Which matters most: Cost? Price? Sales? Regulation?
Many investors no longer think of electric utility stocks primarily as dividend-rich, income-oriented investments. Instead, they have...
Is FERC overstepping its jurisdiction and attempting to force a standard into a one-size-fits-all category?
Few industry stakeholders would argue the benefits of clear, concise universal standards for interconnecting distributed generation (DG) to electric utility grids. In fact, since PURPA (the Public Utility Regulatory Policy Act) was adopted in 1978 to promote alternative energy sources and diversify the electric power industry, numerous qualifying facilities (QFs) have been successfully integrated into utility grids by adhering to rules mandated by FERC and state commissions. Many of these QFs are interconnected directly to transmission grids, where FERC's jurisdiction falls squarely within Order 888. However, FERC has raised its jurisdictional bar to establish rules for interconnecting small DG facilities of 20 MW or less-including distribution previously in the domain of state regulators.
Despite the benefits of uniformity and consistency that a national standard for DG interconnections would provide, FERC's approach may have several potential shortcomings:
- Little federal applicability. The vast majority of small DG facilities will interconnect at distribution voltages serving on-site customer loads for which states clearly have jurisdiction.
- Duplication of efforts. A universal DG standard applied by the federal government will duplicate and potentially undermine successful efforts already undertaken in states such as Texas, New York, and California, irritate state regulators, and cause confusion among DG providers and utilities alike. These efforts took months, and FERC has learned the difficulty of reaching consensus on interconnection standards. Too many players with divergent goals can cause the process to bog down into a hopeless myriad of details.
- Difficulty in implementation. States have greater flexibility than FERC to ensure that standards are consistent with state policy and utility regulations, and they also are in a better position to address any disputes that require interpretation and implementation of interconnection rules.
When FERC issued its April 2002 notice of proposed rulemaking (NOPR) on standardized interconnection agreements (IA) for generators of all sizes, DG suppliers immediately understood its significance. They seized the opportunity to capitalize on FERC's support of small DG as an economically competitive alternative to traditional central supply and delivery options. 1 However, DG supporters want a simplified, expedited application review and approval process for generators under 20 MW, for all but the most complex interconnections. DG supporters argue-with apparent justification in some cases-that utilities will stifle integration of small, low-cost generators into their grid. Sympathetic to DG concerns, FERC agreed to address rules for DG by opening a small generator interconnection advanced NOPR (ANOPR) (August 2002) and establishing a coalition composed of utilities, a Small Generator Coalition (SGC), and NARUC to streamline application processes and procedures for DG less than 2 MW and for DG between 2 MW and 20 MW via consensus agreement.
At first, it appeared that FERC might quickly develop simplified and universal interconnection standards that would address SGC and utility concerns alike. FERC pointed to recent agreements crafted by PJM and ERCOT as models that DG advocates, utilities, and many states supported to justify that such an approach could be applied universally. FERC brushed aside jurisdictional objections by reminding commenting parties that it