Electricity Markets

FERC affirms jurisdiction over energy efficiency resources

The Federal Energy Regulatory Commission on April 17 affirmed its finding in a prior order that it has exclusive jurisdiction over the participation of energy efficiency resources in the organized wholesale electricity markets, including the terms of eligibility for the participation of such resources.

Advanced Energy Economy filing set proceeding in motion

The proceeding at FERC was set in motion by a June 5, 2017 petition for declaratory order filed by Advanced Energy Economy that sought declaratory rulings that, among other things:

  • The Commission has exclusive jurisdiction under the Federal Power Act to regulate the participation of certain energy efficiency resources in the wholesale electricity markets;
  • Relevant electric retail regulatory authorities, or RERRAs, lack authority to bar, restrict, or otherwise condition the participation of certain energy efficiency resources in wholesale electricity markets;
  • It is unlawful for RERRAs to change the terms and conditions of certain energy efficiency resource participation in wholesale markets; and
  • The stakeholder process of a Regional Transmission Organization (RTO) or Independent System Operator (ISO) is an inappropriate vehicle to resolve these jurisdictional issues.

RERRAs are entities that establish the retail electric prices and policies for customers, such as a state public utility commission, the city council for a municipal utility, or the governing board of a cooperative utility. 

Advanced Energy Economy’s petition (Docket No. EL17-75) also sought findings regarding the requirements that FERC would impose on any future filings asking the Commission to provide RERRAs with authority to bar, restrict, or condition the sale of energy efficiency resources or other energy technologies into the wholesale electricity markets. Under FERC Order Nos. 719 and 719-A, a RERRA can restrict aggregated retail customer participation in wholesale demand response programs.

The petition was prompted by a stakeholder process in PJM Interconnection considering changes to the PJM tariff that could allow RERRAs similarly to restrict the participation of EERs in wholesale markets.

The American Public Power Association and the National Rural Electric Cooperative Association filed a joint protest in response to the petition, arguing, among other things, that the petition improperly sought FERC rulings on tariff changes that were still under debate.

Initial FERC order and requests for rehearing and clarification

In December 2017, FERC issued an order that granted in part, and denied in part, the petition. Among other things, FERC said that under the Federal Power Act, it has exclusive jurisdiction over the participation of energy efficiency resources in wholesale markets, including the terms of eligibility for such resources to participate in the wholesale markets.

The Association, American Municipal Power, NRECA, Edison Electric Institute and the Public Power Association of New Jersey sought rehearing of the order in a Jan. 2 filing. Separately, Madison Gas & Electric, Missouri River Energy Services, the Missouri Joint Municipal Electric Utility Commission and WPPI Energy (collectively Midwest TDUs) joined together to seek clarification of the order, or in the alternative rehearing.

In their request for rehearing, the Association, AMP, EEI, NRECA and the Public Power Association of New Jersey challenged FERC’s finding that a RERRA may not bar, restrict, or otherwise condition the participation of EERs in wholesale markets without express Commission permission as an improper assertion of FERC’s authority over practices “affecting” wholesale rates that intrudes on state and local authority to specify the terms of retail electric service. They also argued that FERC did not provide an adequate basis for declining to extend the Order Nos. 719/719-A demand response opt-in/opt-out rules to energy efficiency resources.

FERC order on rehearing and clarification requests

In its April 17 order, the Commission affirmed its finding in the declaratory order that it has exclusive jurisdiction over the participation of EERs in the organized wholesale electricity markets, including the terms of eligibility for the participation of such resources.

FERC rejected the claim by the Association, AMP, EEI, NRECA and the Public Power Association of New Jersey that the terms of eligibility for the participation of EERs in wholesale markets have only an incidental and indirect effect on wholesale rates. 

“We find that the Commission’s authority to determine which resources are eligible to participate in the wholesale markets is a fundamental component of the regulation of the wholesale markets,” FERC said.

It noted that the Supreme Court has recognized that the Commission extensively regulates the structure and rules of wholesale auctions in order to ensure that they produce just and reasonable results.

FERC also addressed assertions by the Association, AMP, EEI, NRECA and the Public Power Association of New Jersey that the Commission’s claim of exclusive jurisdiction over the terms of eligibility to participate in the wholesale electric markets “has no obvious limiting principle” or would overrule any state action the Commission deems as affecting EERs.

