Elizabeth whittle federal and state regulatory issues

Federal and State Regulatory Issues
• As a wholesale supplier of power, a wind developer will be subject
to regulation under the Federal Power Act (FPA). The Federal
Energy Regulatory Commission (FERC) administers the FPA.
FERC has jurisdiction over both the transmission and the sale of
this power.
• Siting and related matters are subject to the jurisdiction of the
states.

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Transmission Regulatory Scheme
• Transmission service is governed by utility tariffs. In many regions,
transmission service is provided by an Independent System operator/
regional transmission organization (RTO/ISO).
• RTO/ISOs do not own the transmission assets, but have operational
control over them.
• Open-access, non-discriminatory transmission service is provided
pursuant to a Tariff on file and approved by FERC.

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Transmission Regulatory Scheme
Tariffs govern:
• Interconnection
• Transmission
• Ancillary service
• Rates
• Dispute resolution

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Interconnection
•

The interconnection process has been standardized. Each Transmission
Owner or RTO/ISO has tariff provisions governing the process from the
filing of an interconnection request to the execution of the Interconnection
Agreement.

•

While the process is standardized, there are limited regional differences
that are permitted by FERC. Milstones must be met to remain in the
interconnection queue.

•

The process includes a number of steps, many of which must be followed
by deposits. Developer must pay for the costs of all studies.
– Interconnection Request - $10,000
– System Reliability Study - $50,000
– Facility Study - $100,000
– Interconnection Agreement - $250,000 if can’t show evidence of site
control

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Sale of Power at Market-Based Rates
• FERC authorization is required to sell power at marketbased rates – even if power is sold only into the RTO/ISO
market.
• In order to obtain authority to engage in sales for resale at
market-based rates the Developer must show that:
– It lacks market power over generation
– It lacks market power over transmission
•
•

Cannot erect other barriers to entry; and
Neither it nor its affiliates engage in reciprocal deals or otherwise
abuse an affiliate relationship.
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Sale of Power at Market-Based Rates (Cont’d)
• On June 21, 2007 FERC issued Order No. 697 (119 FERC ¶
61,295), which revises some of FERC’s market-based rates
rules.
• The Final Rule is 643 pages long!
• FERC examines vertical and horizontal market power.

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Sale of Power at Market-Based Rates (Cont’d)
• Horizontal Market Power: If an entity passes the market screens
established by the FERC, the entity is presumed to lack market

power.
• If an entity fails the market screens, the entity is presumed to possess
market power and must rebut the presumption by performing the
delivered price test.

• The geographic market is usually either the seller’s “balancing
authority area” or the RTO/ISO footprint.

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Sale of Power at Market-Based Rates (Cont’d)
• Vertical Market Power: FERC assumes that no market power
exists if there is an open access transmission tariff on file.
• FERC can revoke market-based rates and impose cost-based
rates on the entity and, in some cases, the entity’s affiliates.

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Ongoing Obligations Market-Based Rates
• Once a seller obtains market based rate authority, there are
reporting obligations.
– Each quarter, the seller must report to FERC electronically
details of its activities, including Mwh sold, aggregate prices,
etc. Even if there is no activity, the report must be filed.

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Market Power Updates
– Category 1 Sellers (those marketers which own or control
500MW or less and not affiliated with a public utility with a
franchised service territory) do not have to file market power
updates periodically.
– Category 2 Sellers (those who are not Category 1) must file
updates to show that they continue to qualify. FERC
establishes a filing schedule for the periodic updates.
– All sellers must file changes in circumstances with the FERC.

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Qualifying Facility/Exempt Wholesale Generator
•

Wind projects are qualifying small power production facilities.

•

The Public Utility Regulatory Policies Act of 1978 (PURPA) required
among other things the utility, if requested, to purchase all of the output
(net) of QFs at the utility’s avoided cost.

•

Also, under PURPA, the FERC was given the authority to exempt QFs
from provisions of the FPA, including rate regulation under Section 205.

•

On August 8, 2005, Congress enacted the Energy Policy Act of 2005
(EPAct) which among other things gave FERC the authority to allow the
utility to escape from the mandatory purchase obligation if QF has nondiscriminatory access to three markets defined in the legislation.
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Qualifying Facility/Exempt Wholesale
Generator (Cont’d)
• FERC implemented EPAct and issued Order No 688, (71 FR64342
(2006), Order on reh’g, 119 FERC ¶ 61,305 (2007), which
established guidelines for utilities to escape from the mandatory
purchase obligation. FERC created three rebuttable presumptions.
• For projects with a capacity over 20MW, in “Day 2” RTO/ISO
markets, there is a rebuttable presumption that those markets are
workably competitive. The 4 Day 2 markets are Midwest ISO, New
York ISO, PJM and ISO-New England.

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Qualifying Facility/Exempt Wholesale
Generator (Cont’d)
• For projects with a capacity over 20MW, QFs located in markets
where service is provided under an open access transmission tariff
are presumed to have non-discriminatory access to markets in that

transmission provider’s territory.
• QFs with a net capacity 20MW or less are presumed to not have
non-discriminatory access to any markets.

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Qualifying Facility/Exempt Wholesale Generator
(Cont’d)
• As a result of these presumptions, many QFs with a net capacity of
greater than 20MW will no longer have local utility as an involuntary
purchaser of power. That doesn’t mean that the utility won’t
voluntarily purchase the power at an agreed upon or auction-based
price.
• If a project does not avail itself of the benefits of QF status,
developers obtain Exempt Wholesale Generator (EWG) Status.
EWGs are exempt from certain regulations under the Public Utility
Holding Company Act of 2005.

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Qualifying Facility/Exempt Wholesale
Generator (Cont’d)
• In EPAct, the Congress repealed the Public Utility Holding Company
Act of 1935, eliminating the onerous SEC-related reporting
requirements that fell on public utility holding companies.
• While the exemption from regulations as an EWG may not seem as

valuable, it is important to maintain EWG status in order to claim
certain exemptions from filing, e.g., to dispose of a facility under
FPA Section 203. (See FERC Order No. 669).
• Once EWG status is obtained, material changes in circumstances -changes in upstream ownership, etc. must be reported to FERC.
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State-Related Issues
• Many wind development requirements are under State jurisdiction. Unlike
natural gas pipelines where FERC has siting jurisdiction, siting matters are left
to the State.
• Each State has it own siting schemes. Most require an approval/certificate
from the Public Utility Commission (PUC) that the project is in the public
convenience and necessity.
• Often this review entails an environmental assessment or related environmental
document and the involvement of state environmental agencies.
• Many environmental studies are often required - - noise, bats, birds, impacts on
landowners, etc.
• Counties and towns also have authority under local zoning laws.

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State-Related Issues (Cont’d)
• States may be the administrator of renewable energy credit/RPS
standards.
• Many states also regulate the utility as a public utility, although each
may have lightened regulation or a way to obtain exemptions from

state commission jurisdiction.
• In New York, for example, developers file an application for
“lightened” regulation.

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