FERC Jurisdiction – A Matter of Policy?

When considering a federal agency’s jurisdiction, we tend to think that jurisdiction is a legal issue, not a policy issue. Certainly, a federal agency can expand or narrow its jurisdiction through a new interpretation of a Congressional mandate, but FERC of late has taken actions that indicate that it views jurisdiction, as a matter of policy untethered to FPA. As already discussed in a blog article on Order No. 2222-A, FERC waved away thirty years of legal precedent on interconnection jurisdiction over distributed QFs selling power at wholesale, to third parties providing no legal basis for its decision to decline interconnection jurisdiction as to distributed QFs selling wholesale power to DER aggregators. FERC indicated that “state and local authorities, which have traditionally regulated distributed energy resource interconnections, have the requisite experience, interest, and capacity to oversee these distribution-level interconnections.” This decision was all the more profound because an aggregation of one was permitted.

In Order No. 2222, FERC already had decided to “decline” jurisdiction over second-use DER interconnections, without any discussion of its legal authority to decline jurisdiction given to it by Congress, particularly while reserving its right to reassert jurisdiction. Remarkably, FERC even stated that jurisdiction was matter of policy, not law, noting that “the Commission may revisit this policy decision in the future.” In the same decision, FERC implicitly declined to assert jurisdiction over sales of wholesale power in interstate commerce by DERs to aggregators, once again refusing to provide the basis for its authority to decline jurisdiction or, at the very least, deregulate such sales.

The August 26, 2022 ISO New England Inc. order, however, is perhaps even more stunning in its approach to jurisdiction. FERC ruled there that an RTO and its transmission owners could determine the bounds of FERC jurisdiction under the “independent entity variation” standard.

In RTOs/ISOs, when an interconnection to distribution is FERC-jurisdictional because it involves a QF (not selling to an aggregator) selling to third-parties or a non-QF second-use interconnection, some RTOs themselves lead the interconnection process (ISO-NE, PJM), while in the other RTO/ISOs (CAISO, MISO, NYISO, SPP), the distribution owner leads the (FERC-jurisdictional) interconnection process. FERC jurisdiction over such interconnections was clearly set forth in Order Nos. 2003 and 2006. ISO-NE apparently did not feel like dealing with such FERC-jurisdictional distribution interconnections because they were too troublesome. Rather than send the task of dealing with these unquestionably FERC-jurisdictional interconnections to the distribution owners, it and its transmission owners proposed that FERC make these formerly FERC-jurisdictional interconnections, state-jurisdictional. The order states that the “Filing Parties propose to revise the definition of Administered Transmission System in Schedules 22, 23, and 25 of the OATT by removing the term ‘distribution facilities that are subject to the Tariff,’ which will have the effect of requiring that new DERs interconnecting to distribution facilities always proceed through the applicable state interconnection process.” That is, the Filing Parties asked for a change not only in who would lead the interconnection process but for a change in jurisdiction over the process.

FERC accepted the proposal, even though the proposal now confuses the state of FERC-jurisdictional interconnections further, as there are five RTOs/ISOs where certain DER interconnections remain FERC-jurisdictional unless an aggregator is involved and one small corner of the United States where all DER interconnections are now state-jurisdictional. FERC’s reasoning was that the Filing Parties could effectuate a change in FERC jurisdiction due to the “independent entity variation” standard. According to FERC, that standard permits an RTO/ISO to propose for the Commission’s consideration interconnection procedures, including procedures that change FERC’s jurisdiction, that are responsive to a specific regional need. Order Nos. 2003 and 2006 are mentioned, but not with regard to their jurisdictional findings. The orders are cited because the proposal advanced the objectives of Order Nos. 2003 and 2006 “by increasing energy supply and lowering wholesale prices for customers by increasing the number and variety of new generation that will compete in the wholesale electricity market, while ensuring processes are in place to preserve reliability.”

Certainly, the existing jurisdictional scheme for DER interconnections, which varies by QF status, the first/second-use test, and whether the DER is in aggregation, is highly convoluted and could be simplified by FERC reinterpreting the FPA to hold that its lack of jurisdiction over local distribution facilities means a lack of jurisdiction over distribution interconnections. That is, FERC could actually reverse its existing legal precedent and provide a reasoned basis for doing so. Instead, here, FERC held that an ISO or RTO and its TOs has the authority to file to change FERC’s jurisdiction. Taken at face value, under the independent entity standard, an RTO or ISO could propose that all transmission-level interconnections be subject to state jurisdiction because transmission interconnections are too burdensome and the RTO/ISO interconnection process too slow. Although some might argue that FERC would not approve such a request, FERC (in theory) could find that interconnection service is not transmission service and that it only need to assert jurisdiction over interconnection service pursuant to FPA Section 210.

Such a freewheeling approach to jurisdiction as adopted in ISO New England could come back to haunt FERC, particularly as those that favor a DERs opt-out may now ask FERC to shift all DER interconnection jurisdiction to state and local authorities that share their views.