Item E-1: Commissioner James Danly Dissent Regarding participation of Distributed Energy Resource Aggregations in Markets Operated by RTOs and ISOs

Commissioner James Danly Statement
March 18, 2021
Docket No. RM18-9-002
Order:  E-1

I dissent from this order on rehearing of Order No. 2222, the Commission’s distributed energy resource aggregations mandate, for the same reasons that I dissented from the original.[1]  It oversteps the reasonable exercise of the Commission’s authority at the expense of the states.  I am surprised and disappointed that no party sought rehearing of the Commission’s decision not to establish a state opt-out—if parties, especially states, do not vigorously advocate for their own interests before the Commission, their failure denies the Commission the record evidence it needs to weigh the issues at stake in our proceedings and, more critically, they deprive themselves of a vehicle for appeal.

I acknowledge the recent cases upon which the Commission relies to exercise its jurisdiction in this order, but these cases concerned whether the Commission possesses claimed authority, reserving the question of whether the Commission has discretion to exercise it.[2]  Clearly the Commission has the power, exclusive jurisdiction or not, to establish a state opt-out.[3]  I would decline to exercise our jurisdiction to obstruct the states from asserting authority over distributed energy resource aggregations.  The Commission owes fidelity to the clear division of jurisdiction between the federal government and the states, a due regard for federalism that is embedded in the very structure of the Federal Power Act (FPA).  This order unnecessarily invades an area best left to the states, burdening them with another of our Good Ideas, the details of which we leave them to figure out, and the burdens of which we leave to them to bear.

And, as always, this decision, which flies in the face of the division of state and federal authority in the FPA, will inevitably lead to more conflicting and incoherent law in which no principled basis can be adduced for why the Commission embraces some actions while at the same time refusing to countenance others.  Put another way:  blurred lines create fuzzy results.  For example, the Commission ruled in Order No. 2222 that it has jurisdiction and chose to exercise it over the electricity sales of distributed energy resource aggregations.  Or, as we summarized it in today’s order,

the Commission found that it has jurisdiction to decide which entities may participate in wholesale markets, which means that a [relevant electric retail regulatory authority (RERRA)] cannot broadly prohibit the participation in RTO/ISO markets of all distributed energy resources or of all distributed energy resource aggregators, as doing so would intrude upon the Commission’s statutory authority to ensure that wholesale electricity markets produce just and reasonable rates.[4]

The Commission’s assertion of authority over “RERRAs,” including “states,” includes electricity sales by qualifying facilities even if the qualifying facility is the sole entity in a distributed energy resource aggregation, which, by the by, strikes me as loading the term “aggregation” with quite a bit more weight than it can reasonably bear.[5]  

As if to intentionally muddy the waters, we then “clarify” on rehearing that “we decline to exercise our jurisdiction over the interconnections of distributed energy resources” that also are qualifying facilities that participate in a distributed energy resource aggregation.[6]  This also is true even if the qualifying facility is the sole entity in a distributed energy resource aggregation.[7]  We decline this latter exercise of our authority “to avoid a significant increase in the number of distribution-level [qualifying facility (QF)] interconnections subject to the Commission’s jurisdiction, which . . . could create uncertainty and potentially impose an overwhelming burden on RTOs/ISOs.”[8]  We also cite the “confluence of local, state, and federal authorities over QF distributed energy resource interconnections.”[9]

I agree wholeheartedly with every word of that.  And these are the exact same excellent reasons to decline to exercise any authority we may have over distributed energy resource aggregations in the first place.  It is difficult to square these two outcomes.  Either we have jurisdiction over “aggregations” of QF power that allows us to prevent the states from prohibiting QFs from selling in the RTO markets, or we do not.  But once we have asserted that we do have such jurisdiction over aggregators selling power generated by QFs interconnected at the distribution level, it is odd indeed to then disclaim jurisdiction over the QF’s interconnections.  These are the kinds of inconsistent determinations that inevitably arise when the Commission goes too far in exercising its discretion to assert its jurisdiction absent a principled basis.  This inconsistency counsels strongly for prudent, deliberate action before the Commission usurps the states’ already diminishing power.

My point is not that I want the Commission to exercise jurisdiction over QF interconnections at the distribution level, but that I prefer that the Commission stay out of the way when it can—as it certainly can here—and let the states exercise their own authority to the maximum extent possible over distribution systems and retail sales.  A free enterprise market system might also develop and do a better job than the Commission at efficiently allocating resources to the development of distributed energy resources.  I prefer that free-market, local approach over drawing arbitrary lines between Commission and “RERRA” authority, such as over the sales but not the interconnections of QFs participating—even as the sole entity—in distributed energy resource aggregations.

We saw the same jurisdictional inconsistencies when it came to demand response.  The Commission previously required (some assert, “allowed”) wholesale demand response programs to permit states to opt out.[10]  In Order No. 2222, the Commission worked itself into fits to assert jurisdiction over distributed energy resource aggregations, which include many demand response resources, without detracting from the state opt-out the Commission previously required (or “allowed”) for wholesale demand response programs.[11]  Today we issue a Notice of Inquiry aimed at eliminating the state opt-out for demand response.[12]  While one may see this as an admirable first, if small, step toward consistency, it would have been better, and consistent from the outset, if the Commission simply honored the states and their decision whether or not to participate in wholesale programs.  

But the inconsistency is not cabined merely to this genus of Commission-created wholesale program—no, it is seen in nearly all the Commission’s treatment of our jurisdictional markets.  The same Commission that asserts jurisdiction over distribution resources and demand response, seemingly to “protect” the wholesale markets, enthusiastically permits the states to suppress wholesale capacity market prices through renewable subsidy programs.  We issue such an order today in a ruling that—inexplicably—holds that an expansive Virginia tax break that overwhelmingly targets new solar resources is not a state subsidy under PJM’s minimum offer price rule because other types of pollution controls also qualify for the relief.[13]  The notion that the Commission acts to protect wholesale markets when it deprives the states of their authority over local concerns that may affect those markets cannot be squared with our simultaneous decisions granting the states broad latitude to distort the same markets. 

As a final thought, I would simply issue a warning.  The Commission’s longstanding policy has been to promote the development of RTOs and ISOs.[14]  As the march of federal overreach into the retail and distribution operations of RTO participants proceeds apace, it becomes increasingly difficult to imagine why any utility that has not already joined an RTO would even consider joining or forming a new one.  Assertion of jurisdiction, especially when exercised inconsistently and in tension with the statute, will do nothing to encourage the development of our markets. 

In sum, I would decline to exercise our jurisdiction over distributed energy resource aggregations, including both the sales and interconnections of qualifying facilities participating in a distributed energy resource aggregation, whether the sole resource in the aggregation or not.

For these reasons, I respectfully dissent.