Commissioner James Danly Dissent Regarding California Independent System Operator Corporation

Commissioner James Danly Statement
September 15, 2021
Docket No. ER21-2753-000

The California Independent System Operator Corporation (CAISO) seeks to waive not only the timelines but also the interconnection terms and conditions of its filed rate to permit the immediate interconnection of two generators.[1]  CAISO seeks this latest emergency relief because of the ongoing and persistent failure of its markets to attract and retain adequate resources to maintain reliability.[2]  I dissent from today’s order because the waiver is retroactive and therefore illegal.[3]  It also fails to satisfy at least three of the four factors of the four-factor test we apply to waiver requests: it plainly harms third parties (every other entity seeking interconnection), has undesirable consequences (creating a new emergency loophole to CAISO’s interconnection process), and is not limited in scope (it waives nearly the entire interconnection process).  Worst of all, the waiver is unnecessary—the Commission has clear authority under section 206 of the Federal Power Act (FPA) to address the emergency.[4]

 Unambiguous, uninterrupted and controlling judicial precedent holds that a utility can only charge the rate on file.  This is called the filed rate doctrine.[5]  It is a core tenet of utility regulation.  The Commission also has no authority to permit utilities to charge rates other than those on file unless there is advance notice that the rate may change or the Commission has approved a tariff allowing the utility to charge different rates prospectively.  This is called the rule against retroactive ratemaking.[6]  This rule is also a core tenet of utility regulation and is a necessary adjunct to the filed rate doctrine.  There would be little point in having rates on file if rate changes can be retroactively applied.  Both the filed rate doctrine and the rule against retroactive ratemaking also apply to non-rate terms and conditions in filed tariffs.[7]

As the D.C. Circuit very recently explained, “[t]he filed rate requirement is stringent and admits of no equitable adjustments by the Commission or this court.”[8]  Because this rule is so hard and fast, the Commission cannot retroactively waive the filed rate, even in the most compelling circumstances, including emergencies.  The Commission, however, has been in the practice of routinely granting retroactive waivers and it usually does so without even acknowledging that it has engaged in retroactive ratemaking.[9]  In many of these cases, no one opposes the waiver and thus no one can appeal the Commission’s order.  But the absence of opposition does not make the unlawful lawful.

The waiver at hand is one of several actions CAISO has recently taken to address its energy crisis.[10]  CAISO now seeks to interconnect the two generation resources at issue on September 15, 2021—today—to avert a shortfall in generation.  The majority cites a savings clause provision in the CAISO Tariff that “[t]he CAISO may apply to FERC in coordination with the [i]nterconnection [c]ustomer for a waiver of the timelines in . . . [the Generator Interconnection and Deliverability Allocation Procedures (GIDAP)] to meet the schedule required by an order, ruling, or regulation of the Governor of the State of California, the [California Public Utilities Commission (CPUC)], or the [California Energy Commission (CEC)].”[11]  The scope of this savings clause is simply too narrow to justify the approval of CAISO’s waiver request. 

Appendix DD to CAISO’s Tariff sets forth the GIDAP.  Section 8.6 of Appendix DD pertains to the Accelerated Phase II Interconnection Study Process.  It provides:

The Phase II Interconnection Study shall be completed within one hundred fifty (150) calendar days following the later of (1) the posting of the initial Interconnection Financial Security or (2) the completion of the re-assessment in preparation for the Phase II Interconnection Study under Section 7.4, where the Interconnection Request meets the following criteria: (i) the Interconnection Request was not grouped with any other Interconnection Requests during the Phase I Interconnection Study or was identified as interconnecting to a point of available transmission during the Phase I Interconnection Study, and (ii) the Interconnection Customer is able to demonstrate that the general Phase II Interconnection Study timeline under GIDAP Section 8.5 is not sufficient to accommodate the Commercial Operation Date of the Generating Facility. 

In addition to the above criteria, the CAISO may apply to FERC in coordination with the Interconnection Customer for a waiver of the timelines in this GIDAP to meet the schedule required by an order, ruling, or regulation of the Governor of the State of California, the CPUC, or the CEC.[12]

Examining section 8.6 of Appendix DD, we see that it purports to do no more than allow CAISO to apply “for a waiver of the timelines in [the] GIDAP” under certain specified circumstances, including gubernatorial orders.  That is not what CAISO requested.  CAISO’s pleading “requests a limited waiver of Section 25.1 of its tariff.”[13]  Section 25.1 is the “Applicability” sub-section of section 25 “Interconnection of Generating Units and Facilities.”  Section 25 contains more than “the timelines in [the] GIDAP.”[14]  It contains all of the interconnection requirements for all interconnection processes in the tariff.

