Act

a. Commission Orders

The Alternative Energy Portfolio Standards Act (AEPS or Act 213 or PSA) became effective on February 28, 2005, 73 P.S. § 1648.1-1648.8. The AEPS establishes a schedule which requires the electric distribution companies (EDCs) and electric generation suppliers (EGSs) to utilize a percentage of power derived from alternative energy sources. Eighteen percent of electricity sold to retail customers in the Commonwealth must be from renewable energy sources, as defined within the Act, within 15 years of the Act’s effective date.

The Legislature gave primary responsibility for implementation and enforcement of this Act to the Commission, specifically charging the Commission with the task of establishing a program for certifying, tracking and reporting the AECs to determine compliance with the Act.

Another section provides that AECs may be banked as long as the company banking them is in compliance with prior years’ requirements and as long as the AECs have not been counted for compliance with the AEPS or another state’s program. 73 P.S. §§ 1648.3(e)(6), 1648.4. The Commission is required to impose an alternative compliance payment upon those companies failing to meet the standard set for them. 73 P.S. § 1648.3(f). The alternative compliance payments are to be paid into the Sustainable Energy Funds created under the Commission’s restructuring orders, established under Docket No. M-00031715. They are to be used for projects that will increase the amount of electric energy generated from alternative energy resources for purposes of compliance with the Act. 73 P.S. § 1648.3(g).

Act 213 contains an implementation schedule for the Commission, and compliance is evidenced by a series of implementation orders and proposed regulations.

The first implementation order adopted at the public meeting held March 23, 2005 discussed the compliance deadlines for the electric companies, including the exemption periods

15 provided for stranded cost recovery periods and POLR plans. Implementation of the Alternative Energy Portfolio Standards Act of 2004, PUC Docket No. M-00051865, 35 Pa.B. 2183 (published April 11, 2005), and Implementation of the Alternative Energy Portfolio Standards Act of 2004; Standards for the Participation of Demand Side Management Resources, Docket No. M-00051865, 35 Pa.B. 3860 (published July 14, 2005).

The Order recognizes that AECs can be banked for use when the EDCs’ exemption periods expire. The Order establishes an Alternative Energy Portfolio Standards Working Group in accordance with the Act’s requirement that the Commission utilize a stakeholder process to develop rules for net metering and interconnection. The development of DSM and energy efficiency rules are also referred to this Group in the March 23, 2005 Order.

The Order notes that the Commission had already issued an order which was an Advance Notice of Proposed Rulemaking Regarding Small Generation Interconnection Standards and Procedures, Docket No., L-00040168 (Order entered November 19, 2004), and that the proposed rulemaking order on interconnection standards would be issued at that docket. A new docket would follow for the net metering standards.

The March 23, 2005 Order notes that the Pennsylvania Sustainable Energy Board (PASEB), established as a result of Commission approved electric restructuring settlements, is designated by the Act as the recipient of all alternative compliance payments made pursuant to Subsection 3(g) of the Act. The PASEB is to make these monies available to the four regional funds only for projects that “will increase the amount of electric energy generated from alternative energy resources.” The Order directs the PASEB to meet and discuss the issues which are raised by this delegation, such as the manner and receipt and custody of alternative compliance payments and the process by which they are disbursed to the regional funds.

The next Order was issued as a Tentative Order adopted June 23, 2005, regarding standards governing the tracking and verification of the measures undertaken for compliance with Act 213. 35 Pa.B. 3860 (published July 14, 2005). It was published as a Tentative Order to encourage interested parties to file comments on the proposed standards for the tracking and

16 verification of demand side management, energy efficiency and load management programs and technologies (DSM/EE).

The next relevant orders were adopted on November 10, 2005. The first, Rulemaking re Electric Distribution Companies’ Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant to 66 Pa. C.S § 2807(e)(2); Petition of Direct Energy Services, LLC to Reopen the Comment Period; Doc. No. L-00040169; and Implementation of the Alternative Energy Portfolio Standards Act of 2004, 35 Pa. B. 6531, sought public comment regarding a myriad of issues raised by the dockets referenced, including implementation of the Act. The second was a proposed policy statement regarding the determination of what constitutes a public utility for purposes of the Act. Implementation of the Alternative Energy Portfolio Standards Act of 2004, Docket No. M-00051865, 35 Pa.B. 6906.

At the Public Meeting held January 7, 2006, the Commission adopted a Tentative Order which proposed standards and processes for qualifying alternative energy systems and certifying alternative energy credits. Implementation of the Alternative Energy Portfolio Standards Act of 2004: Standards and Processes for Alternative Energy System Qualification and Alternative Energy Credit Certification, Docket No. M-00051865, 36 Pa.B. 785 (published February 15, 2006).

None of these Orders address the issue in this case. However, the Commission adopted the proposed regulations in Final Rulemaking Re Net Metering for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P.S.§ 1648.5, L- 0050174; Implementation of the Alternative Energy Portfolio Standards Act of 2004: Net metering, M-00051865, adopted at the public meeting of June 22, 2006. In this Order, the Commission states that:

Ownership of alternative energy credits produced by onsite generation properly rests with the customer-generator unless a different arrangement has been agreed to by the customer- generator. Order at 19.

17 As the Commission directed that Notice of this proceeding be published prior to the evidentiary portion, it is fair to operate under the assumption that the above-cited Order is not meant to apply to it. In fact, the parties themselves were operating under the assumption that initial ownership of AECs would be with the generator after expiration of the PPAs. See PPL Brief at 16-17; Tr. 79 (testimony of Met Ed/Penelec witness D’Angelo). In addition, the specific facts of this case remove it from the general statement in the Commission’s Order, which refers to prospective situations where there is no long-term contract for the sale of the electricity predating the effective date of the AEPS.

b. Analysis

The Act is described by its authors as follows: An Act providing for the sale of electric energy generated from renewable and environmentally beneficial sources, for the acquisition of electric energy generated from renewable and environmentally beneficial sources by electric distribution and supply companies and for the powers and duties of the Pennsylvania Public Utility Commission. Introduction printed on Senate Bill No. 2030 Session of 2004, subsequently adopted as the Alternative Energy Portfolio Standards Act.

This one paragraph provides a number of insights: (1) the Act is meant to provide for either the sale, acquisition, or both sale and acquisition of electricity generated from designated sources to or by EDCs and EGSs; and (2) the Commission’s powers and duties are meant to cover the requirements of enforcing the Act. The emphasis here and in the text of the statutory sections is on the EDCs (and EGSs) and their acquisition of the electricity.

Accordingly, the Act provides for the development of a program by which the EDCs’ compliance can be measured. The Commission will certify and keep track of the energy from alternative sources, in the form of alternative energy credits (AECs). It is the AEPS which creates AECs, using the following definition:

(4) (i) An electric distribution company or electric generation supplier shall comply with the applicable requirements of this section by purchasing sufficient alternative energy credits

18 and submitting documentation of compliance to the program administrator.

(ii) For purposes of this subsection, one alternative energy credit shall represent one megawatt hour of qualified alternative electric generation, whether self-generated, purchased along with the electric commodity or separately through a tradable instrument and otherwise meeting the requirements of commission regulations and the program administrator. 73 P.S. §1648.3(e)(4) (emphasis added).

The parties agree that the AECs are severable from the electricity. The disagreement arises in determining whether the NUGs can sever the AECs from the electricity which is already purchased according to long-term power purchase agreements (PPAs) entered into prior to the effective date of the AEPS.

Viking points out that the AEPS and PURPA have two different purposes: AEPS is to promote the development of environmentally sound alternative energy sources, while PURPA was designed to reduce dependence on foreign oil. Viking Brief at 13. As the parties have pointed out, FERC has held that PURPA does not control the ownership of renewable energy credits, which were created by the states and exist outside the confines of PURPA. Covanta Energy Group, No. EL03-133-000, 2003 FERC LEXIS 1942 (F.E.R.C. Oct. 1, 2003), rehearing denied, 2004 FERC LEXIS 728 (F.E.R.C. April 14, 2005), review denied by, Xcel Energy Services, Inc. v. FERC, 407 F.3d 1242, 366 U.S.App.D.C. 46 (D.C. Cir. May 17, 2005) (No. 04-1128), Viking Brief at 15.

The NUGs argue that the Act does not require that the credits transfer automatically upon sale of electricity. (“In addition to the explicit dictate that AECs may be sold separately from the electric commodity, the fact that compliance with the PSA is measured in terms of the number of credits purchased – and not the electricity – reflects a legislative scheme that fully envisions the decoupling of the AECs from the commodity.” Scrubgrass/Northampton Brief at 16-17.); (“The fundamental flaw with this argument is that Act 213 itself expressly provides, in direct contradiction to the Petitioners’ position, that there in fact is an actual separation of the electricity and the AECs.” Hbg/PRRA/IWSA Brief at 21.); (“No where in the

19 Act is there any language which provides that AECs associated with PPAs are somehow to be treated any differently than all other AECs. And, no where did the Act give the Commission authority to bundle AECs with PPA energy when the Legislature had chosen not to do so.” ARIPPA Brief at 22).

ARIPPA relies upon the first implementation order to support its claim that the Commission itself recognizes that its role under the Act is in developing and enforcing regulations, “not legislative or adjudicatory by which it would attempt to legislate a modification of preexisting contracts and hand over the AECs to the utilities.” ARIPPA Brief at 23. As the Commission cannot develop and enforce regulations without being adjudicatory, this argument is not persuasive.

As the YCSWA states:

AECs are creatures of statute. They did not exist until the General Assembly created them under the AEPS Act, and they exist now only within the limits of their creation by the General Assembly.

The AEPS Act does not expressly state who owns AECs. However, it requires that EDCs shall comply with the alternative energy portfolio standards section of the Act2 by “purchasing sufficient alternative energy credits and submitting documentation of compliance to the program administrator.3 When construing a statute, it is to be assumed that the General Assembly did not intend a result that is absurd or unreasonable. In the present case, if the General Assembly intended that EDCs would own AECs produced by NUGs from whom the EDCs purchase electric energy, it would make no sense for the General Assembly to have omitted that provision from the AEPS Act but to have stated that those same EDCs shall comply with the Act by purchasing AECs. YCSWA Brief at 18-19 (additional cites in Brief omitted here).

