Welcome to Legal Brief. It is a pleasure to be a part of this timely new publication. In each issue of the magazine, this column will discuss legal and regulatory developments impacting distributed generation. To that end, I welcome comments, questions, and suggestions from our readers. I can be contacted at the mailing address for DISTRIBUTED ENERGY or by e-mail at flgreenberg@flglaw.com.

To place distributed energy in context, let's look back 25 years to when US Congress enacted the Public Utility Regulatory Policies Act of 1978 (PURPA), the law that jump-started distributed generation. Before PURPA became law, it was difficult, if not impossible, for an electric consumer to install and operate a generating plant to meet onsite needs. Electric utilities were not obligated to connect customer-owned generation to the utility system. Backup service was either unavailable or available at a cost intended to discourage the installation of a customer-owned generator. Electric utilities were unwilling to buy excess electricity that customers generated but did not need. PURPA addressed these barriers to the development of distributed generation but only for cogeneration (also known as combined heat and power) and renewable technologies.

PURPA was only the beginning. In the years since 1978, state and federal laws and regulations have expanded the opportunities available to distributed generation of all technologies, not just renewables and cogeneration. Today a utility customer who generates electricity can obtain transmission service to sell that electricity to another utility or into a regional marketplace for wholesale electricity. In some states the nonutility owner of distributed generation can supply electricity to retail customers.

The power blackout that affected the eastern third of the US on August 14, 2003, highlighted the value of distributed generation. Even before the blackout, state and federal agencies had begun to consider ways to make it easier to interconnect distributed generation with the local utility.

Interconnection typically begins with a request to the local utility for interconnection. The request leads to a utility study of the impact of the new generation on its system and any new equipment the utility deems necessary to ensure safe operation of the interconnection. The customer proposing the new generation is asked to pay the cost of the study and any equipment the utility requires. Before the new generation can begin operation, the utility and customer sign an interconnection agreement that governs the generator's operation and includes provisions such as insurance requirements for the owner of the generator.
In July 2003, the Federal Energy Regulatory Commission (FERC, that regulates the wholesale interstate electric industry) issued a Notice of Proposed Rulemaking intended to standardize interconnection agreements and procedures for utility interconnections with small generators no larger than 20 MW in capacity. Expedited procedures were proposed for facilities no larger than 2 MW and facilities between 2 and 10 MW. Time limits were established for utility responses to interconnection requests, and a regional queuing process was proposed for utility processing of interconnection requests. The proposed rule provides for three levels of processing an interconnection application: super-expedited, expedited, and standard. The categories are based on facility characteristics. For example, a small generator no larger than 2 MW comprising equipment precertified by a national testing laboratory as meeting applicable industry and safety standards would bypass design review, testing, and other steps in the interconnection process and would be eligible for a highly expedited interconnection process. Eligibility for expedited processing also depends on the impact of the proposed facility on the interconnected system, based on proposed criteria and on the concern of the interconnecting utility about the impact on the utility's (or other transmission provider's) electric power system. The proposed rule includes forms of procedures and an interconnection agreement for small generators. Public comments on the proposed rule were due on October 3, 2003.

The proposed rule is a giant step toward streamlining the process of interconnection of distributed energy to the electric grid. It also leaves many issues unresolved because FERC has declined to participate in precertifying facilities and dispute resolution. In addition, the FERC interconnection rule for small generators will not apply to all distributed energy projects but only to projects that interconnect with FERC jurisdictional transmission facilities. Regardless of the content of the final rule, FERC has directed much-needed attention to the problems of small-generator interconnection.

State public utility commissions are also proposing rules for interconnection of small generators. For example, the Michigan Public Service Commission issued an interconnection rule in July 2003 for generating facilities as small as 30 kW connecting to utility distribution systems that are not subject to FERC jurisdiction. The rule ordered Michigan utilities to file rules meeting certain specified criteria. The criteria specify a maximum fee for utility engineering studies. The Michigan rule also requires utilities to complete the processing of an interconnection application within 18 weeks after the application is complete, with a deadline of only two weeks for facilities no larger than 30 kW. In December 2000, the California Public Utilities Commission issued a rule containing requirements for utility interconnection with distributed energy. The Illinois Commerce Commission is expected to initiate a rulemaking on interconnection rules for nonutility generation before the end of 2003.

Interconnection rules require a balancing act. Utility safety and reliability concerns must be balanced against unduly high costs and long delays that will discourage distributed energy. Objective interconnection rules that an important step, as is implementation of an objective, prompt, and cost-effective process for resolving disputes between developers of distributed energy and owners of the transmission or distribution systems that interconnect with distributed generation. It is too soon to tell how effective the final FERC small-generator interconnection rule will be. At the very least, the proposed rule raises important issues and provides a jumping-off point for rules that will be adopted at the state level.

FREDDIE L. GREENBERG is principal at Freddi L. Greenberg Attorney at Law in Chicago, IL.

DE - Nov/Dec 2003