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Modern’s Betty Watson proposes a solution to determine jurisdiction of DERs

Image of residential rooftop solar.
Photo by Giorgio Trovato on Unsplash

On October 14, 2020, Modern Energy’s Betty Watson spoke on a panel entitled “Clash of the Commissions: Where is the Dividing Line?” at the Energy Bar Association’s Fall Forum.   This discussion couldn’t be more timely as just last month FERC introduced a landmark Order No. 2222, that is requiring regional grid operators to open their wholesale markets to behind-the-meter resources for the first time ever. These resources, commonly called distributed energy resources (DERs), include residential rooftop solar, energy efficiency, small backup generation, and battery storage. Now that FERC sees value in integrating those resources into wholesale markets, a key question is rippling through the nation’s electricity markets: which regulators have jurisdiction over these resources: state or federal?

That was the question Watson and other panelists sought to answer. Historically, states exclusively regulated “behind the retail meter” resources that fell within their distribution grid, but in Order No. 2222 FERC makes the case that DER aggregators selling power are public utilities and are therefore subject to federal oversight.  What’s at stake for the answer to this question is the long-term impact of these small scale resources on our nation’s energy transition.

Watson offered a solution to the jurisdiction question, which she referred to as “adjacent jurisdiction.”  She proposed that how the owner of a resource chooses to participate in a market — whether in the retail consumer market (state-regulated) or in the wholesale market (federal-regulated) — should determine the proper jurisdiction of the resource. She developed this solution during her time working on Solar City’s regulatory policy to shape net metering regulations.

“I see the Federal Power Act (“FPA”) language as clear when applied directly, and blurry only when looked at through the lens of paradigms past. The chosen participation model determines the jurisdiction,” Watson explained. 

Under the FPA, federal jurisdiction applies to the sale of electric energy and transmission in interstate commerce by public utilities, and state jurisdiction applies to the sale of electric energy that is not sold at wholesale. 

For example, if a resource (e.g., a solar generation facility with an associated energy storage device) elected to participate in PJM’s wholesale energy market, then FERC would have exclusive jurisdiction over the resource. On the other hand, if the same resource elected to participate under a distribution utility’s state tariff, then the applicable state commission would have exclusive jurisdiction over the resource.

“There is nothing written [in the Federal Power Act] about where a resource is located on the grid or what type of resource it is; it’s very clearly about the mode of participation…And this is the piece that we need to focus on to clarify jurisdiction,” she added.