2 Footnote 48 of the YCSWA Brief at p. 18 cites to AEPS Act, 73 P.S. § 1648.3. 3 Footnote 49 of the YCSWA Brief at p. 18 cites to 73 P.S. § 1648.3(e)(4)(i).

20 While YCSWA is correct in its recitation of the rules of construction4, the application of those rules yields a different result when applied to the entire section, not the selected words chosen for reproduction in the brief. The two subsections under 1648.3(e)(4) must be read together, keeping in mind that these should be construed in the context of the remainder of the sections under § 1648.3(e):

(4)(i) An electric distribution company or electric generation supplier shall comply with the applicable requirements of this section by purchasing sufficient alternative energy credits and submitting documentation of compliance to the program administrator.

(ii) For purposes of this subsection, one alternative energy credit shall represent one megawatt hour of qualified alternative electric generation, whether self-generated, purchased along with the electric commodity or separately through a tradable

4 The Commission recognized the importance of the rules of construction in the Tentative Order issued in Implementation of the Alternative Energy Portfolio Standards Act of 2004:Standards and Processes for Alternative Energy System Qualification and Alternative Energy Credit Certification, Docket No. M-00059865, 36 Pa.B. 785, where the Commission states:

The Commission is bound by the rules of statutory construction in its interpretation of the Act. 1 Pa.C.S. §§ 1901--1939. Of particular importance is 1 Pa.C.S. § 1921, which provides that legislative intent shall control. Every statute shall be construed, if possible, to give effect to all of its provisions. 1 Pa.C.S. § 1921(a). Additionally, when the words of a statute are free from ambiguity, the letter of the statute is not to be disregarded in pursuit of unstated legislative intent. 1 Pa.C.S. § 1921(b). If the language is ambiguous, an agency may consider a number of other factors, including prior interpretations, the purpose of the statute, legislative history, etc. 1 Pa.C.S. § 1921(c). An agency may make a number of presumptions regarding legislative intent, including that the Pennsylvania General Assembly (''General Assembly'') intends the entire statute to be effective and constitutional, and that public interest is to be favored over the private interest. 1 Pa.C.S. § 1922. Finally, the words and phrases of a statute should be interpreted consistent with their plain and ordinary meaning. 1 Pa.C.S. § 1903.

The Commission's ability to ascertain the General Assembly's legislative intent in these matters is complicated because the Act does not contain sections discussing specific declarations of policy. This is in contrast to other recent legislation that the Commission has been charged with carrying out, including the Electricity Generation Customer Choice and Competition Act (''Competition Act''), 66 Pa.C.S. §§ 2801--2812, Alternative Form of Regulation of Telecommunication Services, Act 183 of 2004, 66 Pa.C.S. §§ 3011--3019, Responsible Utility Customer Protection, Act 2001 of 2004, 66 Pa.C.S. §§ 1401--1418. These laws included express declarations of legislative intent to guide the Commission in its implementation and enforcement of their provisions. 66 Pa.C.S. §§ 1402, 2802, 3011.

In the absence of such policy direction, the Commission will adhere to the rules of statutory construction identified above. The Commission will attempt to construe the Act so that all its provisions are effective, it will avoid the pursuit of unstated legislative intent where the language is clear, and it will interpret statutory provisions consistent with their plain language. 1 Pa.C.S. §§ 1903, 1921(a), 1921(b).

21 instrument and otherwise meeting the requirements of commission regulations and the program administrator. 73 P.S. § 1648.3(e)(4)(emphasis added).

The statute recognizes that an EDC may meet the requirements through more than purchase. The statute gives the Commission sufficient discretion to recognize other situations which could arise, such as the present one.

A statute, including the Act, should be interpreted in a manner which carries out the Legislative intent. Here, the intent, clear on the face of the statute, is to require EDCs and EGSs to use a stated percentage of energy generated from alternative sources within a set time period when providing residential electric service in Pennsylvania. Logically, the Legislature intended the EDCs and EGSs to be able to comply with the Act. AECs were created as a tool to measure compliance with the AEPS Act. They act as a concrete way to determine if the EDCs are using the required percentage of energy from alternative sources as prescribed by the Act.

The bottom line is this:

Alternative energy credit. A tradable instrument that is used to establish, verify and monitor compliance with the act. A unit of credit shall equal one megawatt hour of electricity from an alternative energy source. 73 P.S. § 1648.2.

The purpose of an AEC is to monitor compliance with the Act. Electric distribution companies and electric generation suppliers are the entities which are required to comply with the Act. 73 P.S. §1648.3(a).

“In fact, the PSA does not define the AEC in terms of how it is generated but by how the AEC is used. . . . Consequently, it appears that the AEC definition in the PSA does not support the conclusion that the PSA presumes that the credit is owned by the generator.5” OTS

5 Fn. 10, OTS Reply Brief states: In contrast, the Texas statute specifically refers to how the power is generated in its definition of the term renewable energy credit or REC. In this regard, P.U.C. Subst. R. 25.173(k) (1) states “[a] REC will be awarded to the owner of a renewable resource when a MWH is metered at that renewable resource.” (Emphasis added). Petition of Southwestern Public Service Company for Declaratory Order Interpreting Commission Subst. R. § 25.173 Implementing Public Utility Regulatory Act § 39.904, Docket No. 29815 (March 16, 2005), Order at p. 6.” OTS Reply Brief at 7.

22 Reply Brief at 7. Initial ownership of the AECs after the expiration of the PPAs is not decided here but is left to the Commission’s promulgation of regulations.

c. Holding

AECs associated with electricity sold under long-term PPAs which do not mention the disposition of AECs or RECs belong to the purchasing EDC. To hold otherwise would open the possibility that the EDCs continue to purchase power under their existing PPAs, at least partially complying with the Act’s requirement that they use this power generated from alternative sources, while the NUGs are free to sell the AECs, which is the measure of EDC compliance, elsewhere. This would force the EDCs to purchase additional AECs from other sources, if they are available, or to be forced to pay a penalty for failure to comply with the Act when, in fact, they had purchased and were using the energy generated by the NUGs – in actual compliance with the Act but unable to prove it.

This is not speculation. It is this very scenario which triggered the filing of the Petition for Declaratory Order. It is a situation which subjects the EDCs’ ability to prove compliance with the Act to the whim of the NUGs since the EDCs, already bound by contract for the purchase of the power, have no bargaining chips. This result is not logical and cannot have been contemplated by the Legislature to be acceptable.

The NUGs proffer numerous arguments purporting to prohibit the finding that the EDCs are entitled to the AECs under the Act for the remainder of the PPAs, and the EDCs and public advocates offer additional support for the finding that the EDCs are entitled to the AECs. These arguments are addressed below.

Since this determination is the result of an interpretation of the AEPS, the holding in this case is limited to the AECs created by the AEPS and does not extend to any “environmental attributes” which may arise under any other legislation.

D. Finding for the EDCs does not require a contract interpretation.

23 A finding that the EDCs may utilize those units of measurement under the existing long-term contracts that they have with the NUGs until the expiration of those contracts does not modify the contracts in any way. It simply ensures that the purchasers have the ability to receive credit for their purchases during the remainder of the contractual period.

The NUGs argue that a Commission finding that the AECs under the existing PPAs belong to the EDCs would constitute an impermissible modification of the contracts. See YCSWA Brief at 21 (“Any modification of the PPA to insert contract provisions conveying AECs and environmental and social benefits of the commodity purchased under the PPA would be bootstrapping in the extreme and would contravene, rather than comply, with the FERC’s holding in American Ref-Fuel in regard to PURPA-based PPAs.”); Scrubgrass Brief at 11 (“. . . this matter is beyond the Commission’s jurisdiction because it entails a private contractual dispute between the EDCs and the NUGs.”); Harrisburg Authority Brief at 12 (“The only relationship that exists between the Petitioners and YCSWA, and the other NUG parties and intervening EDC, is contractual, based on the PPA each party has entered into. The PPAs are the sole basis for any nexus between the parties and the AECs in question. As such, the only basis for this dispute and its resolution is contractual in nature.”); ARIPPA Brief at 26 (“The Commission, having approved the PPAs may not amend them to include the AECs.”) and 42 (“Federal law bars a reopening of those PPAs by state commissions to modify the consideration exchanged, to include the AECs.”); Viking Brief at 30 (“. . . PPL effectively is inviting the Commission to “vary, reform or revise” a contract pursuant to 66 Pa. C.S.A. § 508.”).

Assuming that the issue cannot be decided against them without there being a contract violation, the NUGs each apply a classic contract analysis.

ARIPPA cites Petition of P.H. Glatfelter Company for Declaratory Order re: Power Purchase Agreement between Metropolitan Edison Company and P.H. Glatfelter (Order adopted September 24, 1992 at PUC Docket No. P-00920584), where the Commission refused to approve a contract modification, stating in detail the circumstances under which a contract modification will be granted.

24 According to ARIPPA, a Commission finding that the AECs under the PPAs belong to the EDCs would be the same thing as modifying the PPAs since they are not mentioned in the documents now. The NUGs each assume the ownership of the AECs and argue that the AECs, therefore, cannot be assigned to the EDCs without violating the existing contracts or effecting an unconstitutional taking.

However, “[A]s the NUGs are fully aware, the matter at issue in this proceeding concerns an issue that did not exist at the time of initial contracting. Thus, there would be no modification of the contract. This argument is a red herring.” OTS Reply Brief at 8 (emphasis in original).

None of the NUGs explain why a finding for the NUGs would not violate contract law, although the same logic would apply. There exists now some aspect to electricity generated by the qualifying NUG facilities that did not exist at the time that the PPAs were entered. The NUG argument presupposes that these new commodities, the AECs, belong to them. However, ownership under the PPAs is the issue to be decided in the case, and it cannot be assumed in order to set up a hypothetical argument. As PPL points out, since the AEC does not exist until the generation of the electricity, then the NUG owns nothing until the electricity exists. At that point, without further contractual discussion, the owner of the electricity must own the AECs. PPL Brief at 16-17.

ARIPPA tries again by pointing out that the AECs did not exist when the PPAs were entered, therefore (again assuming initial ownership) they could not have been transferred or the subject of compensation under the PPAs.

