The jurisdictional discussion in Order No. 841-A was lengthy. It could have been very short.

This blog today takes a personal turn as I relate the tale of FERC’s jurisdiction over energy storage resources (ESRs) connecting to a public utility’s distribution system to sell wholesale power. There is only reason that the tale is long (like this blog entry) – Order No. 2003.

In the bundled era, no one seemed to give much thought to the fact that FERC, and the FPC before that, regulated both the interconnection of and delivery of power to load-serving entities (LSEs), i.e., wholesale customers, connected to a public utility’s local distribution facilities. With unbundling and full open access on the horizon, however, FERC reiterated its policy in Tex-La:

“We do not agree with TU that the local distribution exception to our jurisdiction under section 201(b)(1) of the FPA precludes us from ordering under section 211 the transmission services requested by Tex-La. Section 211(a) of the FPA authorizes the Commission to require a transmitting utility: ‘to provide transmission services (including any enlargement of transmission capacity necessary to provide such services) to the applicant.’ Ordering ‘transmission services’ to the wholesale customer in this proceeding, whether or not that service consequently involves some use of facilities that may not be purely ‘transmission’ facilities, is doing no more than what we are authorized to do by the statute. It is not an assertion of jurisdiction over specific facilities, but rather is an assertion of authority to order specific services.”

With open access, the relatively few distributed energy resource (DERs) that were not QFs selling only to their host utility were typically interconnected pursuant to FERC jurisdiction.

In a case arising shortly after open access, involving interconnection service, but not delivery service for a new LSE, FERC, relying on Federal Power Act Section 210, made clear that when the FPA said that FERC could compel to electric utilities to interconnect to the “transmission facilities of any electric utility” Congress really meant “transmission or distribution facilities.” FERC explained in Laguna:

“PG&E has provided no persuasive rationale for us to read ‘transmission facilities’ in [S]ection 210 in a way that would vitiate the very purpose of the provision, i.e., the ability of an eligible applicant to obtain interconnection to a utility’s transmission grid. Under PG&E’s argument, the Commission would lack jurisdiction to order an interconnection any time nominally local distribution facilities arguably are involved. We do not believe that Congress intended for wholesale customers such as Laguna to be ineligible for an interconnection under [S]ection 210, based merely on the label attached to facilities to which they interconnect.”

Laguna stands for the simple proposition that if one electric utility asks another electric utility to interconnect, FPA Section 210 allows FERC to order that interconnection. An ESR (or any DER), that will sell electric energy presumably is an electric utility. Is the tale over? No. (Although perhaps it is over if an ESR is willing to seek interconnection service under FPA Section 210.)

In 2000, in Tennessee Power Company, FERC clarified that interconnection is a critical component of open access transmission service. In the very same year, the D.C. Circuit affirmed FERC’s assertion of jurisdiction of any wholesale transmission service (including distribution facilities), in Order No. 888, holding in TAPS v. FERC that “FERC’s assertion of jurisdiction over all wholesale transmissions, regardless of the nature of the facility, is clearly within the scope of its statutory authority.” A bright line had been set as to retail and wholesale usage of distribution. If interconnection service is transmission service and FERC has jurisdiction over all wholesale transmission service, even if it occurs on local distribution facilities, does that not mean (putting PURPA aside) that FERC has exclusive jurisdiction over: 1) interconnections to public utilities of entities buying and selling power at wholesale; and 2) the delivery of wholesale energy to or from such wholesale entities? Now, the tale must be over. Sorry, no.

How did DERs (including distributed ESRs) interconnection jurisdiction get so complicated after Tex-La, Laguna, Tennessee Power, and TAPS? Indeed, such jurisdiction got so complicated for a wholesale ESR, FERC is now saying in Order No. 841-A that “Order No. 841 did not mandate that electric storage resources must have access to the distribution system” and “Order No. 841 does not modify states’ authority to regulate the distribution system, including the terms of access.” The dissent goes further.

The tale might have ended had FERC adopted its Order No. 2003 NOPR position in Order No. 2003. In the NOPR, FERC embraced the bright line it had established in Order No. 888 and cases like those cited above, stating that it is “clear that the FPA grants federal jurisdiction over transmission by a public utility in interstate commerce and when public utilities make sales for resale in interstate commerce. Within this jurisdiction, we propose that the NOPR IA and IP will apply only when a generator interconnects to the Transmission Provider’s transmission system or makes wholesale sales in interstate commerce at either the transmission or distribution voltage level.” FERC was prepared to continue to exercise the jurisdiction it had exercised for years over interconnections of wholesale sellers (and more commonly wholesale buyers) to distribution facilities. Many states got angry. FERC blinked. Order No. 2003 was issued.

There, FERC found that some lower-voltage facilities are “local distribution” facilities not under its jurisdiction, but that some distribution facilities are used for jurisdictional service such as carrying power to or from a wholesale power customer and are included in a public utility’s OATT. Order No. 2003 was thus found to apply “to interconnections to the facilities of a public utility’s Transmission System that, at the time the interconnection is requested, may be used either to transmit electric energy in interstate commerce or to sell electric energy at wholesale in interstate commerce pursuant to a Commission-filed OATT.” The “first-use” test. The Commission also addressed QF interconnections in Order No. 2003, but did not mention that its first-use test would not apply to those QFs connected to distribution with the ability to sell to third parties, as it later would. Although the first-use test remains, the foundation on which it rested (that FERC only has authority to order interconnections to “already-used” distribution facilities), had already been abolished before the ink dried on Order No. 2003.

