Can a Colorado rural electric co-op require a homeowner with rooftop solar to hand over the renewable energy credits, free of charge, just to be allowed to interconnect to the grid?

Opinion 11-01: Cooperative electric associations cannot demand uncompensated transfer of customer renewable energy credits as a condition for interconnection

Plain-English summary

Colorado's renewable energy standard (§ 40-2-124(1)(c)) required investor-owned and cooperative utilities to source a defined percentage of their generating capacity from renewables by 2020. Utilities could meet that target by earning or buying renewable energy credits, RECs. When a residential or business customer installed solar, the customer earned the RECs corresponding to the energy produced. Those RECs are tradeable: 4 C.C.R. 723-3, § 3652(n) and (o), and § 3659(a) treated them as property of the customer that the customer could sell.

The Governor's Energy Office (GEO) ran a rebate program. In exchange for the rebate, the customer assigned the RECs to GEO. While running the program, GEO discovered that some rural electric cooperatives were doing something else: they were requiring customers to assign the RECs to the co-op, with no compensation, as a precondition to interconnect their solar systems to the co-op's grid for net metering.

The AG said that practice was unlawful. Net metering was statutorily required for cooperative electric associations under § 40-9.5-118(2). The PUC's interconnection rules listed specific "screens" a customer's system had to pass; if it passed, the utility had to grant interconnection within five business days under 4 C.C.R. 723-3, § 3665(c)(II)(B). Transferring the RECs was not one of those screens. So conditioning interconnection on REC assignment was an unreasonable burden on interconnection, prohibited by § 40-9.5-118(2)(d). And in cases where GEO had rebated the customer, the customer was legally bound to assign the RECs to GEO, so the customer literally could not transfer them to the co-op.

Currency note

This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. Colorado's renewable energy standard, REC market, and net-metering rules have evolved substantially since 2011.

Background and statutory framework

Colorado's renewable energy standard was created by ballot in 2004 (Amendment 37) and expanded several times. By 2010, § 40-2-124(1)(c) required defined percentages of utility generation from renewables. Compliance was tracked in RECs, which represented the energy and environmental attributes of renewable generation and were tradeable as a commodity (4 C.C.R. 723-3, § 3652(n)).

For investor-owned utilities like Xcel and Black Hills, the PUC's framework allowed three REC pathways: (1) the utility builds and finances its own renewable system and owns the RECs; (2) the utility pays customers for RECs through rebates; (3) the utility purchases RECs from out-of-state systems. In each pathway, RECs had a price.

Net metering was a separate mechanism (§ 40-2-124(1)(e); 4 C.C.R. 723-3, § 3664). It required utilities to credit a customer for excess electricity fed back into the grid. Cooperative electric associations were specifically required to offer net metering under § 40-9.5-118(2). Cooperative associations were also required to comply with PUC interconnection standards under § 40-9.5-118(2)(d), which prohibited them from "unreasonably burdening" interconnections.

The PUC's interconnection rule, 4 C.C.R. 723-3, § 3665(c), set out technical screens (system size, voltage, distribution feeder capacity, etc.). Subsection (II)(B) said that if the proposed interconnection passed the screens, "the interconnection request shall be approved and the utility will provide [an] executable interconnection agreement within five business days."

What the AG concluded at the time

Forced REC transfer was not among the interconnection screens

The PUC interconnection rule was specific: if the customer met the listed technical screens, the utility had to approve. The rule did not list REC transfer as a screen, and the AG read § 3665(c)(II)(B) as a mandatory approval requirement. Adding a REC-transfer condition was therefore extra-regulatory.

A condition not in the rule was an "unreasonable burden"

Section 40-9.5-118(2)(d) prohibited cooperative associations from imposing unreasonable burdens on interconnections. The AG concluded that requiring the uncompensated transfer of a property right (the customer's RECs) to receive a service the co-op was statutorily required to provide (net metering) was such a burden. The AG framed the analysis as a question of legal authority: there was simply no statutory or regulatory authority allowing a co-op to demand the RECs as a condition.

Where GEO rebates were involved, the transfer was impossible

Independent of the unreasonable-burden analysis, the AG flagged that customers who had taken GEO rebates had already contractually transferred their RECs to GEO. Those RECs no longer belonged to the customer, so a co-op's demand for transfer was unenforceable, and the customer's compliance would have been a breach of the GEO rebate agreement.