A promise cannot be conditioned on a promise to do a thing to which a party is already legally bound...": Wimer v. Overseers of the Poor of Worth Township, 104 Pa. 317, 320; Erny v. Sauer, 234 Pa. 330, 334, 83 A. 205. "'A promise to do what the promisor is already bound to do cannot be a consideration, for if a person gets nothing in return for his promise but that to which he is already legally entitled, the consideration is unreal'": Quarture v.

25 Allegheny County, 141 Pa. Superior Ct. 356, 363, 14 A. 2d 575. "Doing what one is already legally obliged to do is not good and sufficient consideration": Murray v. Prudential Insurance Co., 144 Pa. Superior Ct. 178, 187, 18 A. 2d 820; Tradesmen's National Bank v. Cummings Bros. Co., 306 Pa. 280, 282, 159 A. 452. Commonwealth Trust Company General Mortgage Investment Fund Case, 357 Pa. 347, 54 A.2d 649 (1947).

ARIPPA reasons that the Companies were bound to pay avoided costs, therefore there can be no consideration to support the transfer of an additional commodity, the AECs. ARIPPA Brief at 35. This argument presupposes that there was, in fact, a transfer, and that the NUGs owned the AECs first. Under the EDCs’ more persuasive argument, however, the ownership of the AECs is not severable from the electricity until the electricity is generated. At the point of the AECs’ creation, the owner of the electricity owns the AECs. Under the PPAs, the EDCs own the electricity as soon as it is generated; therefore, they own the AECs as well.

The EDCs do not seek to have the PPAs altered or modified. The EDCs are relying upon the existence of the PPAs to prove that they have (1) contracted with the NUGs, (2) because they are NUGs, (3) in compliance with PURPA, and (4) that the EDCs are bound to purchase the power generated at the facilities until the expiration date of the PPAs.

PPL explains this clearly and succinctly:

. . . AECs are defined in terms of megawatt hours of electricity. Therefore, the entity that owns the electricity is the entity that owns and can trade the AECs. For the NUG contracts that pre-date Act 213, PPL owns the electricity without restriction. Therefore, PPL is entitled to these AECs and can separately trade them as permitted under the Act. When the NUG contracts expire, the NUG owners will then own the electricity and can separately trade the AECs if they so desire.6 The fact that AECs are separately tradable instruments does not address who owns the AECs in the first instance. As explained above, PPL owns the AECs and is the entity that can trade them. PPL Brief at 16-17.

PPL argues that the real issue is not whether the contracts make specific mention of AECs, because none of the contracts will mention AECs. The real issue is who, under the

6 This is a statement by PPL and not a finding in this case.

26 contracts, is entitled to the alternative energy attributes of that electricity. PPL Brief at 18. As an example, PPL cites to its sample PURPA contract, PPL Stmt. 1 Appendix E, which states that “. . . PP&L will only be required to purchase net energy produced by that portion of the Facility which is certified by FERC as a qualifying facility or is operated in accordance with the definition of a Facility under this agreement.” The definition of “facility” includes the alternative energy attributes of the generating facility and requires that it be a FERC qualifying facility. PPL Brief at 19.

What is certain is that the EDCs would not have entered the PPAs with the NUGs without the environmental or alternative energy attributes. PPL Stmt. 1, p. 9, PPL Brief at 20. Because the alternative energy attributes were an indispensable part of the NUG contracts, PPL states that it is the rightful owner of those attributes and should be awarded the AECs. PPL Brief at 20. While ARIPPA argues that the EDCs note that there are benefits to the PPAs, there can be little doubt that, over the years, in the absence of the PPAs, the EDCs would have obtained electricity which was available at the lowest cost. 66 Pa. C.S. Chapter 13. After all, if the EDCs would have voluntarily entered long-term contracts with all NUGs in their service areas requesting them, there would have been no need for PURPA.

MetEd/Penelec agrees with PPL that the AEPS links ownership of the AECs with the energy, not the plant or facility owner. MetEd/Penelec Brief at 20, 22.

As the owners of the energy purchased under existing, long-term PPAs with NUG facilities, the Companies own and are entitled to the AECs associated with that energy. . . . the Companies are the owners of the electrical energy purchased pursuant to existing, long-term PPAs with the NUG facilities. The NUG PPAs, including the York County PPA, are full requirements contracts under which the Companies are required to purchase and the NUG operators are required to sell all of the electric output (i.e., energy and capacity) from their respective generating facilities. In some PPAs, like the York County PPA, the NUG operator is required to actually deliver a specified minimum amount of energy annually to a designated metering point in order to avoid being assessed liquidated damages. Thus, when reading the PSA together with the terms of the Met-Ed PPA with York County, the conclusion is inescapable that Met-Ed, as the

27 purchaser and owner of the underlying energy, also owns the AECs associated with that energy. Met-Ed/Penelec Brief at 24 (references omitted).

Thus, the EDCs argue that the PPAs don’t specifically mention the AECs but the existing terms of the PPAs cover the AECs since they fall under the heading of “environmental attributes” which are contemplated within the PPAs.

Ultimately, the issue of the effect of the PPAs is disposed of by FERC, which responded to a petition for declaratory order stating that FERC’s avoided costs regulations did not contemplate the existence of RECs and that the avoided cost rates for capacity and energy sold under contracts entered into pursuant to PURPA do not convey the RECs, in the absence of an express contractual provision:

22. Significantly, what factor is not mentioned in the Commission’s regulations is the environmental attributes of the QF selling to the utility. This is because avoided costs were intended to put the utility into the same position when purchasing QF capacity and energy as if the utility generated the energy itself or purchased the energy from another source. In this regard, the avoided cost that a utility pays a QF does not depend on the type of QF, i.e., whether it is a fossil-fuel-cogeneration facility or a renewable-energy small power production facility. The avoided cost rates, in short, are not intended to compensate the QF for more than capacity and energy.

23. As noted above, RECs are relatively recent creations of the States. Seven States have adopted Renewable Portfolio Standards that use unbundled RECs. What is relevant here is that the RECs are created by the States. They exist outside the confines of PURPA. PURPA thus does not address the ownership of RECs. And the contracts for sales of QG capacity and energy, entered into pursuant to PURPA, likewise do not control the ownership of the RECs (absent an express provision in the contract). States, in creating RECs, have the power to determine who owns the REC in the initial instance, and how they may be sold or traded; it is not an issue controlled by PURPA.

24. We thus grant Petitioners’ petition for a declaratory order, to the extent that they ask the Commission to declare that contracts for the sale of QG capacity and energy entered into pursuant to

28 PURPA do not convey RECs to the purchasing utility (absent an express provision in a contract to the contrary). While a state may decide that a sale of power at wholesale automatically transfers ownership of the state-created RECs, that requirement must find its authority in state law, not PURPA. Covanta Energy Group, No. EL03-133-000, 2003 FERC LEXIS 1942 (F.E.R.C. Oct. 1, 2003), rehearing denied, 2004 FERC LEXIS 728 (F.E.R.C. April 14, 2005), review denied by, Xcel Energy Services, Inc. v. FERC, 407 F.3d 1242, 366 U.S.App.D.C. 46 (D.C. Cir. May 17, 2005)(No. 04-1128).

This is not a contractual dispute. All parties agree that the PPAs do not include any mention of the AECs in question. While FERC does not decide the issue, it points out that a state decision must find its authorization in state law.

In addition, several of the NUGs cite Amoco Prod. Co. v. Southern Ute Indian Tribe, 526 U.S. 865, 119 S.Ct. 1719, 144 L. Ed. 2d 22 (1999), for the argument that nothing can be passed in a contract except for what was conveyed in the contract’s clear language. See HBG/PRRA/IWSA Brief at 19; Viking Brief at 28-29. In Amoco, land was conveyed while withholding the coal rights under the Coal Lands Act, which did not address the ownership of methane gas. The Court held that the reservation of the coal included only coal, not the methane gas also present. The distinctions here are: (1) “Coal bed methane gas is an actual physical substance that exists separate and apart from the coal. AECs, by statutory definition, cannot exist in the first instance without electricity. Thus, the analysis in Amoco is not relevant.” PPL Reply Brief at 19; and (2) the methane gas existed at the time that the land grants were given, and the statute did not include it, where here, AECs did not exist when the PPAs were entered and could not have been contemplated.

The AEC exists only as a unit of measurement of the alternatively generated electricity.

E. Commission jurisdiction /Subject matter jurisdiction

29 On April 20, 2006, YCWSA filed a Motion to Dismiss the Petition on the basis that the Commission lacks subject matter jurisdiction over this proceeding. On May 25, 2005, I issued an Order denying the Motion. During the hearing and briefing stages of the proceeding, several NUGS again called into question the jurisdiction of the Commission over the issues raised in the Petition and its authority to issue a Declaratory Order. These companies claim that (1) the Electricity Generation and Customer Choice Act divested the Commission of jurisdiction over contracts involving generation supply; (2) that neither the Act nor the Public Utility Code confers jurisdiction upon the Commission to determine ownership of AEC’s; and (3) that the instant dispute is based upon interpretation of private contracts that the Commission lacks the authority to modify. York County Main Brief, pp. 16-17, ARIPPA Main Brief, pp.24-31.

Conversely, Petitioners as well as MEIUG, PPL and the statutory advocates aver that the Commission’s jurisdiction over this proceeding is derived from its plenary jurisdiction over public utilities pursuant to 66 Pa. C.S. §501 as well as the provisions of the Act. These parties state that FERC has determined that ownership of AEC’s is a state issue and that ownership does not arise under PURPA. American Ref-Fuel Company, et al., FERC Docket No. EL03-133-000, 105 FERC ¶ 61,004 (October 1, 2003). Finally, these parties contend that the instant dispute does not involve the modification or interpretation of private contracts and that other states, when faced with this issue, have held that its commissions or authorities have jurisdiction to determine ownership of AEC’s under prior PPA’s. Petitioners Main Brief p. 18-28; OCA Main Brief, p.16; OTS Main Brief, pp. 7-8; OSBA Main Brief, p. 17.

It is well settled that the Commission cannot exceed its jurisdiction and must act within it. City of Pittsburgh v. Pa. Public Utility Commission, 43 A.2d 348 (Pa. Super. Ct. 1945). Jurisdiction may not be conferred by the parties where none exists. Roberts v. Martorano, 427 Pa. 581, 235 A.2d 602. Subject matter jurisdiction is a prerequisite to the exercise of the power to decide a controversy. Cf., Hughes v. PA State Police, 619 A.2d 390 (1992), alloc. denied, 637 A.2d 293 (1993).

