WSPP REC Training
A Walk Through The
REC Schedule
WSPP Webinar August 24, 2011
Arnold Podgorsky
WSPP Legal Counsel
www.wrightlaw.com
Background
• Growing Renewable Portfolio Standards (RPS) requires
Renewable Energy Certificate (REC) liquidity
– REC trading assists in matching renewable resources with utility
needs
– REC trading is potentially a business opportunity
• EC and OC authorized development of Schedule
– For incorporation into WSPP Agreement
• A word about FERC jurisdiction (when REC tied to a power trade)
– Development through Contract Subcommittee with broad
participation over numerous meetings
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Overview of the Schedule
A quick summary of where we are headed today:
• REC Products (several variants)
– Unbundled (RECs alone); bundled (RECs with power)
R-2.3
– Various levels of firmness (firm, resource contingent,
facility as-run) R-2.3
– Cover all or some Environmental Attributes R-2.4
– Options for allocating risk, to seller or purchaser, of
changes in law that occur between deal signing and
delivery R-5
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Overview: RECs have Many Variants
• Remedies for non-performance (LD, and more)
R-9
• Delivery, acceptance, passage of title, mutual
cooperation R-3
• Representations and Warranties R-6
• Revisions to Confidentiality R-7
• Revisions to Uncontrollable Force R-8
• Housekeeping R-10
And then we’ll sum it up again
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REC Product Characteristics
Level 1: Product Definitions
• Firm REC/Firm Bundled REC R-2.3.1, 2.3.2
– REC, or REC and energy, must be delivered except for
Uncontrollable Force; non-performance damages available
under R-9. Energy delivered under Service Schedule C.
• Resource Contingent REC/Resource Contingent
Bundled REC R-2.3.3, 2.3.4
– REC, or REC and energy, must be delivered except for UF,
Forced Outage, Scheduled Maintenance, or Fuel Impediment
(too much/little wind, sun…) of unit in confirmation (Renewable
Energy Facility). Non-production is allocated among all
recipients. Energy delivered under Service Schedule B.
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REC Product Descriptions
• Facility As-Run REC/Facility As-Run Bundled REC R-2.3.5, 2.3.6
– REC, or REC and Energy, must be delivered only to extent of
the designated REF’s energy production (no running obligation);
non-production is allocated.
• In bundled RECs, Energy delivered under existing service
schedules (C for firm, B for resource contingent, A for as-run), with
a few modifications to B and A
– B-3.8 would make Purchaser’s reduction applicable to the REC
requirement and consistent with RO obligations, and add a
requirement that Seller inform Purchaser of Scheduled
Maintenance R-2.3.4(b)
– B-3.9 would tie a schedule reduction to an associated REC
requirement; might add a Seller notification requirement
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REC Product Descriptions
• In bundled RECs, Energy delivered under existing
service schedules (C for firm, B for resource contingent,
A for as-run, with a few modifications to B and A
– B-3.8 would make Purchaser’s reduction applicable to the REC
requirement and consistent with RO obligations, and add a
requirement that Seller inform Purchaser of Scheduled
Maintenance R-2.3.4(b)
– B-3.9 would tie a schedule reduction to an associated REC
requirement; might add a Seller notification requirement
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Defining Covered Environmental Attributes
Level 2: Defining Environmental Attributes Conveyed By
the REC
• Once the REC Product is selected, the covered EAs
need to be defined
– All Attributes R-2.4.1
• Conveys all EAs of the REF or Renewable Energy Source
(wind, sun, etc. source is designated, but not a plant)
– EAs must meet the requirements of the designed Applicable
Program (a Federal, State, or voluntary program)
– Other EAs are not conveyed (retained by Seller)
– All Attributes is default, if Confirmation does not designate one
or other. R-2.4
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Defining Covered Environmental Attributes
• Program Attributes R-2.4.2
– Conveys the RECs required to be covered by the Applicable
Program designated in the Confirmation.
– Other Environmental Attributes (whether recognized now or not),
are retained by the Seller.
• Designating an Applicable Program
– For Program Attributes, an Applicable Program must be
designated
– For All Attributes, it should be designated to obtain the minimum
attributes for that program
• Designating resources
– For All Attributes, a Renewable Energy Facility or a Renewable
Energy Resource (sun, wind, etc.) must be designated
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Allocating Risk of Changes in Law
Level 3: Allocating Risk of Change in Law to Designated
Applicable Program R-5.2
• Applies
– to changed in law between making the deal and delivery
– only if an Applicable Program is designated
• Options:
– “Regulatorily Continuing”- REC and EAs conform to the
Applicable Program on deal date (Effective Date) and Transfer
Date, so Seller takes risk of CoL
• Seller required to fix non-compliance, subject to any agreed expenditure cap
• If REC declined, but energy was received, Purchaser pays for energy
– “Not Regulatorily Continuing” – REC and EAs conform to
Applicable Program at deal date but not necessarily after;
Purchaser takes risk of CoL
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Remedies: Damages
Level 4: Damages, Capping Reimbursement of Penalties
and Alternative Compliance Payments
• Unbundled R-9.1.1
– Purchaser fails to receive, he pays: Resale Price less
Contract Price x undelivered Contract Quantity
– Seller fails to deliver, he pays: Replacement Price
less Contract Price x undelivered Contract Quantity
plus penalties and alternative compliance payments
subject to limits stated in the Confirmation
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Remedies: Damages
• Bundled:
– When price is not allocated between REC/Energy R-9.1.2(a)
• Purchaser fails to receive, he pays Contract Price less Resale Price
x undelivered Contract Quantity, plus transmission costs incurred.
– If Purchaser declined REC (but not energy), Purchaser pays for energy
at the energy Resale Price.
