The Federal Energy Regulatory Commission (“FERC”) recently proposed reforms to the interconnection regulations for small generators – those with a capacity of 20 MW or less. These reforms are meant to make the interconnection process for solar and wind faster and cheaper. Details on the proposed rules and how to participate in the currently open comment period can be found here.

It is essential to both know the rules and when the rules apply. Understanding how energy is governed – whether by federal, state, or local entities – is essential for crafting a financially successful endeavor. As Frederick R. Fucci and Natara Feller put in The Law of Clean Energy: Efficiency and Renewables, “interconnection problems and delays are the single greatest impediment to the successful installation of distributed energy equipment and are holding back the greater development of distributed resources.”

So, when will a small generation facility be impacted by FERC’s proposed reforms? When does FERC’s jurisdiction become relevant when entering into an interconnection agreement?

FERC’s Interconnection Authority

The Federal Power Act (“FPA”) was passed in 1920 and amended in 1935. With the FPA, Congress gaveFERC authority over the transmission of electricity in interstate commerce (across state lines) and the sale of that electricity at wholesale. Wholesale means selling for the purpose of resale. A retail transaction is a sale to the end user.

Broadly speaking, FERC has jurisdiction over a generator’s interconnection to the transmission grid – also known as the bulk power system. This includes transmission facilities that are, or might be, used in interstate commerce. Once the electricity is sent out into the transmission grid, it will comingle with electricity being sent across state lines and sold wholesale.

Generally, FERC does not have authority over local distribution facilities used solely in intrastate (in-state) commerce or used solely by the transmitter of the electricity. States have authority over the siting and permitting of new generators and transmission lines.

Wholesale vs. Retail for Qualifying Facilities (“QF”)

In 1978, the Public Utility Regulatory Policies Act (“PURPA”) created QFs as a category of energy producers. Generally, a QF is either a renewable energy facility with a maximum capacity of 80 MW or a “productive and beneficial” cogeneration facility.

QFs receive a wide range of regulatory benefits. For example, PURPA requires electric utilities, which were monopolies at the time of its enactment, to buy energy from QFs at competitive rates.

If a QF interconnects to sell all of its power directly to the local utility or on-site customer, then interconnection is a state issue. If a QF interconnects to sell, or affirmatively plans to sell, electricity to a third party, then FERC has jurisdiction over the interconnection.

Successfully generating and transmitting electricity are two very different goals. For small renewable generators that have any intention of ever selling electricity beyond on-site or retail, FERC’s proposed reforms are an important development.