In its Tentative Order in Implementation of the Alternative Energy Portfolio Standards Act of 2004: Standards and Processes for Alternative Energy System Qualification

30 and Alternative Energy Credit Certification, Order entered January 31, 2006 at Docket No. M- 00051865 (“Implementation Order”), the Commission discussed the legislative intent of the Act and the Commission’s duty to adhere to the rules of statutory construction, reproduced herein in Footnote 4.

Keeping in mind the rules of statutory construction and legislative intent, and for the reasons set forth below, the Commission has subject matter jurisdiction to determine ownership of AEC’s under the Act.

1. Determination of ownership of AEC’s falls to the states

In American Ref-Fuel, supra, FERC determined that “[w]hile a state may decide that a sale of power at wholesale automatically transfers ownership of the state-created REC’s7, that requirement must find its authority in state law, not PURPA.” FERC Docket No. EL-03- 000, 105 FERC ¶ 61,004 at 1. FERC has clearly articulated that ownership of energy credits does not inherently arise under contracts negotiated pursuant to the requirements of PURPA. The determination of ownership of these credits lies with the states. The legislature has delegated the responsibility of overseeing the creation and enforcement of programs relating to alternative energy credits to the Commission through its enactment of the Alternative Energy Portfolio Standards Act of 2004, 73 P.S. §§ 1648.1-1648.8 (the “Act”). By necessary implication, this oversight includes the authority to determine ownership of AEC’s.

2. The provisions of the Act confer subject matter jurisdiction to the Commission

Under the Act, the Commission is vested with the power to supervise, execute and enforce the provisions set forth therein. Implementation Order supra. at 6. See also 73 P.S. §1648.7(a). The Act also charges the Commission with the responsibility to “establish an alternative energy credits program as needed to implement this act.” 73 P.S. §1648.3(e)(1). The Act provides that the alternative energy credits program established by the Commission should

7 REC is an acronym for “renewable energy credit” and is comparable to Pennsylvania’s AEC.

31 “…include, at a minimum, a process for qualifying alternative energy systems and determining the manner credits can be created, accounted for, transferred and retired.” Id. at §1648.3(e)(2)(i).

It is clear from the provisions of the Act that the legislature intended to vest the Commission with significant authority to supervise and enforce the mandates of the Act as well as assign to the Commission the responsibility to create and implement a program governing the creation and transfer of AEC’s. As stated by PPL in its reply brief “[i]t would be absurd for the Commission to have the authority to establish an AEC program in the first instance, but not have the authority to determine who owns the AEC’s under the Commission’s program.” PPL RB at 7. Similarly, Petitioners submit “[b]ut for the Pennsylvania General Assembly’s passage of the [Act], there would be no recognized AEC’s and no market in Pennsylvania for these attributes. Thus, it is clear that the Companies’ ownership claim in this proceeding arises under state, not federal law. As such, the Companies ownership claim is within the jurisdiction of the Commission.” Petitioners Reply Brief, p. 12.

Consistent with the arguments provided above, the Act confers jurisdiction to the Commission over the matter of determining ownership of AEC’s. The NUGS argument that the Act does not vest the Commission with jurisdiction to determine ownership of the AEC’s and presupposes ownership with the generating facility are inconsistent with the clear language of the Act which gives the Commission the power to determine how AEC’s are created, transferred and retired. See Scrubgrass and Northampton Main Brief, p. 9; ARRIPA Main Brief, pp. 25-26. To hold that the Commission has subject matter jurisdiction over these issues and not the initial determination of ownership would make no sense.

3. The provisions of the Public Utility Code when read with the Act convey jurisdiction

Scrubgrass and Northampton aver that the Commission’s implied powers under the Public Utility Code (the “Code”) are inapplicable. However, this argument must be rejected since the Commission has addressed this argument in its first Implementation Order and concluded that “the provisions of the Public Utility Code and its associated regulations will be applied to the implementation and enforcement of the Act…” Implementation of Alternative

32 Energy Portfolio Standards Act of 2004, Implementation Order entered March 25, 2005 at 3. Specifically, the Commission applied the principle of pari materia and determined that the Act and the Public Utility Code shall be construed together as one statute. Id. See also 1 Pa. C.S. §1932. In making its determination, the Commission stated: “… the Public Utility Code and the Act both involve the regulation of electric distribution companies, electric generation suppliers and the sale of electric energy to retain customers in the Commonwealth of Pennsylvania.” Id. The Commission further noted that the Act makes numerous references to the Code and makes express use of the definitions contained in 66 Pa. C.S. §2803. Id. This policy makes it clear that the Commission’s power under the Code is indeed relevant and vital to its interpretation and enforcement of the Act.

Section 501(a) of the Code provides:

(a) In addition to any powers expressly enumerated in this part, the commission shall have full power and authority, and it shall be its duty to enforce, execute and carry out, by its regulations, orders, or otherwise, all and singular, the provisions of this part, and the full intent thereof; and shall have the power to rescind or modify any such regulations or orders. The express enumeration of the powers of the commission in this part shall not exclude any power which the commission would otherwise have under any of the provisions of this part. 66 Pa. C.S. §501.

Through this section the legislature has granted the Commission broad powers to regulate in the field of public utilities and has vested the Commission with “full power and authority” to carry out the provisions of Code and “the full intent thereof.” Through the Act, the General Assembly has delegated to the Commission the authority to create and implement a process governing how AEC’s are created and transferred. In light of the fact that the Act and the Public Utility Code are to be read as one, by necessary implication, the Commission must also have the authority to determine ownership of AECs. See PPL RB p. 8.

33 4. Commission lacks jurisdiction over generation issues – electric competition

Several NUGs argue that the passage of the Electricity Generation Customer Choice and Competition Act (“Competition Act”), 66 Pa. C.S.A. §2801 et seq., divested the Commission of jurisdiction over issues relating to generation supply. ARIPPA Main Brief, p. 24, HBG /PRRA/IWSA Main Brief, p. 13.

The EDCs point out that this matter is not about the procurement of energy supply but rather the ownership of the AECs associated with that energy. PPL Reply Brief, p. 10. These credits did not exist at the time of enactment of the Competition Act. If the Competition Act anticipated the creation of such credits then it would not have been necessary for the legislature to specifically create AEC’s through the Act. Accordingly, since the Act confers upon the Commission broad authority to implement and enforce its provisions, Commission jurisdiction over the ownership issue raised in the Petition is not precluded by the Competition Act.

5. Decisions of Other Jurisdictions

The issue of ownership of AEC’s has been addressed by other jurisdictions, specifically, Connecticut, Maine, New Jersey, Texas and California. The Connecticut, Maine and New Jersey Commissions held that for pre-existing PPA’s the ownership of alternative energy credits goes to the purchasing EDC. Texas and California Commissions have determined that the credits remain with the generators however, as discussed below these cases are distinguishable from the instant Petition. The discussion below is intended to summarize decisions in those states cited most often in the parties’ briefs.

The Connecticut Department of Public Utility Control (DPUC or Department) determined that it had jurisdiction to determine the ownership of GIS Certificates and concluded that “… while electricity can exist apart from the renewable fuel used to generate that electricity, GIS certificates cannot exist apart from the generated electricity.” Application of Minnesota Methane, LLC Regarding the Sale of Electricity Generated at Hartford Landfill to the

34 Connecticut Light and Power Company, Docket No. 96-07-21REI01. The DPUC rationalized at the time it approved the long term Electricity Purchase Agreement (EPA) between the parties, it required Connecticut Light & Power Company (CL&P) to purchase from Minnesota Methane, LLC (MM) electricity generated using renewable resources and no other “electricity” generated by MM would meet the Departments requirements for approval. The Department found that GIS Certificates merely quantify the renewable attributes of the “electricity” generated and were intended to be sold by MM and purchased by CL&P along with the energy provided pursuant to the EPA.

On March 20, 2006, in an unreported decision, the Connecticut Superior Court issued an Opinion in Minnesota Methane, LLC v. Connecticut Dept. of Public Utility Control, et al. upholding the DPUC’s determination that GIS Certificates were conveyed to CL&P pursuant to the EPA between MM and CL&P. Not reported in A.2d, 2006 WL 894888 (Conn. Super.).

Similarly, the New Jersey Board of Public Utilities (NJ BPU or Board) issued an Order on April 20, 2005 wherein it held that renewable energy certificates (RECS) were transferred to the EDC’s with the electricity purchased from qualifying facilities. In the Matter of the Ownership of RECS Under the Electric Discount and Energy Competition Act, as it Pertains to Non-Utility Generators and the Board’s Renewable Energy Portfolio Standards, BPU Docket No. EO04080879. Specifically, the Board held:

… as a matter of law and policy … that with respect to existing QF NUG contracts, the sale of the power to the EDCs in the first instance, and the Boards approval of the sale and the terms and conditions associated therewith, were inextricably linked to the renewable attributed thereof and that special consideration was given by the Board to the renewable projects because of the renewable nature of the power being sold. Therefore, the Board FINDS that these attributes belong to the purchasing EDCs for the duration of those contracts…”

Id. at 18. The Boards decision is currently under appeal in both state and federal court. See Who Owns Renewable Energy Certificates? An Exploration of Policy Options and Practice, Ernest Orlando Lawrence Berkeley National Laboratory, Edward A. Holt, Ryan Wiser & Mark Bolinger, LBNL-59965, April 2006 (Holt Report).

35 On September 6, 2002, the Maine Public Utilities Commission (MPUC) instituted an investigation to determine which party has the rights to GIS Certificates associated with PPA’s negotiated prior to the implementation of the NEPOOL. The Notice of Investigation issued by the Commission stated that the MPUC tentatively concluded that the GIS Certificates associated with electricity purchased pursuant to PPA’s that pre-date NEPOOL belong to the purchasing utility. The MPUC provided a comment period for interested parties prior to making a final determination on this issue. Investigation of GIS Certificates Associated with Qualifying Facility Agreements, Notice issued September 6, 2002 at Docket No. 2002-506. The MPUC supported this conclusion with the following statement:

It is certainly true that the unbundling of electricity attributes was not contemplated when Chapter 360 was promulgated and the QF PPA’s were signed. However, this does not change the fact that electricity attributes were a fundamental part of the QF transactions. The development and implementation of the GIS did not create the attributes; rather, the system simply allows for the trading of attributes separate from the energy commodity.