– If P declined energy (but not REC), P pays for REC at Contract Price
less REC Resale Price [draft has a glitch on this]
• Seller fails to deliver, he pays Replacement Price less Contract
Price x undelivered Contract Quantity, plus transmission costs
incurred, plus penalties and alternative compliance payments
subject to limits stated in the Confirmation.
– If Seller delivers energy but not REC, no payment for energy is required
(assumed the energy was not green)
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Remedies: Damages
-- When price is allocated between REC/Energy R-9.1.2(b)
•
•
•
•
Purchaser refuses to accept REC, pays Resale Price less Contract
Price
Seller fails to deliver REC, pays Replacement Price less Contract
Price
Purchaser refused to receive energy, pays Resale Price less
Contract Price
Seller fails to deliver energy, pays Replacement Price less Contract
Price
• Injunction: allowed, due to reputation concerns R-9.2
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Other Terms
Level 5: Other Terms
• Confirmation terms R-2-2 plus others
– REC Product, Contract Quantity, Contract Price,
Vintage (generation period) or Term of REC
(generation period), Transfer Date for REC,
Environmental Attributes
– Possible allocation of price
– Designate Renewable Energy Facility or Source
– Designate a Tracking System
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Delivery, Acceptance, and Title
• Delivery R-3.1.1 (Unbundled) R-3.1.2 (Bundled)
– Transfer from Seller to Purchaser of Contract Quantity
– Seller causes Tracking System to cause transfer, or transfer by
Attestation
• Acceptance R-3.1.2
– Upon Purchaser’s written confirmation to Seller of receipt in its
account via Tracking System or acceptance of Attestation;
Energy upon receipt at the delivery point
• Title R-3.1.3
– Unbundled REC, title to REC passes upon Delivery and Acceptance
– Bundled, passes upon generation of each megawatt, unless of prior
vintage, which passes upon agreed date
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Cooperation; Conveyance/Transfer
• Seller actions R-3.3.1
– Seller to provide generation information to Seller, initiate with
Tracking System and provide it with information, expedite if
Confirmation provides
• Tracking System Failure to issue R-3.3.2
– Each Party provides other with all documents and
communications, cooperate to achieve issuance; if efforts fail
Seller to provide Attestation
• Conveyance and Transfer R-3.4
– As of Delivery and title passage, Seller must transfer and convey
all rights, title, interest in the REC, and all Reporting Rights, free
and clear, etc.
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Representations and Warranties
• Seller has title to convey, free and clear R-6.1
• The REC and EAs confirm to the REC Transaction R-6.2
• If Regulatory Continuing, it conforms to Applicable
Program as of Effective Date and Delivery; if Not Reg
Continuing, then as of Effective Date R-6.3, R-6.4
• Bundled RECs include the reps and warranties of WSPP
Agreement 33. R-6.5
• Other warranties are disclaimed.
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Records; Confidentiality
• Records to be corrected to accuracy, and
payments adjusted R-7.1
• Exceptions to confidentiality R-7.2
– Purchaser can disclose to a Governmental Authority
information required to prove up the REC, provided
Purchaser takes steps to preserve confidentiality
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Uncontrollable Force
• Section 10 is conformed to include RECs R-8
• Non-production for REC due to UF is allocated
in order of Firm, Resource Contingent, As-Run,
among purchasers proportionately to their
respective entitlements
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Undecided Issues
• We look forward to discussion of any issues members
may raise; at a minimum, the following are open
– Scheduling: in Resource Contingent Bundled, Seller’s obligation
to timely inform of Scheduled Maintenance R-2.3.4 (Some
believe the obligation is prudent; some do not want to change
Schedules)
– Scheduling: in Facility As-Run Bundled: Modify A to provide for
limit of time for both Purchaser and Seller to notify of schedule
changes R-2.3.6(b)
– That a transaction is Regulatory Continuing unless specified as
Not R-5.2.2
– If Seller cannot meet obligation to address Change of Law, and
Purchaser declines REC, does Seller pay damages?
– Injunction with damages?
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More on the tour….
• Annex 1 is Definitions- they matter
• Annex 2 is a simple form of confirmation for
unbundled (yes, we need one for bundled)
• Annex 3 is a template for Attestation
• Annex 4 is under construction- terms and
phrases required under California law
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A Recap in Building a REC
• Level 1: Select a REC Product
– REC alone: firm, resource contingent, facility as-run
– REC and energy: same choices
– Resource Contingent and As-Run require designation of Renewable
Energy Facility (Plant)
• Level 2: Select Environmental Attributes
– All Attributes; Program Attributes
– Either one, you need to designate the Applicable Program
– Either one, you need to designate the REF or Renewable Energy
Resource
• Level 3: Allocate Change in Law Risk
– Regulatorily Continuing (Seller guarantees – what mean? – against
Applicable Program changes between deal date and delivery) Parties
can cap costs of Seller’s obligation
– Not Regulatory Continuing (Seller guarantees compliance with
Applicable Program only on deal date)
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A Recap in Building a REC
• Level 4: Damages, Capping Reimbursement of Penalties and
Alternative Compliance Payments
• Level 5: Other terms: REC Product, Contract Quantity, Contract
Price, Vintage (generation period) or Term of REC (generation
period), Transfer Date for REC, Environmental Attributes; possible
allocation of price; designate Renewable Energy Facility or Source;
designate a Tracking System
See the Confirmation Form
In time remaining, let’s take questions but possibly hold discussion
for next session
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Thanks for your patience
• And your attention to these details
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Contact
For more information, please contact:
Arnold Podgorsky
[email protected]
202-393-1200 (O) 703-217-1827 (Mobile)
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