Common questions

Could a co-op buy the RECs from the customer at fair market value?

The opinion focused on the no-compensation condition. Buying RECs from the customer at a price (under a freely-negotiated agreement) would have been outside the AG's holding. The opinion was about coerced transfer as an interconnection prerequisite, not about voluntary REC sales.

Did this opinion address investor-owned utilities like Xcel?

Indirectly. The PUC's interconnection rules applied to investor-owned utilities, and the same logic (REC transfer not being on the screen list) would have applied. But the question presented was about cooperative electric associations, and the opinion's framing was specific to § 40-9.5-118(2)(d).

Could a co-op condition interconnection on something other than RECs, like a connection fee or technical upgrades to its distribution lines?

The opinion did not address that question directly. The PUC interconnection rules permitted certain cost-allocation rules and technical-upgrade obligations on the customer's side. Whether a particular fee or upgrade requirement was "reasonable" under § 40-9.5-118(2)(d) would have been a fact-specific inquiry.

What if the customer wanted to give the RECs to the co-op anyway?

The opinion only said co-ops could not require it. A customer's voluntary, uncoerced gift or sale of RECs would have been outside the holding.

Citations

• C.R.S. § 40-2-124(1)(c) (2010) — renewable energy standard for investor-owned and cooperative utilities.
• C.R.S. § 40-2-124(1)(e) (2010) — statutory authorization for net metering.
• C.R.S. § 40-9.5-118(2) (2010) — requirement that cooperative electric associations allow customer net metering.
• C.R.S. § 40-9.5-118(2)(d) (2010) — prohibition on unreasonably burdening interconnections.
• 4 C.C.R. 723-3, § 3652(n), (o); § 3659(a) — RECs as property of the customer who installed the system.
• 4 C.C.R. 723-3, § 3664 — net metering implementation rule.
• 4 C.C.R. 723-3, § 3665(c) — interconnection screens.
• 4 C.C.R. 723-3, § 3665(c)(II)(B) — mandatory approval and 5-business-day executable interconnection agreement on passage of the screens.

Source

• Landing page: https://coag.gov/attorney-general-opinions/
• Original PDF: https://coag.gov/app/uploads/2019/08/No.-11-1-Concerning-the-Transfer-of-a-Customers-Renewable-Energy-Credits-to-a-Cooperative-Electric-Association-Upon-Connection-to-its-Electric-Distribution-System.pdf

Original opinion text

STATE OF COLORADO

John W. Suthers
Attorney General

DEPARTMENT OF LAW

Cynthia H. Coffman
Chief Deputy Attorney General

Office of the Attorney General
State Services Building
1525 Sherman Street - 7th Floor
Denver, Colorado 80203
Phone (303) 866-4500

Daniel D. Domenico
Solicitor General

FORMAL OPINION OF JOHN W. SUTHERS Attorney General

No. 11-01
AG Alpha No. EC AD AGBDK
January 13, 2011

This opinion, requested by the Director of the Colorado Governor's Energy Office, concerns application of Colorado law to interconnection agreements between cooperative electric associations and their customers who install renewable energy systems.

QUESTION PRESENTED AND CONCLUSION

Question: Is it legal for a cooperative electric association to require, as a condition for connecting a customer's renewable energy system to the association's electric distribution system, that the customer transfer the customer's renewable energy credits to the association without compensation?

Answer: There is no legal authority for cooperative electric associations to require customers to transfer their renewable energy credits free of charge to the association as a condition to connect the customer's renewable energy generating equipment to the association's distribution system. Such conditions are unauthorized and an unreasonable burden on interconnections and thus are contrary to law.

BACKGROUND

State law requires that investor-owned and cooperative electric utilities in the State of Colorado obtain a certain percent of their electric generating capacity from renewable energy sources by the year 2020. § 40-2-124(1)(c), C.R.S. (2010). Utilities can meet this renewable energy standard by earning and buying renewable energy credits. Renewable energy credits are a measure of electricity generating capacity produced by renewable energy systems. A utility may, for example, earn such credits by installing photovoltaic (solar-generated electricity) systems as a part of its electricity generating capacity. It may also purchase credits from homeowners and businesses who install solar-generated electricity systems. When a utility customer installs a renewable energy system, the customer earns, and thus owns, a corresponding number of renewable energy credits. The number of credits is determined by the amount of renewable energy produced by the customer's system.