Id. at 3. The MPUC rationalized that the QF contracts represented a bundled contract that included the energy and its accompanying attributes and that “the adoption of a system that allows for unbundling does not transform the essential nature of QF PPA’s as a ‘bundled’ transaction into one that includes only the commodity. “Id. As of June 28, 2006, the MPUC has not made a final determination on this issue. However, in discussing Maine’s position on GIS Certificate ownership, the Holt Report explains that the MPUC is awaiting the outcome of litigation of this issue in other state and federal courts prior to taking any further action. Holt Report at 15.

In contrast to each of the states discussed above, both the Texas and California Commissions have determined that ownership of REC’s lies initially with the generation facility. However, the circumstances and issues considered in these proceedings is distinguishable from those presented in the instant proceeding.

36 In holding that the utility is not initially entitled to the REC’s associated with energy purchased from a QF pursuant to a contract negotiated under PURPA, the Texas Public Utility Commission (TPUC) relied on a specific state regulation which states that: “[a] REC will be awarded to the owner of a renewable resource when a MWh is metered at that renewable resource.” Petition of Southwestern Public Service Company for Declaratory Order Interpreting Commission Subst. R. § 25.173 Implementing Public Utility Regulatory Act § 39.904, Order entered March 16, 2005 at Docket No. 29815.

In its Main Brief, PPL distinguishes the instant proceeding from the proceeding before the TPUC by noting that no similar regulation currently exists in Pennsylvania. PPL goes on to articulate that the focus of the Pennsylvania Act is the electricity generated, not the facility owner. Conversely, in Texas, the relevant Act’s focus is on the facility that generates the electricity. PPL Main Brief, p. 24-25.

Furthermore, the Holt Report states that, in Texas, only new generating facilities are issued tradable REC’s because the Texas Act promotes new capacity. Existing generators are issued “REC offsets” which are not tradable and must be transferred along with the underlying electricity. Holt Report at 24. The report goes on to state while in theory REC’s remain with the generation facility, as a practice, they are generally conveyed to the purchasing utility pursuant to the terms of the contract negotiated between the parties. Id.

The California Public Utilities Commission (CPUC) also issued an order finding that the owner of the renewable distributed generation (DG) facility owns the REC’s associated with that facility. Order Instituting Rulemaking to Implement the California Renewables Portfolio Standard Program, Order entered May 5, 2005 at Docket No. 05-05-011. However, this decision is distinguishable from the instant proceeding in that the CPUC did not address generation facilities subject to the provisions of PURPA. See PPL Main Brief at 24; OCA Main Brief at 38.

37 As cited by both PPL and OCA, the CPUC clarified the scope of the resolution of the issues addressed in its order by stating:

Our decision today does not prejudge any REC issues associated with qualifying facilities currently under litigation at the Federal Energy Regulatory Commission and in the federal Court of Appeals, nor does it prejudge how this Commission will resolve issues related to qualifying facility (QF) REC’s.

PPL and OCA Main Briefs Id. Finally, it should be noted the Holt Report notes that the California legislature is currently considering bills granting ownership of REC’s from QF’s to the utilities that purchase the energy. Holt Report at 24.

F. A Declaratory Order is Appropriate

The NUGs challenge the form of relief sought. Petitioners “seek a declaratory order confirming that they are entitled to the ownership of all ‘alternative energy credits’ (“AECs”) as defined in the Alternative Energy Portfolio Standards Act, Act 213 of 2004 (Portfolio Standards Act) and any environmental attributes8 associated with the non-utility generation (“NUG”) facilities from which they are currently purchasing electric energy and/or capacity pursuant to executed and fully effective long-term power purchase agreements (“PPAs”).” Petition, page 1. Petitioners allege that the declaratory order is necessary to protect the interests of the Petitioners’ customers who pay through a competitive transition charge for the above market costs associated with the NUG PPAs. The parties agree that there is an actual, existing dispute between the Petitioners and a NUG owner and operator regarding the ownership of the AECs and environmental attributes.

8 Petitioners explain that environmental attributes are the environmental and social benefits associated with electricity that is generated from renewable energy sources. In other states, these attributes are represented by “green tags” or “renewable energy certificates” (RECs). Petition, fn. 1. ARIPPA claims that this definition is too broad and vague to be useful. The holding of this Initial Decision is limited to ownership of the AECs associated with electricity generated under long-term PPAs which were entered before the passage of the Act and which do not mention AECs.

38 Petitioners requested that the Commission “publicly state – in the form of a notice in the Pennsylvania Bulletin and a Secretarial letter to all jurisdictional electric distribution companies and electric generation suppliers – that any transactions entered into during the pendency of this Petition are at the risk of the contracting parties.” Petition, p. 2-3.

ARIPPA states that a declaratory order is not appropriate under the circumstances presented since the issuance of a declaratory judgment should be exercised only to illuminate an existing right, status or legal relation, not to search out new legal doctrine. Bloomingdales v. Dept. of Revenue, 567 A.2d 773, 775, 130 Pa. Cmwlth. Ct. 190, 193 (1989). ARIPPA claims that the Petitioners are asking the Commission to declare new legal doctrine arising out of a recently- enacted statute and to skirt the due process rights of affected entities.

Since Notice of this Petition was published in the Pennsylvania Bulletin on April 2, 2005, at 35 Pa. B. 204, and April 20, 2005 was set as the deadline for filing petitions to intervene and responsive pleadings, all affected entities have been provided notice of the pending resolution of this question. No petitions for intervention were denied. All affected entities have been afforded due process.

The standard for issuing declaratory relief in Pennsylvania is well-settled:

“Declaratory relief is not available unless an actual controversy exists, is imminent or inevitable.” Pennsylvania Turnpike Commission v. Hafer, 142 Pa. Commw. 502, 597 A.2d 754, 756 (Pa. Cmwlth. 1991). “A declaratory judgment is not appropriate to determine rights in anticipation of events which may never occur but is appropriate where there is imminent and inevitable litigation.” Id. Without an actual imminent or inevitable controversy, a party lacks standing to maintain a declaratory action. As the Pennsylvania Supreme Court has stated in William Penn Parking Garage, Inc. v. City of Pittsburgh, 464 Pa. 168, 192, 346 A.2d 269, 280 (1975), “the core concept, of course, is that a person who is not adversely affected in any way by the matter he seeks to challenge is not ‘aggrieved’ thereby and has no standing to obtain a judicial resolution of his challenge.” Silo v. Tom Ridge, et al., 728 A.2d 394, 398 (Pa. Cmwlth. Ct. 1999) (prisoner in state correctional facility had no standing to challenge

39 medical co-pay regulations where he had not alleged that medical care had been sought and either denied or inadequate).

In addition, “[T]he issuance of a declaratory judgment is a matter of judicial discretion which should only be exercised to illuminate an existing right, status or legal relation. It may not be used to search out new legal doctrine. Doe v. Johns-Manville Corp., 324 Pa. Superior Ct. 469, 471 A.2d 1252 (1984). The Declaratory Judgments Act is broad in scope and is to be liberally construed and administered but is not without its limitation. Id.” Bloomingdale’s By Mail, Ltd. v. Com. of Pa., Dept. of Revenue, et al., 567 A.2d 773 (Pa. Cmwlth. Ct. 1989).

A petition must concern an actual case or controversy, which has been defined as one which (1) is real and not hypothetical; (2) affects an individual in a concrete manner which provides a factual predicate for reasoned adjudication, and (3) sharpens the issues for judicial resolution. IMS Health, Inc. v. Vality Tech., Inc., 59 F.Supp. 2d 454 (E.D. Pa. 1999).

A court “may refuse to render or enter a declaratory judgment or decree where such judgment or decree, if rendered or entered, would not terminate the uncertainty or controversy giving rise to the proceeding.” 42 Pa. C.S. § 7537. Where no justiciable controversy exists, courts should not render or enter a declaratory judgment. Cherry v. City of Philadelphia, 547 Pa. 679, 692 A.2d 1082 (1997). FOP, Fort Pitt Lodge No. 1 v. Yablonsky, 867 A.2d 658, (Pa. Cmwlth. Ct. 2005).

The Commonwealth Court applied the test set down by the Third Circuit Court of Appeals:

[HN4] A court should look to (1) “the fitness of the issues for judicial decision,” and (2) “the hardship to the parties of withholding court consideration.” Under the “fitness for review” inquiry, a court considers whether the issues presented are purely legal, as opposed to factual, and the degree to which the challenged action is final. The various factors that enter into a court’s assessment of fitness include: whether the claim involves uncertain and contingent events that may not occur as anticipated

40 or at all; the extent to which a claim is bound up in the facts; and whether the parties to the action are sufficiently adverse.

The second prong focuses on the hardship that may be entailed in denying judicial review, and the determination whether any such hardship is cognizable turns on whether the challenged action creates a “direct and immediate” dilemma for the parties, such that the lack of pre-enforcement review will put the plaintiffs to costly choices. Philadelphia Federation of Teachers v. Ridge, 1150 F.3d 319, 323 (3d Cir. 1998), as quoted in City Council of Philadelphia v. Com. of Pa., Pa. Publ. Util. Comm’n, 806 A.2d 975, 979-980 (Pa. Cmwlth. Ct. 2002) vacated and remanded 577 Pa. 518, 847 A.2d 55 (2004)9.

1. Fitness of the issues for judicial decision

Even though the parties were unable to submit stipulated facts in the case, the issue remains a legal one. All parties agree that the single issue to be decided in this case is whether the EDCs or the NUGs own the AECs associated with energy produced by the NUGs under the long-term PPAs, which were entered into pursuant to PURPA and which do not mention AECs. There are no “uncertain and contingent events” because the underlying fact situation has actually occurred: a NUG bound by a long-term PPA with an EDC informed the EDC that it intended to sell the AECs to another entity. All NUGs in this case have stated that such a sale is within their rights.