CAISO, and the Commission, rely upon a provision that cannot serve as the basis for approving CAISO’s request.  By its own terms, the waiver provision only applies to the timelines contained within that section of the tariff (Appendix DD) and not to every interconnection-related provision throughout the whole of the tariff.  If notice is the fundamental concern underlying the filed rate doctrine and its judicially-recognized exceptions,[15] it is evident that a narrow provision related to timelines in a single appendix is insufficient to provide notice for the waiver of the applicability of all interconnection procedures and requirements throughout the entire tariff.

But even if we were to ascribe this unduly expansive request to no more than inartful pleading, the terms of section 8.6 of Appendix DD specify, unambiguously, that the provision entitles CAISO to seek waiver of only one thing: timelines.  But timelines are not the only thing that CAISO seeks to waive.  Today, the date of issuance, is the day that CAISO plans to interconnect their two generators.  Obviously, such an action would require the waiver of timelines.  But it would also require the waiver of other requirements of the interconnection process.  According to CAISO, “neither an independent study interconnection request nor a cluster study interconnection request could accommodate this interconnection in time to aid the CAISO during the late summer and early fall periods of high demand and low hydro levels.”[16]  CAISO further explains “[l]ikewise, the CAISO’s fast track interconnection process limits increases to 5 MW.  Interconnection customers cannot combine fast track interconnection requests to circumvent the 5 MW limit.”[17]   In its Answer, CAISO contends the “only petition for relief the CAISO has requested is for a single accelerated study to increase one existing interconnection customer’s capacity from 49.2 MW to 60 MW.”[18]  CAISO states that it is “merely performing common interconnection studies on an expedited basis”[19] and “ensures its studies have not taken any shortcuts or otherwise relaxed technical standards.”[20]  CAISO’s characterizations of its request obscure the full breadth of what it is requesting—the waiver of both timeline and non-timeline requirements, the latter of which are not waivable by the plain terms of section 8.6 of Appendix DD.

For example, CAISO does not state whether here, as under normal circumstances, the interconnections would follow the independent study process or cluster study process.[21]  Assuming the interconnection request would be eligible for and follow the independent study process (when the cluster process does not accommodate the desired commercial operation date), a non-exhaustive list of steps that CAISO’s tariff would ordinarily require it to take (and that the record and the order do not specifically address) include: holding a scoping meeting,[22] charging the interconnection customer the actual costs of the interconnection studies,[23] and depositing all interconnection study deposits in an interest bearing account at a bank or financial institution designated by CAISO.[24]  Similarly, a representative list of actions that CAISO’s Tariff would require of the interconnection customer (and that the record here and the order do not specifically address) includes: providing an interconnection study deposit of $150,000,[25] submitting items such as a load flow model, a site drawing, and a single-line diagram in order to initiate an interconnection request,[26] and paying the actual costs of all interconnection studies.[27]

There is no provision in the CAISO tariff that allows for a waiver of the non-timeline tariff provisions and therefore the waiver CAISO seeks, at least as to the non-timeline provisions, is retroactive.  This is true even though the interconnection itself will be in the future (later today).  By granting the waiver, the Commission holds that these two special resources did not have to comply with all of the other interconnection procedures and requirements that apply to every resource, even if timelines are waived.

CAISO argues in a footnote that its waiver request is not retroactive because “[t]his petition does not address the failure of the CAISO or the interconnection customer to comply with an existing tariff provision.”[28]  This essentially argues that since CAISO did not go ahead and interconnect the resources without the Commission’s permission, but instead plans to interconnect them after it has permission, the waiver is prospective.  CAISO is wrong.  The test for retroactivity is not whether a utility waits for permission before it bypasses its filed rate.  Everyone else seeking to interconnect has had to—and must still—comply with all the interconnection rules.  With this waiver, these two special resources are excused from their non-compliance with the terms and conditions applicable to all other resources.  This is retroactive ratemaking.