In Order No. 2003, FERC stated that it would exercise exclusive jurisdiction over the rates, terms, and conditions of Commission-jurisdictional service provided over “dual use distribution facilities.” But in a separate case, winding its way on appeal in the midst of the Order No. 2003 rulemaking, FERC argued that once any entity made a wholesale use of a local distribution facility, such now dual-use facility became exclusively FERC-jurisdictional. All service over dual-use distribution was FERC-jurisdictional according to FERC such that various “pieces” of each utility’s distribution system would not be subject to state jurisdiction when used by retail customers. Interestingly, this broad taking of jurisdiction from the states was challenged only by two utilities, and no states. A D.C. Circuit panel heard the Detroit Edison appeal and disagreed with FERC. The court explained that a local distribution facility used by a wholesale customer remained subject to state jurisdiction for retail purposes but that when a local distribution facility is used in a wholesale transaction, FERC has jurisdiction over that transaction pursuant to its wholesale jurisdiction under FPA § 201(b)(1). In other words, the D.C. Circuit supported a simple and clear bright line between state and federal jurisdiction over local distribution facilities. Wholesale uses belong to FERC; retail uses belong to the state. There were not in fact two “flavors” of distribution facilities each subject to the exclusive jurisdiction of either FERC or the state. FERC would have to address this new bright line on rehearing of Order No. 2003, as the case was issued too late for any commenters to use it to support FERC’s NOPR claim of jurisdiction over all wholesale DERs interconnections.

Now, those (very few) who objected to FERC’s change in position from the NOPR’s wholesale/retail test to Order No. 2003’s first-use test had strong ammunition. Well, they thought they did. One lawyer, whose name I refuse to disclose because I (oops!) failed to change FERC’s view in three separate clarification/rehearing requests, tried to use Detroit Edison to reinstate a simple bright line test. In Order No. 2003-C, FERC issued its final rejection of its NOPR claim of jurisdiction over all wholesale generator interconnections to distribution systems, explaining that asserting such jurisdiction “would allow a potential wholesale seller to cause the involuntary conversion of a facility previously used exclusively for state-jurisdictional interconnections and delivery, and subject to the exclusive jurisdiction of the state, into a facility also subject to the Commission’s interconnection jurisdiction – a result that we believe crosses the jurisdictional line established by Congress in the FPA.” (FERC expressed no concern about QFs selling to third parties and new wholesale loads causing the exact same conversion.) Had FERC instead ruled in Order No. 2003 that interconnection service was an element of transmission service and FERC has exclusive jurisdiction over all wholesale transmission even on distribution facilities, I personally believe that a court of appeals would have upheld that ruling. The selling of wholesale generator interconnection service certainly sounds like a wholesale transaction under the logic of Detroit Edison. But, FERC would not accept this position.

In short, by adopting the first-use test in Order No. 2003, FERC voluntarily narrowed its jurisdiction over wholesale usages of distribution facilities, at least as to generation interconnections. In contrast, FERC never seemed to relinquish jurisdiction over either wholesale load interconnections or any delivery service that requires the use of distribution facilities.

The entire jurisdictional portion of Order No. 841-A, thus, could not rest on cases such as Tex-La, TAPS, Detroit Edison, etc., that stand for the proposition of exclusive FERC jurisdiction over all wholesale distribution transactions (including generator interconnections) without reversing Order No. 2003’s exclusion as to some generator interconnections. In contrast, those cases, although not cited, are implicit once FERC starts discussing rates for wholesale delivery service that ESRs may have to pay to charge. The distribution delivery transaction remains exclusively FERC-jurisdictional after Order No. 2003. In Order No. 841-A, FERC stated that it “would consider any proposal to establish a rate for providing wholesale distribution service to an electric storage resource for its charging (whether a facility-specific rate, a wholesale distribution service rate that applies to all or some subset of electric storage resources, a generally applicable wholesale distribution service tariff, or any other rate mechanism) on a case-by-case basis in light of the record evidence.”

Order No. 2003 did not address FERC’s unquestioned exclusive jurisdiction over wholesale load interconnections. This point raises one final question and perhaps could have changed this tale’s ending if it had been raised in the Order No. 841 rulemaking: Just as an ESR needs an interconnection to discharge (and sell) energy, it needs an interconnection to buy the very wholesale power that Order No. 841 said it was entitled to buy. That is, an ESR is, in part, a wholesale load. Granted, an ESR may need only one physical interconnection, but rather than tying itself in knots over jurisdiction through cases such as EPSA and the “affects and relates to” clause of the FPA, a FERC ruling that the interconnection of a wholesale load to a public utility is a FERC-jurisdictional service would have been an easy way for FERC to find the interconnection jurisdiction it ceded away in Order No. 2003 as to ESRs. When one views ESRs as wholesale loads, the notion that FERC lacks authority over their interconnection to any distribution facility is implausible. The tale could have had a very different ending as to DERs that are ESRs had they been treated like LSEs.

But for now, the DERs interconnection jurisdiction tale ends with Order No. 2003. Its first-use test remains the law (except for those third-party selling QFs, some of which may well already have added storage or may add storage, and those DERs that may turn to FPA Section 210 given Laguna).

None of the discussion above is meant to undermine the argument that ESRs located on distribution systems can and likely will raise reliability, security, operational, cost causation, and myriad other difficult issues and challenges for utilities given sufficient penetration levels. Nor does the discussion above judge whether states or FERC are in a better position to address such issues. FERC likely could assert jurisdiction over wholesale interconnections and still permit a state to opt out. Rather, the discussion above is intended to point out that FERC’s distribution interconnection jurisdiction has ebbed and flowed over time. I have been lucky to have been both a frequent participant and intimate observer in these distribution interconnection jurisdiction skirmishes for over two decades. It appears such opportunities are not going away.

This blog article reflects only the personal viewpoint of its author, Jennifer Key.