The determination of whether the EDCs may count the AECs generated under existing PPAs toward their AEPS requirement is the “illumination of an existing right,” Doe v. Johns-Manville Corp., 324 Pa. Superior Ct. 469, 471 A.2d 1252 (1984), because the ownership already exists. This Commission adjudication merely confirms it.

Thus, the first prong of the test is met.

9 The case was vacated and remanded by the Pennsylvania Supreme Court when the parties stipulated that the Commission had jurisdiction over the Philadelphia Gas Works. The standard set forth for the determination of ripeness was cited favorably by the Pennsylvania Supreme Court in Com. ex rel. Pappert v. Coy, 861 A.2d 259 (2004 Pa. LEXIS 3342) (PA 2004 opinion not reported).

41 2. The hardship to the parties of withholding consideration

The second prong is easily fulfilled as well, since there is hardship that will be entailed in denying review, and the challenged action creates a “direct and immediate” dilemma for the parties, including that the lack of pre-enforcement review will put the plaintiffs to costly choices. The EDCs will be required to meet the standards set by the Act and they should know whether they can count the AECs associated with electricity generated under long-term PPAs among their credits as soon as the Commission’s program is operational.

Unlike cases where there is no justiciable controversy, or where the judgment would not terminate the uncertainty or controversy giving rise to the proceeding, 42 Pa. C.S. § 7537, Cherry v. City of Philadelphia, 547 Pa. 679, 692 A.2d 1082 (1997), this decision will end the controversy raised. Since the issue presented is legal, is based on a set of existing, not uncertain facts, and there exists a direct and immediate dilemma, a declaratory order proceeding is appropriate.

G. Policy

Petitioners and their supporters set forth a vigorous argument in favor of finding in favor of Petitioners on the basis of “fundamental fairness”:

Met-Ed’s and Penelec’s ratepayers have paid (and continue to pay) hundreds of millions of dollars in above-market NUG costs as a result of these PURPA inspired contracts. If the NUGs are declared the owners of the AECs, the Companies’ ratepayers will be forced to pay twice for the same environmentally beneficial power. This would result in a windfall for the NUGs. Such a result would be fundamentally unfair. OTS Reply Brief at 4.

The Companies argue that they are entitled to ownership of the AECs associated with purchases of the electrical energy under long-term purchased power agreements (PPAs) with all of their NUGs, entered into prior to the passage of the PSA because the NUGs were able to obtain construction financing and ultimately achieve commercial operation due to the assured

42 level of revenue from the Companies for all outputs delivered and sold to the Companies under the PPAs. This development would most likely not have been possible without the PPAs. The entry of a Commission order granting the relief sought in the Petition will serve the public interest by protecting the Companies customers, who have paid millions of dollars for the power generated by these NUG projects and will resolve any uncertainty regarding the ownership of AECs associated with NUG projects having long-term PPAs with the companies entered into prior to the passage of the PSA. Met-Ed/Penelec Stmt. 1, p. 7.

Met-Ed and Penelec customers have been supporting these NUG projects for many years by paying costs of energy delivered to and purchased by the Companies under the long-term PPAs. The costs incurred by the Companies have been recovered in rates charged to customers. Through December 31, 1996, customers paid project costs through the Energy Cost Rate which was a Commission approved adjustment clause that allowed the Companies to recover their actual cost of fuel, purchased power and similar costs of generation, including NUG purchases. The ECR was rolled into the Companies’ base rates on January 1, 1997, with customers continuing to support these NUG projects via embedded base rates through December 31, 1998. Today, customers continue to pay NUG costs through substantial NUG stranded cost allowances and other mechanisms established and approved by the Commission in the resolution of the Companies’ restructuring proceedings. Currently, the above-market portion of the costs associated with the York County Facility and other NUG projects are recovered through a competitive transition charge (CTC) mechanism established in the Companies’ restructuring proceeding. Met-Ed/Penelec Stmt. 1, pp. 8-9.

The Companies’ testimony describes in some detail the procedure followed to enter the NUG contracts and how their costs have been recovered over the years. For the York County Facility, since it began commercial operations April 1990 until September 30, 2005, the above-market costs were about $133.7 million. For the remaining Met-Ed/Penelec NUG projects, the above-market costs have been about $2.117 billion. Met-Ed/Penelec Stmt. 1, pp. 11-12; Exhs. RAD-3, 4.

43 The Companies aver that its customers have paid for the right to all AECs associated with the Commission-approved NUG PPAs:

Through regulated rates, customers have paid for the electrical output of these facilities. The long-term PPAs with assured revenue streams that NUG developers were able to obtain from the Companies under PURPA enabled them to get project financing to commence construction and fully develop these projects. The payments made by the Companies over the years for the electrical output from these NUGs have paid for the operation of these facilities and have enabled developers to earn a return on their investment. It would be fundamentally unfair to deprive the Companies’ customers the ability to receive the AECs since they are the ones ultimately paying the above-market costs associated with these NUG projects. Therefore, the Commission should find that the AECs under pre-existing long-term NUG PPAs are owned by the Companies and their customers who have financed and paid for the entire development and operation of all NUG projects approved by the PUC. Met- Ed/Penelec Stmt. 1, pp. 14-15.

The result of a contrary decision would be that the Companies would be required to meet the requirements of the PSA elsewhere by purchasing the AECs, perhaps even from the very NUGs under contract now to the Companies. In turn, the Companies would create a mechanism to recover the additional costs from its customers. Met-Ed/Penelec Stmt. 1, p. 15.

PPL both supports Met Ed/Penelec’s position and cautions against deciding this case on a policy basis:

As an initial matter, the Commission should not decide the issues in this proceeding based upon public policy. “It is the prerogative of the legislature and not of the commission to determine what the public policy shall be.” Bell Telephone Co. v. Driscoll, 343 Pa. 109, 117, 21 A.2d 912, 916 (1941). Act 213 does not contain a statement of policy, and therefore, the Commission should not attempt to read into the act a policy that has not been expressly set forth by the legislature.” PPL Brief at 25.

PPL continues by stating that, insofar as policy is to be evaluated and applied, it weighs in favor of the EDCs because the NUGs have already received substantial benefits as a direct result of their alternative energy status. These benefits include: long-term guaranteed

44 contracts at the purchasing utility’s full avoided cost, PPL Stmt. 1, p. 11; exemption from most provisions of the Federal Power Act and Public Utility Holding Act, PPL Stmt. 1, p. 12; substantial pricing benefits based upon the renewable or alternative attributes of the electricity, PPL Stmt. 1, p. 10. PPL Brief at 26-27.

The public advocates support the Met Ed/Penelec position. As OCA argues:

The revenues produced for the NUG developers from these guaranteed long-term contracts far exceeded any amounts the NUGs could have made if they were selling their electricity into the wholesale power market, and every dollar of those revenues has ultimately been borne by the customers of the EDCs. As already noted, Pennsylvania EDC customers are paying billions of dollars in stranded, i.e., above market costs, for NUG projects that the EDCs were required to contract with under PURPA and which were explicitly deemed recoverable as stranded costs under Pennsylvania’s Electric Competition Act. 66 Pa. C.S. § 2808(c)(1) and (2). Penelec’s NUG-related stranded cost, for example, is estimated to be $918.4 million and Met-Ed’s NUG-related stranded cost is estimated to be $516.7 million. ME/PN St.1 at 10. Although PPL’s restructuring proceeding eventually settled, in its Initial Opinion and Order in PPL’s restructuring case, the Commission found that PPL had $635 million of NUG stranded cost. Application of Pennsylvania Power & Light Company For Approval of Restructuring Plan Under Section 2806 of the Public Utility Code, 1998 Pa. PUC LEXIS 131, *224; 89 Pa. PUC at 663 (Order entered June 15, 1998). In West Penn’s case, the Commission initially concluded that West Penn had NUG-related stranded costs of $208 million. Application of West Penn Power Company for Approval of Restructuring Plan Under Section 2806 of the Public Utility Code, 1998 Pa. PUC LEXIS 168, *368; 88 Pa. PUC at 613 (Order entered May 29, 1998). West Penn’s case also settled.

There is overwhelming evidence that, under the PURPA-required PPAs, the NUGs have been assured of a steady revenue stream that is not subject to market forces. The EDC was permitted full and current recovery of the costs of the PPAs. The customers of the EDCs have borne the brunt of the above-market costs. OSBA Stmt. 1, at 5 (“The aggregate payments in excess of market value total $472.6 million and $605.5 million, respectively, for

45 Met-Ed and Penelec. Combined, the aggregate payments in excess of market value total $1,078.1 million.”); OSBA Stmt. 1, p. 6-7.

The result of finding that the AECs belong to the NUGs in this case would be, according to the Petitioners and their supporters, unfair enrichment to the NUGs at the expense of the Pennsylvania ratepayers.

Consumers across the Commonwealth are facing staggering rate increases for all types of energy. To ask those consumers to pay even more to cover the Companies’ AEC requirements, especially for AECs that are part of energy for which those consumers must already pay a one billion dollar premium, is repugnant on its face. OSBA Main Brief at 11.

MEIUG states that the fact that the Companies’ customers are paying above- market cost for the power purchased under the NUG PPAs, any environmental or green attributes associated with the facilities belong to the customers. Therefore, granting ownership to the NUGs would be unjust and unreasonable, as well as creating a windfall for the NUGs. MEIUG Brief at 10.

MEIUG argues that the NUGs have already received substantial benefits from the PPAs because of the pricing structure, including: (1) full avoided-cost pricing, which has resulted in customers paying a substantial premium above-market prices; (2) long-term contracts that guarantee a revenue stream for investors; (3) exemption from regulatory controls; and (4) the Commission’s allowance of full recovery of the above-market costs from the Companies’ customers. MEIUG Brief at 10-11.

The Companies make it clear that its customers will benefit if ownership of the AECs is with the EDCs because the Companies can recover the costs of purchasing necessary AECs, and that price would be lower, or there may be excess AECs which can be sold to other purchasers. The AEPS permits the EDCs to recover the cost of complying with the Act, and this approach would benefit the customers. Met Ed/Penelec Brief at 30; MEIUG Brief at 11. Because the Companies may well be purchasing the AECs from the same NUGs with whom they

46 have present PPAs, they, and their ratepayers, would be paying twice for the same environmental benefits. This can only be viewed as a NUG windfall. MEIUG Brief at 12.