Renewable energy credits have monetary value associated with the energy and environmental attributes of renewable energy systems. They can be sold and traded like a commodity, and a customer who installs a renewable energy system has a contractual right to the credits created by installing the system. 4 CCR 723-3, § 3652(n); 4 CCR 723-3, §§ 3652(o), 3659(a). In the case of the regulated qualifying retail utilities such as Xcel Energy and Black Hills Energy, the utilities handle renewable energy credits in three different ways, each of which assigns a value to the credits associated with the energy produced from the renewable energy systems. The qualifying utilities either: (1) build and finance the renewable energy system and therefore own the credits; (2) pay for credits through direct rebates for the systems; or (3) pay for credits from out-of-state renewable energy systems through purchase transactions.

To encourage the development and use of renewable energy, many utilities and some government entities, including the Governor's Energy Office (GEO), subsidize the installation and use of renewable energy systems by offering rebates on such systems. For example, a utility may pay for a portion of a renewable energy system that a customer installs in the form of a rebate. In exchange for the rebate, the customer agrees to transfer the renewable energy credits to the utility and to feed excess electricity back into the electric grid, thus helping the utility meet the renewable energy standard.

As an additional incentive to install renewable energy systems, state statutes and regulations allow a customer's renewable energy generation to be "net-metered." This means that excess electricity generated by the customer is fed back into the utility's electricity grid, and the utility must pay the customer for that electricity. § 40-2-124(1)(e), C.R.S. (2010); 4 CCR 723-3, § 3664. Net-metering not only helps the utility meet the renewable energy standard, it also benefits the entire electric grid by diversifying electricity generation and thus helping to strengthen and stabilize the electric grid and its reliability.

In order to accomplish net-metering, a customer's generating system must be connected to the utility's electricity distribution system. Since such connections, called "interconnections," must be done consistent with the technical specifications of the utility's electrical system, the Colorado Public Utilities Commission (PUC) has adopted rules governing such interconnections. These rules provide, inter alia, that if a customer/generator meets certain specified conditions called "screens," the interconnection must be granted by the utility. 4 CCR 723-3, § 3665(c).

As a part of its rebate program, the GEO requires customers who receive a rebate for a renewable energy system from the GEO to transfer the resulting renewable energy credits to the GEO. While implementing its rebate program, the GEO discovered that certain cooperative electric associations are requiring customers to transfer their renewable energy credits to the association as a condition for interconnecting even though the association did not provide a rebate or other incentive for the renewable energy system, and did not provide any compensation to the customer for the credits.

DISCUSSION

Cooperative electric associations are required to allow customer net-metering. § 40-9.5-118(2), C.R.S. (2010). They are also required to comply with the PUC's interconnection standards for net-metering. The PUC has promulgated interconnection standards. 4 CCR 723-3, §§ 3000, 3650 - 3665. Those standards prohibit cooperative electric associations from unreasonably burdening interconnections. § 40-9.5-118(2)(d), C.R.S. (2010). They provide, inter alia, that if certain "screens" are met, the utility must grant the customer's interconnection application:

If the proposed interconnection passes the screens, the interconnection request shall be approved and the utility will provide the [interconnection customer] an executable interconnection agreement within five business days...

4 CCR 723-3, § 3665(c)(II)(B) (italics added). Transferring the customer's renewable energy credits to the utility without compensation is not one of those criteria, and such a condition is, therefore, an unreasonable burden on interconnections and contrary to law. Cooperative electric associations are, therefore, without authority to require the transfer of a customer's credits without compensation as a condition to interconnect to the association's electric system.

In the case of renewable energy systems for which the GEO has provided a rebate or other subsidy, a customer cannot legally transfer the credits to a cooperative electric association because of the customer's rebate agreement with the GEO. Under such agreements, the customer must transfer the credits to the GEO. The cooperative electric association, therefore, cannot require the customer to transfer the renewable energy credits to it as a prerequisite to interconnection because the credits legally belong to the GEO and the customer is legally prohibited from making the transfer.

CONCLUSION

Cooperative electric associations are without authority to require the transfer of a customer's renewable energy credits without compensation as a condition for an interconnection. Such conditions are an unreasonable burden on interconnections and, therefore, contrary to law.

Issued this 13th day of January, 2011.

JOHN W. SUTHERS
Colorado Attorney General