The Federal Energy Regulatory Commission on Friday reversed a March decision regarding jurisdiction over electric cooperative exit fees, in a ruling that experts say could have broader implications for rate cases.
FERC now says it has exclusive jurisdiction over Tri-State Generation and Transmission Association’s member system exit charges, preempting work the Colorado Public Utilities Commission (PUC) has been doing to set exit fees for a pair of distribution cooperatives that are members of Tri-State.
Energy attorney and Georgetown Law professor Scott Hempling says the decision may have wider impacts than the immediate case — but the issues are also likely headed to court for further argument. The PUC and involved cooperatives could each ask the U.S. Court of Appeals for the D.C. Circuit to review FERC's decision, though the parties say no decisions have been made yet.
FERC backed away from its March decision in which federal regulators said "we decline to find that we have exclusive jurisdiction over Tri-State’s exit charges."
The March decision allowed complaints by La Plata Electric Association (LPEA) and United Power to more forward at the Colorado PUC. The two cooperatives have been asking state regulators to set exit charges to leave Tri-State's service in search of a cleaner and more affordable mix of power.
Now, however, FERC says that “after further consideration we are modifying the discussion of the Declaratory Order to find that Tri-State’s assessment of an exit charge constitutes a Commission jurisdictional rate subject to our exclusive jurisdiction."
That means, FERC regulators said in their decision, "we also conclude that the Colorado PUC’s jurisdiction over the complaints regarding Tri-State’s exit charges is preempted" as of Sept. 3, 2019, when Tri-State became a public utility subject to the federal ratemaking jurisdiction.
Tri-State by added a new, non-cooperative member, California-based Mieco, and came under FERC's jurisdiction. The company is a subsidiary of Marubeni Corp. and supplies gas to Tri-State power plants.
“This is a monumental decision for our members and Tri-State, and allows us all to move forward in our clean energy transition with much more certainty,” Tri-State CEO Duane Highley said in a statement.
This is likely not the end of the debate, however.
Was Tri-State's member addition legal?
"There is still an important determination ... as to whether the Mieco scheme is legal," Karl Rábago, energy consultant and former Texas regulatory commissioner, said in an email. He called the dispute between FERC and state regulators an "extreme case of forum shopping" that could result in state lawmakers getting involved.
"This is the kind of regulatory scheming that can incite strong state-level legislative response," Rábago said. "The co-ops are member-owned/constituent-owned after all."
The Colorado PUC has until Nov. 5 to make a determination on challenges to an administrative law judge's recommended order that the commission approve an exit fee methodology proposed by United Power. Among the issues that will be taken up is whether the addition of Mieco was allowed — and this is where the cooperatives are now focusing their arguments.
"While FERC reversed itself as to preemption, Friday’s FERC order points out the ultimate decision belongs to the Colorado PUC about whether Tri-State improperly added non-utility members," LPEA CEO Jessica Matlock said in a statement.
According to Matlock, Tri-State's non-utility member addition — which brought on FERC regulation — was "inconsistent with Colorado law ... the final say here on preemption rests with the Colorado PUC and we look forward to having an opportunity to be heard on that issue by the full Colorado PUC."
LPEA is still evaluating its options, regarding preemption issues, according to lawyers for the cooperative.
United Power interim CEO Bryant Robbins says the additions of Mieco and other new Tri-State members "were improper under Colorado law." The cooperative has argued to FERC that the Mieco membership agreement still requires PUC consideration.
United Power "has challenged the additions with the PUC, has filed expert testimony to support its position, and has asked the PUC to decide that issue," Bryant said. "United Power still can and will pursue its claim through the PUC or other Colorado tribunals, if necessary, and intends to see that process through."
According Hempling, FERC's Aug. 28 order is likely to be appealed.
"Unless a court reverses what FERC did, the Colorado PUC has no jurisdiction to determine whether the exit fee is reasonable under Colorado law," said Hempling. "That's the end of the road for them."
Terry Bote, external affairs manager for the Colorado PUC, said the commission's legal counsel "is reviewing the FERC decision, but has not conferred with the commissioners yet."
Decision could impact other rate cases
"FERC interpreted the Federal Power Act to say that the exit fee is part and parcel of wholesale sales, because it recovers costs that the exiting customers would have paid for wholesale service if they had not exited. FERC reasoned that its jurisdiction over cost recovery does not depend on the timing of the cost recovery," Hempling said.
There is the potential for this decision to have impacts outside of the Colorado cooperatives, said Hempling.
"When we free customers to shop, they leave sunk costs behind. Putting aside moral, political and economic efficiency issues, it's pretty important to have predictable policies," Hempling said. "Among the 50 states and FERC, we don’t have consistent, predictable policies" regarding how those costs are handled.
The issue of cost responsibility is especially salient at the retail level, said Hempling, where there has been much debate about homeowners installing solar panels and whether the costs they no longer cover are borne by other non-solar customers. While he said there are no state-federal jurisdictional issues at play there — at least until solar customers start selling into wholesale markets — FERC's determination that exit fees are a part of wholesale rates will likely impact future cases.
The question now becomes, "will FERC settle on a predictable methodology or are we going to have dozens of cases where people argue the same thing," said Hempling.