The problem with this approach is twofold: First, it fails to support a finding that the ownership of the AECs go with the electricity under the existing PPAs, since the argument is based on equity and fundamental fairness instead of legal authority. If the price of electricity had skyrocketed and the PPA pricing was well under the market price, would the ownership of the AECs necessarily go to the NUGs under this theory? In addition, it creates the situation where the Commission would be required to evaluate each contract’s cost to the EDC before deciding that the AECs attached to each contract could be assigned to the EDC. While this theory may be used to create a sense of fairness, it cannot be used to provide a strong legal basis for decision.

Second, it approaches the issue as if the ownership should be awarded to the most deserving party. This is not a case brought in equity. It is a determination of legal ownership of AECs, made by interpreting the AEPS in light of the existence of long-term PPAs not specifically addressed in the Act itself. The AECs are not prizes to be awarded.

In contrast, the NUGs argue that the AEPS is meant to encourage the growth, continuation, and development of additional plants offering electricity from alternative means. The NUGs argue that a finding that they own the AECs for the time periods covered by the PPAs is consistent with the goals of the AEPS Act by promoting the continuation and expansion of the use of alternative fuels, such as waste coal (Scrubgrass and Northampton); Scrubgrass Brief at 30 (waste coal that is not economic to use could become so with the infusion of income brought by ownership of the AECs. Cogentrix Stmt. 1-SR at 4).

Viking argues that the statutory text adequately demonstrates that ownership of the AECs was intended to reside with the generators in the first instance, and that the AECs then could be traded by the generators together with, or independent from, the electric energy by which it is measured. Viking Brief at 16. To support this, Viking states that Act 213 requires the Commission to assess current operating alternative energy resource facilities in the Commonwealth and to identify the potential to add capacity. This “will identify needed methods

47 to maintain or increase the relative competitiveness of the alternative energy market within this Commonwealth.” 73 P.S. § 1648.7. This, according to Viking, is a clear, statutory mandate to provide incentives to maintain and grow alternative energy resources, such as Viking’s Northumberland facility and “[A]warding ownership of the AECs to the NUGs satisfies this mandate by incentivizing the maintenance and development of alternative energy resources. In contrast, awarding ownership to the EDCs has the exact opposite effect by eliminating an incentive to develop new alternative energy resources, thereby defeating the purpose of Act 213.” Viking Brief at 18.

The NUGs argue that:

Awarding the AECs to the NUGs is an essential mechanism for directing the AEC into a revenue stream which will help offset those operating costs, allowing NUGs such as Viking’s Northumberland Facility to remain viable and continue contributing to Pennsylvania’s energy diversity. Rather than constituting a “windfall” to the NUGs, the revenue from AECs helps advance the primary goal of Act 213, stimulating the development and use of new alternative energy resources, by requiring ratepayers of EDCs to contribute to the operations of facilities that have taken the risk and borne the financial burden of producing the very type of energy the General Assembly has specified. Acknowledging that the AECs belong to the NUGs offers them an incentive to maintain current alternative energy -facilities and to build new ones. Viking Brief at 13.

The other NUGs expressed similar beliefs. At the hearing, for example, Mr. Lispi, appearing on behalf of the Harrisburg Authority, expressed his opinion that the fact that Met Ed and Penelec would be able to satisfy their Tier II requirements until 2017 without purchasing any additional AECs if the Commission finds that they belong to the EDCs. That, Mr. Lispi stated, would “depress the value of AECs in the market place, reducing the incentive to build additional renewable capacity. . . . I think that if the AECs have no value, or a limited value, then developers of alternative energy sources would have less incentive to proceed to build and operate them.” Tr. 128-129.

48 As the AECs in question here are associated with existing NUG facilities, Mr. Lispi’s observations are somewhat overreaching. In addition, there is no circumventing the fact that the AECs, in order to exist at all, are created in association with alternative energy generation. This alone creates a certain amount of incentive.

There is no indication in the Act itself that it was meant to act as a NUG welfare act. There are few requirements in the Act itself for NUGs.10 The focus is on the duties of the EDCs in purchasing or self-generating or otherwise obtaining the AECs. This approach seems intent upon spurring the development of the alternative energy market in the Commonwealth by creating a reliable market for it. There is nothing in the Act to support a finding that its intent is to create another “revenue stream” for the NUGs.

A policy argument can be made in support of the NUG position that AECs should be assigned to them under the PPAs because clearly, the Act was intended to provide economic stimulus for the generation of energy from alternative sources. In discussing PURPA, the Commonwealth Court noted that:

FERC considered and expressly rejected proposals that the rates it prescribed pursuant to section 210 should result in some savings to utility customers. Rather, FERC preferred to allocate the full savings typically realized by the cogeneration and small power production processes to the alternative producers themselves, noting that this allocation would provide the maximum encouragement of development of these resources, and the “ratepayers and the nation as a whole will benefit from the decreased reliance on scarce fossil fuels, such as oil and gas, and the more efficient use of energy.” 45 Fed. Reg. 12222. Barasch v. Pa. Publ. Util. Comm’n, et al., 546 A.2d 1296 (Pa. Cmwlth. Ct. 1988), pet. for allowance of appeal denied 523 Pa. 652, 567 A.2d 655 (1989).

The same policy reasoning would result in finding that an additional source of income for the NUGs would also provide the maximum encouragement for development of these

10 Section 1648.3(e)(3) requires qualifying energy systems to include a qualifying meter to record the cumulative electric production to verify the advanced energy credit value. 73 P.S. § 1648.3(e)(3). Commission regulations require that it be supplied by the EDC. 52 Pa. Code §75.15(b)(adopted but not effective as of the date of this ID).

49 resources, and the accompanying benefits from reduced reliance on scarce fossil fuels. A finding against the NUGs would not increase the present income of the NUGs which operate exclusively under the long-term PPAs. In addition, Viking argues that the fact that Met Ed and Penelec would be able to meet the Tier II requirements and PPL would be able to meet its Tier I requirements11 without having to take any actions which would further the use of renewable energy in the Commonwealth is not consistent with the intent of the Act. Viking Main Brief, pp. 19-20; OSBA Main Brief at 14.

However, this argument is not persuasive in light of the Pennsylvania Legislature’s advantage in drafting Act 213 that the Congress did not have in drafting PURPA. In Pennsylvania, there existed twenty-plus years of PURPA compliance, including records to establish what NUGs were in existence, what EDCs had long-term PPAs with those NUGs, and even whether the EDCs would be in compliance with the AEC requirements. As this information was available, it is fair to assume that the legislature was aware of it when drafting the legislation. If the General Assembly did not intend such a protracted timetable, it would have changed it.

ARIPPA points out that the contracts were negotiated and entered by sophisticated entities and should not be disturbed now. The EDCs indicated repeatedly that the PPAs were in the best interests of their customers and stockholders. See ARIPPA Brief at 11. In fact,

A review of each and every filing by the Companies would show the same general facts – the Companies needed the capacity, negotiated agreements at less than avoided costs and entered into PPAs which the Companies viewed as a significant benefit to not only the Company but its customers and stockholders as well. ARIPPA Brief at 12.

While this is correct, it does not come into play since there is no need to interpret the contracts themselves. 11 This assumes that PPL is entitled to the AECs associated with the electricity generated by the NUGs under the PPAs, although this is uncertain in light of the admission that PPL contracted with its affiliate, PPL EnergyPlus, LLC, for the purchase of PPL’s obligations under the PPAs. This appears to be a genuine contract issue which is not before this tribunal.

50 The Commission should not “award” the AECs to the most deserving party. The Commission is bound to interpret the statute and decide which party is intended to own them under the circumstances set forth.

ARIPPA argues that a finding that the AECs belong to the EDCs violates the U.S. Constitution Art. I, § 10 because it retroactively impairs the obligations of QF contracts under PURPA to sell electricity at avoided cost rates by requiring transfer of an additional asset and would be a violation of U.S. Constitution Amendments V and XIV because it would take the QFs’ private property for public use without just compensation. This is a classic case of setting up a straw man in order to knock it down and does not withstand analysis. Again, this argument assumes that the AECs belong to the NUGs in the first instance and have to be transferred to get into the possession of the EDCs. This is the issue in the present case and cannot be assumed in order to explain why ownership cannot be found to be in the hands of the EDCs.

It is the role that AECs play in measuring compliance that weighs heavily in favor of finding that the EDCs are the owners of the AECs measurable under the existing PPAs.

Finally, the OCA asks that the Commission require the EDCs to use their ownership of the AECs to benefit ratepayers. Met Ed/Penelec have declared their intent to use the AECs in such a fashion, ME/PN Stmt. 1, p. 16; Main Brief at 30, but PPL has indicated that there is no existing mechanism for the incorporation of any additional income or savings since it has entered an agreement with its affiliate, PPL EnergyPlus, whereby the affiliate pays to PPL the full amount that PPL must remit to its NUGs under the PPAs in return for the amount of electric output from the NUGs. “This agreement was accepted by the FERC as Service Agreement No. 166 under FERC Electric Tariff, first Revised Volume No. 5 at Docket No. ER00-2537-000.” PPL Stmt. 1-R, pp. 2-3; PPL Main Brief at 29. PPL continues by pointing out that its ratepayers are paying for the stranded costs established in the restructuring proceeding in 1998, determined on a “once and done” basis. PPL Main Brief at 29. PPL states that this cannot be reopened. PPL Stmt. 1-SR, p. 2.12

12 This is different from FirstEnergy, which have a reconciliation mechanism for NUG stranded costs to flow revenues back to ratepayers. Tr. Pp. 93-95; PPL Stmt. 1-R, p. 6.

51 It is important to remember that the rates charged by the EDCs are pursuant to duly filed and approved tariffs, imposed following a proceeding during which interested parties have the opportunity to participate in order to result in rates which are just and reasonable in accordance with the Public Utility Code. 66 Pa. C.S. § 1301. The “just and reasonable” requirement is not changed by the AEPS. There is, however, no specific provision in either the AEPS or the Public Utility Code which authorizes the Commission to require that proceeds from the sale of extra AECs be used to benefit a class of ratepayers. Other than requiring just and reasonable rates and any other issue which falls within the purview of the occasional Commission audit, the Commission cannot direct that proceeds from the sale of extra AECs be used for a particular purpose.

