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Commission Watch

Feds seek plug-and-play for distributed generation, but utilities want the power to stay local.
Fortnightly Magazine - November 15 2003

one industry group, and distribution lines connected to DG fall under FERC purview, then the jurisdictional divide between the states and the federal government will have collapsed.

The CPUC takes a contrary view. It claims, "small generators have no actual or legitimate need for FERC assistance to cover interconnections to state-jurisdictional facilities in states where DG interconnections rules are already in place."

Representing the state PUCs, the National Association of Regulatory Utility Commissioners (NARUC) urges FERC to withdraw its proposal, saying it has no practical purpose or effect, since the matter is better handled at the state or local level. That's because FERC would limit its proposed rule to units with a capacity of 20 MW or less-units that could interconnect with interstate transmission lines (subject to FERC authority), but just as often would link up with "local distribution" lines that fall under state control, excluded from FERC oversight by the Federal Power Act and by the "bright line" doctrine of various Supreme Court decisions.

But in a creative move, FERC solves this concern by creating a new jurisdictional category, which it calls "dual-use." According to FERC, if a distribution line or grid asset is already being used for a wholesale power transaction in interstate commerce, then FERC can classify the facility as dual-use, and can regulate the interconnection itself (rates, costs, procedure and agreement), as if it were a separate interstate transaction, even though the FPA would reserve exclusive state PUC jurisdiction for the facility, as part of the local distribution system.

A host of utilities and state PUCs attack this dual-use theory, saying it is concocted simply to allow FERC lawfully to propose the rule, and unsupported in the statute and inconsistent with the FERC's own precedent. (FERC had declared in Order 888 that it would treat grid facilities as either transmission or distribution-but not both simultaneously-and provided a seven-factor functional test in that decision to govern the interpretation.)

The utilities and regulators add that FERC's dual-use theory runs afoul of a ruling from the federal appeals court in Washington, D.C., issued this past summer on whether the Midwest Independent System Operator could attach its wholesale tariffs to services using local distribution lines.

PacifiCorp, in particular, points out that FERC's dual-use concept could produce "absurd" results: "Two small generators may request interconnection to the same 34.5-kV line, and one may be subject to federal rules and the other to state rules, because one intends to sell to the wholesale market and the other to enter a PURPA contract."

NARUC asks why the industry should want three separate regulatory regimes for gen plant interconnections: (1) A FERC-imposed scheme for small-scale units connected to transmission lines and to dual-use distribution lines; (2) various state-imposed regimes for small-scale units linked to distribution lines other than dual-use; plus (3) a FERC-imposed interconnection regime for plants larger than 20 MW.

(That rule was finalized on the same day that FERC proposed its small-unit rule. )

Safe Harbors and False Positives

FERC's proposed DG regime would divide the field into high- and low-voltage interconnections (above and