Since the waiver seeks impermissible retroactive ratemaking, we have no power to grant it and it must be denied.  But even if it were not illegally retroactive, it still fails to meet at least three of the four elements of our standard waiver test for granting waivers.  The Commission has granted waiver of tariff provisions where: (1) the applicant acted in good faith; (2) the waiver is of limited scope; (3) the waiver addresses a concrete problem; and (4) the waiver does not have undesirable consequences, such as harming third parties.[29]  While I reserve judgment as to whether CAISO’s request satisfies the first factor,[30] I do wonder how many more of CAISO’s waiver requests we can consider to be in good faith while CAISO steadfastly refuses to reform its tariff in the face of obvious market failures.  Regulation by waiver, of course, means that CAISO never has to fix anything as it can simply seek further waivers.

The second factor asks whether the waiver is of limited scope.[31]  I struggle to understand how this waiver can be claimed to be limited in scope.  It only applies to two resources but I have little doubt the majority would grant the same waiver the next time, and the next time, and indeed, every time there is an emergency.  It is also, by its own terms, exceptionally expansive: nearly the entire interconnection process, more than mere timelines, will be bypassed.  It makes one wonder how much of the tariff can be waived and while still finding a waiver to be limited in scope.  If the Commission can waive the whole interconnection process, could it waive the entire tariff? 

The third factor requires the requested waiver to address a concrete problem.[32]  This waiver does not.  The problem that CAISO faces is that it does not have emergency interconnection procedures that would allow these two resources to immediately interconnect.  That is a glaring oversight as this case aptly demonstrates.  Instead of granting this waiver, I would find that, pursuant to FPA section 206, the record already before us (CAISO’s Petition) demonstrates that the CAISO interconnection process is unjust and unreasonable because it lacks emergency procedures.  I would order CAISO to file such procedures immediately.  Emergency procedures set forth in the tariff would provide criteria by which to allow expedited interconnection.  Such a tariff provision would relieve CAISO of any accusation of arbitrary treatment of certain favored parties. The Commission would be relieved of having to face the prospect of entertaining yet more retroactive waiver requests.  As I tried to do in December 2020, I would also initiate a further section 206 investigation into why CAISO’s markets continue to fail to procure sufficient generation to meet reliability needs.

The fourth waiver factor requires the Commission to consider whether a waiver would have undesirable consequences, such as harm third parties.[33]  Allowing these two special resources to bypass the interconnection terms and conditions of the tariff harms those generators seeking interconnection, who have complied and must still comply with these provisions.  The special resources have gained a significant and privileged status—connection to the transmission system—at the expense the others. 

I am perplexed by my colleagues’ reluctance to employ our section 206 authority to address the widespread failures of CAISO’s markets.  How much more serious do the problems in California have to become for my colleagues to agree that we must take affirmative steps to address what is clearly a crisis?  A perpetual state of emergency has not been enough.  Rolling blackouts were not enough.  A routine reliance on reliability must-run agreements has not been enough.  Regular emergency CAISO filings are not enough.  Do we require a total breakdown of the CAISO power system and markets before we will act?

The primary argument I have heard against a section 206 “intervention” into the CAISO markets is the notion that we should give California a chance to sort out its own problems.  The Commission, so the argument goes, would be overstepping its authority and dictating to California what it should do.  We have given CAISO many, many chances, and CAISO has failed.  Faced with these repeated failures, we must act.  We have a duty to act when we witness CAISO’s markets fail to produce the just and reasonable rates that ensure the development and retention of sufficient generation. 

Another argument is that we will lose the ability to consult with CAISO if there is a pending 206 complaint.  This concern is animated, in part, by a special solicitude that many believe should be afforded the ISOs and RTOs.  This belief holds ISOs and RTOs in a heightened regard, viewing their actions as somehow less suspect—perhaps because they view the ISOs and RTOs as quasi-governmental.  They are not.  ISOs and RTOs are utilities, no more, no less.  Accordingly, they are subject to the Commission’s oversight and are as amenable to actions under FPA section 206 as any other utility.  I find it hard to imagine that the Commission would be as gracious and accommodating were an investor-owned utility responsible for even a fraction of the long-standing and unremediated deficiencies attributable to CAISO.[34]

Lastly, I wish to remind the Commission of its powers and its obligations.  We are an administrative agency with limited statutory authority.  We can only amend tariffs under our section 205 or section 206 authorities.[35]  We have no authority to grant retroactive waivers.[36]  And while the majority apparently disagrees with me and has declared this waiver to be prospective, I hope that today’s issuance is not another example of the Commission’s startling disregard for judicial precedent regarding the filed rate doctrine, especially in light of the D.C. Circuit’s recent rearticulation of our obligations in Oklahoma Gas.[37]

For these reasons, I respectfully dissent.