For the reasons set forth in this Initial Decision, the ownership of the alternative energy credits generated within the long-term power purchase agreements entered pursuant to PURPA prior to the passage of the Alternative Energy Portfolio Standards Act, 73 P.S. §§1648.1 et seq., which do not anticipate or mention the alternative energy credits, belong to the electric distribution companies.

CONCLUSIONS OF LAW

1. The Commission has jurisdiction over the parties and subject matter in this proceeding. 66 Pa. C.S. §§ 331(f), 1501; 73 P.S. § 1648.1 et seq.

2. Under subsection 331(f) of the Public Utility Code and under the Commission’s regulations, the Commission may issue declaratory orders to terminate a controversy or remove uncertainty as to the law. 66 Pa. C.S. §§ 331(f); 52 Pa. Code § 5.42.

3. The Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 8241- 3(a)-(j)(PURPA) was enacted in 1978 in conjunction with four other pieces of legislation, collectively known as the National Energy Act, in response to the rising oil prices and natural gas shortage at that time.

52 4. The FERC regulations of “avoided costs” were meant to assign the savings realized by the QFs to the producers themselves, not to the utility customers. The intent was to provide the maximum encouragement of development of the QFs. Barasch v. Pa. Publ. Util. Comm’n, 546 A.2d 1296 (Pa.Cmwlth. Ct. 1988), petition for allowance of appeal denied 523 Pa. 652, 567 A.2d 655 (1989).

5. The Commission adopted regulations to implement Section 210 of PURPA, 52 Pa. Code §§57.31-57.39.

6. The Alternative Energy Portfolio Standards Act (AEPS or Act 213 or PSA) became effective on February 28, 2005, 73 P.S. § 1648.1-1648.8. The AEPS establishes a schedule which requires the electric distribution companies (EDCs) and electric generation suppliers (EGSs) to utilize a percentage of power derived from alternative energy sources.

7. Under the AEPS, an alternative energy credit is “a tradable instrument used to establish, verify and monitor compliance with that statute. Each unit of an AEC equals one megawatt hour of electricity from an alternative energy source.” 73 P.S. § 1648.2.

8. To be considered an “alternative energy source” under the AEPS, electricity must be generated using one of the following fuels: solar photovoltaic or solar thermal energy; wind; water; geothermal energy; biomass energy; fuel cells; waste coal; biologically derived methane; coal mine methane; coal gasification; municipal solid waste; and byproducts of the pulping process and wood manufacturing process. 73 P.S. § 1648.2.

9. The Commission is bound by the rules of statutory construction in its interpretation of the Act. 1 Pa.C.S. §§ 1901--1939. Of particular importance is 1 Pa.C.S. § 1921, which provides that legislative intent shall control. Every statute shall be construed, if possible, to give effect to all of its provisions. 1 Pa.C.S. § 1921(a). Additionally, when the words of a statute are free from ambiguity, the letter of the statute is not to be disregarded in pursuit of unstated legislative intent. 1 Pa.C.S. § 1921(b). If the language is ambiguous, an agency may

53 consider a number of other factors, including prior interpretations, the purpose of the statute, legislative history, etc. 1 Pa.C.S. § 1921(c). An agency may make a number of presumptions regarding legislative intent, including that the Pennsylvania General Assembly (''General Assembly'') intends the entire statute to be effective and constitutional, and that public interest is to be favored over the private interest. 1 Pa.C.S. § 1922. Finally, the words and phrases of a statute should be interpreted consistent with their plain and ordinary meaning. 1 Pa.C.S. § 1903.

10. The purpose of an AEC is to monitor compliance with the Act. Electric distribution companies and electric generation suppliers are the entities which are required to comply with the Act. 73 P.S. §1648.3(a).

11. AECs associated with electricity sold under long-term PPAs which do not mention the disposition of AECs or RECs belong to the purchasing EDC. To hold otherwise would open the possibility that the EDCs continue to purchase power under their existing PPAs, at least partially complying with the Act’s requirement that they use this power generated from alternative sources, while the NUGs are free to sell the AECs, which is the measure of EDC compliance, elsewhere. This would force the EDCs to purchase additional AECs from other sources, if they are available, or to be forced to pay a penalty for failure to comply with the Act when, in fact, they had purchased and were using the energy generated by the NUGs – in actual compliance with the Act but unable to prove it.

12. Ownership of the AECs is not severable from the electricity until the electricity is generated. At the point of the AECs’ creation, the owner of the electricity owns the AECs. Under the PPAs, the EDCs own the electricity as soon as it is generated; therefore, they own the AECs as well.

13. Ownership rights of renewable energy credits created by state statutes should be decided by the states. American Ref-Fuel Co., et al., 105 FERC ¶ 61, 004 (October 1, 2003).

54 14. “Every rate made, demanded, or received by any public utility, or by any two or more public utilities jointly, shall be just and reasonable.” 66 Pa. C.S. § 1301.

15. Consistent with the Public Utility Code, ownership of any alternative energy credits resulting from PPAs entered into prior to the passage of the AEPS is properly assigned to the EDCs, as representatives of the ratepayers. 66 Pa. C.S. § 1301.

16. It is well settled that the Commission cannot exceed its jurisdiction and must act within it. City of Pittsburgh v. Pa. Public Utility Commission, 43 A.2d 348 (Pa. Super. Ct. 1945). Jurisdiction may not be conferred by the parties where none exists. Roberts v. Martorano, 427 Pa. 581, 235 A.2d 602. Subject matter jurisdiction is a prerequisite to the exercise of the power to decide a controversy. Cf., Hughes v. PA State Police, 619 A.2d 390 (1992), alloc. denied, 637 A.2d 293 (1993).

17. The Alternative Energy Portfolio Standards Act vests the Commission with the power to supervise, execute and enforce the provisions set forth therein. Implementation Order supra. at 6. See also 73 P.S. §1648.7(a). The Act also charges the Commission with the responsibility to “establish an alternative energy credits program as needed to implement this act.” 73 P.S. §1648.3(e)(1).

18. It would be absurd for the Commission to have the authority to establish an AEC program in the first instance, but not have the authority to determine who owns the AEC’s under the Commission’s program.

19. In addition to any powers expressly enumerated in this part, the commission shall have full power and authority, and it shall be its duty to enforce, execute and carry out, by its regulations, orders, or otherwise, all and singular, the provisions of this part, and the full intent thereof; and shall have the power to rescind or modify any such regulations or orders. The express enumeration of the powers of the commission in this part shall not exclude any power which the commission would otherwise have under any of the provisions of this part. 66 Pa. C.S. §501.

55 20. “Declaratory relief is not available unless an actual controversy exists, is imminent or inevitable.” Pennsylvania Turnpike Commission v. Hafer, 142 Pa. Commw. 502, 597 A.2d 754, 756 (Pa. Cmwlth. 1991). “A declaratory judgment is not appropriate to determine rights in anticipation of events which may never occur but is appropriate where there is imminent and inevitable litigation.” Id. Without an actual imminent or inevitable controversy, a party lacks standing to maintain a declaratory action.

21. The core concept is that a person who is not adversely affected in any way by the matter he seeks to challenge is not ‘aggrieved’ thereby and has no standing to obtain a judicial resolution of his challenge. William Penn Parking Garage, Inc. v. City of Pittsburgh, 464 Pa. 168, 192, 346 A.2d 269, 280 (1975); Silo v. Tom Ridge, et al., 728 A.2d 394, 398 (Pa. Cmwlth. Ct. 1999).

22. The issuance of a declaratory judgment is a matter of judicial discretion which should only be exercised to illuminate an existing right, status or legal relation. It may not be used to search out new legal doctrine. Doe v. Johns-Manville Corp., 324 Pa. Superior Ct. 469, 471 A.2d 1252 (1984).

23. “The Declaratory Judgments Act is broad in scope and is to be liberally construed and administered but is not without its limitation. Id.” Bloomingdale’s By Mail, Ltd. v. Com. of Pa., Dept. of Revenue, et al., 567 A.2d 773 (Pa. Cmwlth. Ct. 1989).

24. A court should look to (1) “the fitness of the issues for judicial decision,” and (2) “the hardship to the parties of withholding court consideration.” Under the “fitness for review” inquiry, a court considers whether the issues presented are purely legal, as opposed to factual, and the degree to which the challenged action is final. The various factors that enter into a court’s assessment of fitness include: whether the claim involves uncertain and contingent events that may not occur as anticipated or at all; the extent to which a claim is bound up in the facts; and whether the parties to the action are sufficiently adverse.

56 The second prong focuses on the hardship that may be entailed in denying judicial review, and the determination whether any such hardship is cognizable turns on whether the challenged action creates a “direct and immediate” dilemma for the parties, such that the lack of pre-enforcement review will put the plaintiffs to costly choices. Philadelphia Federation of Teachers v. Ridge, 1150 F.3d 319, 323 (3d Cir. 1998), as quoted in City Council of Philadelphia v. Com. of Pa., Pa. Publ. Util. Comm’n, 806 A.2d 975, 979-980 (Pa. Cmwlth. Ct. 2002) vacated and remanded 577 Pa. 518, 847 A.2d 55 (2004).

25. “It is the prerogative of the legislature and not of the commission to determine what the public policy shall be.” Bell Telephone Co. v. Driscoll, 343 Pa. 109, 117, 21 A.2d 912, 916 (1941).

ORDER

THEREFORE,

IT IS ORDERED:

1. That the Petition for a Declaratory Order Regarding the Ownership of Alternative Energy Credits and Any Environmental Attributes Associated with Non-Utility Generation Facilities Under Contract to Pennsylvania Electric Company and Metropolitan Edison Company, filed at PUC Docket No. P-00052149, is granted as follows:

(a) Alternative energy credits within the meaning of the Alternative Energy Portfolio Standards Act, 73 P.S. §§ 1648.1-1648.8, which are created by non-utility generators under power purchase agreements entered into prior to the passage of the Alternative Energy Portfolio Standards Act, and which agreements do not mention alternative energy credits or renewable energy certificates, belong to the electric distribution companies or electric generation suppliers bound by the purchase power agreements to purchase the electricity that the alternative

57 energy credits are used to measure until the expiration of the purchase power agreements.

2. That the Secretary mark this docket closed.

Dated: July 5, 2006 ______Susan D. Colwell Administrative Law Judge

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