August 8, 2018

FERC Waves Red Flag Over Federal Power Act General Jurisdiction In ERCOT

Holland & Knight Energy and Natural Resources Blog
A Hewitt Rose

On July 26, 2018, Federal Energy Regulatory Commission (FERC) issued an otherwise routine order in AEP Energy Partners, Inc., 164 FERC ¶ 61,056 (Docket No. TX18-1-000). The order grants AEP Energy's request under only FPA § 211 to provide transmission services in and out of the Electric Reliability Council of Texas (ERCOT) from and to Mexico over the existing Sharyland (aka Railroad), Eagle Pass and Laredo interties without creating Federal Power Act (FPA) "public utility" jurisdiction, aka plenary or general jurisdiction, in ERCOT. But then FERC went out of its way in dicta to suggest that ERCOT may not continue to enjoy immunity from FPA "public utility" jurisdiction. In sum, two upcoming high voltage direct current (HVDC) projects, unrelated to AEP's request, and Mexico's planned synchronous interconnection of two currently unconnected grids each, independent of the other, may interconnect ERCOT with U.S. interstate synchronous power flows commingled in Mexico.


Currently, ERCOT is exempt from FPA general jurisdiction. The North and South asynchronous HVDC interties, which initially connected ERCOT with the synchronously connected Eastern grid and its comingled interstate power, did not create FPA general jurisdiction in ERCOT since the interconnections were pursuant to FPA §§ 210-212, which provide that interconnections pursuant to those sections will not cause an entity to become a FPA "public utility" if it was not already a public utility. The ERCOT utilities were not already public utilities when they applied for an order.

Currently power flowing out of ERCOT into Mexico and vice versa is a purely international transfer of power that does not involve U.S. interstate commerce and thus plenary FPA jurisdiction. There are 800 MW of existing synchronous interconnections between California and Mexico's Baja California peninsula, but the Baja peninsula is not currently connected to the rest of the Mexican grid.  

FERC warned that the proposed 300 MW Nogales HVDC interconnection in Arizona with the interconnected Mexican grid may result in comingled interstate power in the Western Interconnected grid in the U.S. being transferred to Mexico and then imported into ERCOT. It is possible for FERC to rule that the asynchronous flows into Mexico from Arizona must go through any of three asynchronous interties with ERCOT and so are thereby not comingled interstate power, but FERC's prior jurisdictional rulings are based on settlements under FPA §§ 210-212, not the presence of asynchronous interties.

FERC also warned that Mexico's proposed interconnection between the Baja peninsula and the rest of the Mexican grid could raise jurisdictional issues for ERCOT. The proposed Mexican interconnection would be by a 1.5 GW DC line and is expected to be operational by 2021. In theory, this is no different from the Nogales interconnection, since a HVDC converter will sit at the Mexican grid side of the DC line. But that converter will not have been passed through a FPA §§ 210-212 order and a settlement where everyone agrees not to raise jurisdictional issues.

DeAnn Walker, the chairwoman of Public Utility Commission of Texas, was informed by FERC staff of these issues prior to the order and raised the alarm of the possible loss of ERCOT's immunity from general FPA jurisdiction. She proposed ERCOT change its protocols "to provide clarity that ERCOT will not authorize transactions across the DC ties into Mexico in the event that the jurisdiction of ERCOT is at risk." She further stated her belief "that ERCOT has the authority to require the breakers to the transmission lines that could cause any such transactions to potentially occur to be opened under the same circumstance."

These are unlikely to remain the only threats to ERCOT's immunity from general FPA jurisdiction. Even since the 2014 energy reforms in Mexico opening up the market to foreign investment, private enterprise has been looking to expand cross border trade in electricity between Mexico and the U.S.. 

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