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05 October 2020
Order No. 2222 goes to great length explaining why DER aggregators selling power are public utilities making FERC-jurisdictional sales under FPA Section 205. FERC holds "to the extent that a distributed energy resource aggregator's transaction in RTO/ISO markets entails the injection of electric energy onto the grid and a sale of that energy for resale in wholesale electric markets, we find that the Commission has jurisdiction over such wholesale sales." And, "to the extent a distributed energy resource aggregator makes sales of electric energy into RTO/ISO markets, it will be considered a public utility subject to the Commission's jurisdiction." This holding is no surprise. FERC has said for decades that sales by DERs at wholesale are FERC-jurisdictional. (The focus of this article is DERs not subject to an exemption under FPA Section 201(f).) A decade ago the Commission stated in CPUC:
We deny SMUD's request that the Commission clarify that distribution-level facilities and distribution-level feed-in tariffs do not implicate Commission jurisdiction. The FPA grants the Commission exclusive jurisdiction to regulate sales for resale of electric energy and transmission in interstate commerce by public utilities. The Commission's FPA authority to regulate sales for resale of electric energy and transmission in interstate commerce by public utilities is not dependent on the location of generation or transmission facilities, but rather on the definition of, as particularly relevant here, wholesale sales contained in the FPA.
FERC states it is "only exercising jurisdiction in this final rule over the sales by distributed energy resource aggregators into the RTO/ISO markets. Hence, an individual distributed energy resource's participation in a distributed energy resource aggregation would not cause that individual resource to become subject to requirements applicable to Commission-jurisdictional public utilities." But, it never explains why. The mystery presented is why the DER participants in an aggregation that sell FERC-jurisdictional products (i.e., largely products other than demand response) are not public utilities whose wholesale sales are subject to FERC jurisdiction and regulation. An explanation would better serve the public.
One could argue that FERC was correct to not exercise jurisdiction on the grounds that a DER's sales are not in interstate commerce or occur on distribution facilities. But, such findings would turn 50 years of jurisprudence on its head. Indeed, these arguments were rejected a decade ago in CPUC. There, SMUD argued that "sales of power under distribution-level feed-in tariffs cannot be interstate commerce because the power sold does not enter the bulk transmission system or interstate commerce, but remains on the state-regulated distribution system." SMUD also argued that "distribution-level facilities and distribution-level feed-in tariffs do not implicate Commission jurisdiction because FPA section 201(b)(1) explicitly excludes from Commission jurisdiction facilities used in local distribution and any unbundled retail service occurring over those facilities." FERC flatly rejected these arguments. Here, even more clearly, the DER is selling to an entity (the aggregator) who is reselling the power in interstate commerce. (Indeed, if the aggregator never takes title, but acts like a broker, it is the entity that should be exempt from regulation under existing case law.)
Moreover, many generators sell power at the generator bus rather than transmitting it anywhere, due to the interconnection-related tax law safe harbor or because they sell power to a power marketing affiliate that performs all marketing functions. Such generators are, like DER aggregation participants, selling their power before it reaches the distribution or transmission system.
FERC and the industry would be better served by FERC explicitly exempting DER aggregation participants from all or virtually all public utility regulations and exempting their sales from the various requirements of FPA Section 205. Such an approach ensures FERC maintains its general jurisdiction over wholesale sales and those who make them. The possible justifications for a regulatory exemption are many. FERC could hold: 1) Such regulation is unnecessary if the aggregator is regulated instead; 2) Such regulation would undermine the economics of aggregations of DERs other than of QFs (who already enjoy most of the needed exemptions); 3) Such regulation would overburden FERC's own resources.
The "unstated" holding is problematic because it could be turned into an argument by states that the DER participants' sales must not be wholesale sales in interstate commerce, undermining FERC's assertion of jurisdiction over sales by (non-QF) DERs outside of aggregations, jurisdiction that it clearly seeks to maintain. FERC should solve the mystery and not undermine its own existing jurisdiction by remaining silent. Even better, the regulatory text should memorialize the exact scope of the regulatory exemption.
For further information on this topic please contact Jennifer L Key at Steptoe & Johnson LLP by telephone (+1 202 429 3000) or email (firstname.lastname@example.org). The Steptoe & Johnson LLP website can be accessed at www.steptoe.com.
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