A non-utility entity generated electricity from the burning of coal waste, waste that otherwise would have required disposal.  This generator sold the electricity to a regulated utility for distribution on to the grid, per the terms of a long-standing power purchase agreement.

During the term of this generator/distributor relationship in 2005, the Pennsylvania legislature mandated that regulated utilities distribute a certain amount of electricity from renewable sources.  To establish, verify, and monitor compliance with the act, Pennsylvania created tradable “alternative energy credits.”  A regulated utility must have either produced electricity from its own alternative energy sources to generate credits, or purchased credits from an alternative energy source. 

This particular generator/distributor relationship created these alternative energy credits that had value in the market place.  Because these valuable credits did not exist at the time of the contract creation, the old power purchase agreement, of course, was silent as to who owned these credits: the generator or the distributor. 

Who owns the credits?

This spring, a Pennsylvania court determined that the distributor owned the alternative energy credits.  Because the legislature created the credits to measure the distribution company’s compliance with its distribution of electricity from renewable sources, the distribution company needed the credits to measure its purchases. Without owning the credits, a distribution company would have to buy additional credits in the market to cover the credits it wasn’t allowed to use from the alternative electricity it already purchased from the generator.