Can the REC Market Self-Regulate and Remain Credible?
Can the REC Market Self-Regulate and Remain Credible?
First it was a missed filing deadline last June, then a series of stalls and unsuccessful requests for extensions. Finally, in late September 2007, the Green-e team got the message: Clean & Green (C&G), a Boulder, Colorado-based renewable energy marketer, wasn't going to come up with records for 2006 that would show its purchase of renewable energy certifications (RECs) matched its sales.
So in November, Green-e, a consumer protection and REC certification program run by San Francisco-based Center for Resource Solutions, took a step it had managed to avoid over ten years in the REC marketplace: it revoked C&G's certification , and is pursuing criminal charges against the company's principles.
For its part, C&G has closed up shop, and former C&G CEO Gerry Dameron, now with Patriot Wind, has told the Rocky Mountain News that his company voluntary withdrew from the Green-e program because it couldn't afford the auditing process that Green-e requires.
"We called Green-e and said, 'Look, we appreciate what you guys do, and we'd love to be Green-e-certified in the future, but we can't afford all the fees," he told the paper. "We can't afford to spend $6,000 a year. Our company has never made a profit, and I've never drawn a salary, not one dime."
He was traveling at press time and unavailable for comment.
Green-e concedes its process is costly, but denies that C&G backed out voluntarily and says they knew the rules when they used the Green-e seal of approval for all of 2006 and most of 2007, but then failed to submit the necessary documentation. "We cannot substantiate that Clean and Green in fact purchased as many RECs as it purports to have sold to its customers in 2006 and 2007," wrote Arthur O'Donnell, who is executive director of the Center for Resource Solutions, in a letter to Colorado Attorney General John Suthers dated January 30, 2008.
Green-e says it has no choice but to pursue the matter if it is to provide a credible deterrent against other companies failing to comply in the future - both in the REC arena, and in markets for other ecosystem services.
Indeed, validation and verification are hot issues in all ecosystem markets and all schemes involving payments for ecosystem services.
"Our first obligation is to ensure REC customers get what they pay for," said Green-e energy project manager Alex Pennock on the November, 2007 decertification of Clean & Green. "If we can't provide (accreditation) security, then Green-e has no value."
He adds that both Green-e and C&G, as well as companies that bought RECs from C&G, are looking for legal clarity in uncharted territory. "Clean & Green may well have purchased the RECs they needed, and then just not been able to handle the costs," he says. "But they haven't proven it to us, and that proof is what we offer the market."
Taking it Legal
Green-e's decertification of Clean & Green (C&G) has raised the issue of how far REC certifiers like Green-e are prepared to go to ensure the integrity of their systems. The answer seems to be: as far as the system will let them. But that might not be much of a distance.
To remain part of the Green-e marketplace, smaller participants like C&G pay a fee of around $4,000 annually plus the cost of a Certified Public Accountant (CPA) to conduct an audit, verified by Green-e, of RECs bought and sold by the participant. Larger participants, with more information to sift through, pay a higher fee.
C&G had given no indication of any problems in complying with Green-e the previous year. But from June 2007, when its 2006 documents were due, and throughout that summer, C&G consistently failed to produce their REC paperwork, leading to the November decertification.
Then Resource Solutions kicked proceedings against C&G up a notch with the January letter to Suthers informing him of concerns about C&G's clean-energy clients and hopes that he would act. In doing so, O'Donnell suggested that C&G may have defrauded the companies it sold RECs to.
"The ideal outcome would be for Clean and Green to submit the documentation necessary to verify that its customers received the RECs they paid for," O'Donnell wrote Suthers. "Failing that, enforcement action against Clean and Green may be appropriate," he added.
Resource Solutions spokesman Jeff Swenerton said the company was alerting Suthers to a potential case of fraud against C&G's customers. Such complaints can spark an attorney general's investigation into the allegations, which then proceed to trial if the subject of the complaint does not settle first. That's assuming lawyers within the attorney general's office believe a complaint is substantiated based on the communications they receive.
But in this case they didn't. Suthers spokesman Nate Strauch confirmed to Ecosystem Marketplace that although Suthers had seen Resource Solutions complaint, he would be taking no action on it. Strauch said that decision was made partly because C&G is now defunct and partly because "we can't tell based on the letter if fraud has been committed or not."
RECs on the Highway
That's not necessarily because of any communication problem in Resource Solutions' letter. Strauch said state regulators across the nation are trying to keep up with rapidly-growing environmental marketplaces in instruments like RECs and carbon credits. "Our office is still trying to deal with what constitutes a fraudulent transaction in the these marketplaces," he said.
REC trading is rising rapidly on a growing wave of retail demand for energy generated from renewable sources. According to the latest edition of Green Power Marketing in the United States, total US sales of voluntary-market "green power" rose from 8.5 million MWh in 2005 to 11.9 million in 2006. Of that figure, 6.8 million MWh were RECs and demand is expected to continue to grow at an annual clip of 35% through 2010, producing annual demand of about 40 million MWh by the end of the decade.
Corporate interest in the REC market is also ballooning. Computer chip-maker Intel recently set a record ,for the largest single corporate purchase of renewable energy ever when it bought Green-e certified RECs worth 1.3 million MWh in January, to be sourced from a variety of geothermal, wind and solar projects in the vicinity of its headquarters.
Growth rates like this in a relatively new market instrument like RECs has spurred state officials like the Colorado Attorney General to begin reviewing state laws relating to such transactions. Suthers has already expressed interest in monitoring transactions in similar markets like carbon credits and although he's taking no action on C&G "he'll be keeping an eye on things" in that regulatory space, Strauch said.
All Options Open
Suthers' decision may not be the end of the matter between Resource Solutions/Green-e and Clean and Green. Even though the attorney general has declined to take action, Green-e could still easily bring civil action against C&G in state court alleging fraudulent business practices, either on its own behalf or that of C&G's customers.
Pennock says he has not ruled out taking future legal action against C&G, but wanted to give Attorney General Suthers the opportunity to "make (C&G) customers whole."
"We feel the proper steps are to let the local authorities handle things initially," Pennock said. "We're hoping to resolve any civil cases at the local level first."
On a broader level, Pennock believes the C&G incident has been good for the Green-e brand by revealing publicly the consequences of participants not complying with the program standards. And he dismissed fears that decertification and possible legal action could unnerve some participants. "They shouldn't be nervous if they're doing the right thing," he said.
Even C&G might have avoided decertification if it had worked more closely with Green-e before the audit problems appeared, he added. "If they had notified us at the beginning of 2007, we would have done something," Pennock said. "We do help people get into compliance, but that can only work if they are being straight with us."
Rob Luke has been covering markets and environmental issues for 15 years in Europe, Asia, Australia, and North America. He lives and works in Edwardsville, Illinois, and can be reached at rob.luke (at) sbcglobal.net.