FERC reiterated that the findings in the declaratory order were limited to a “unilateral state action that directly prohibits or limits” the ability of EERs to participate in wholesale markets, thereby directly affecting wholesale rates.

The Commission therefore said that contentions by the Association, AMP, EEI, NRECA and the Public Power Association of New Jersey that FERC’s assertion of jurisdiction in the declaratory order enables the Commission to direct states to allow retail access or would nullify state jurisdiction over retail sales in this context “to be speculative and unsupported.”

FERC also disagreed with contentions that the Commission’s assertion of exclusive jurisdiction over the terms of eligibility of the participation of EERs would usurp the authority of RERRAs to regulate the retail entities subject to their jurisdiction. “Our determinations here do not prevent states from regulating retail sales of electricity, even when such regulation incidentally affects areas within the Commission’s domain,” it said.

However, it also disagreed with the Association, AMP, EEI, NRECA and the Public Power Association of New Jersey that state and local restrictions on EER participation in wholesale markets is a valid exercise of state and local authority over retail electric service. “A provision directly restricting retail customers’ participation in organized wholesale electricity markets, even if contained in the terms of retail service, nonetheless intrudes on the Commission’s jurisdiction over the wholesale markets,” FERC said.

Such a restriction “prevents the Commission from carrying out its statutory authority to ensure that wholesale electricity markets produce just and reasonable rates,” the order aid. “Thus, we find that the effect on the wholesale rate from a RERRA restricting EERs’ participation in wholesale markets is direct and not merely incidental.”

It said that the direct effect of such state or local laws is in “stark contrast” to the incidental effects at issue in Allco Fin., Ltd. v. Klee, cited by the Association and the other parties, which addressed Connecticut’s program to solicit proposals for renewable energy generation.

FERC responds to Midwest TDUs’ request for clarifications

FERC granted the Midwest TDUs’ requested clarifications to the extent that the Commission in the declaratory order: 

  • Did not assert the authority to preempt the terms and conditions established by RERRAs for retail customers to receive retail service;
  • Did not purport to authorize retail customers to violate any state or local laws; and
  • Made no findings as to whether contracts regarding EERs are subject to state or local law.

The Commission said it agreed with the Association, AMP, EEI, NRECA and the Public Power Association of New Jersey that the Commission’s regulations in Order Nos. 719 and 719-A do not grant or delegate any authority to RERRAs.

“However, we note that the Commission’s exclusive jurisdiction over the participation of demand response resources and EERs in the wholesale market does not preclude the Commission from taking into consideration states’ preferences and implementing or deferring to those preferences when the circumstances merit.  Indeed, the Commission has done so in other instances.”

Moreover, FERC said it disagrees with arguments that the declaratory order reflects an unjustified departure from the opt-in/opt-out approach applied in Order No. 719.  “As the Commission noted in the declaratory order, Order No. 719 applies to demand response resources; the rule expressly provides that it does not apply to EERs.”

FERC said a requested clarification from the Midwest TDUs that FERC’s statements regarding the effects of EERs on retail electric service are not intended to prejudge any future RTO-specific proposal to limit EER participation in wholesale markets is unnecessary.

The Commission said its findings regarding the effects of EERs on retail service were appropriately based on the record in the Advanced Energy Economy proceeding. “We note that the Commission did not find in the declaratory order that it would never implement such an opt-in/opt-out approach to EER participation in wholesale markets, but that the record in the instant proceeding does not support the implementation of such a rule.”

Related PJM order

In related action, FERC on April 17 issued an order concurrently with the rehearing order in a proceeding involving PJM.

The grid operator on Feb. 16, 2018, submitted proposed revisions to its open access transmission tariff and the reliability assurance agreement among load serving entities in the PJM Region. The proposed revisions establish a procedure to facilitate the implementation of any restrictions imposed on EERs by a relevant electric retail regulatory authority authorized by the Commission to opt-out and restrict the sale of EERs into PJM’s market.

In its filing, PJM said that consistent with the Advanced Energy Economy declaratory order, its filing represents the culmination of PJM and its stakeholders’ efforts to develop new market rules related to EERs. 

PJM argued that proactively implementing a market rule for sellers of EERs in PJM’s capacity market is prudent in order to provide guidance and minimize regulatory risk for all market participants in the event that FERC authorizes a RERRA to restrict EERs from future participation in PJM’s markets.

PJM’s proposed tariff and RAA revisions provide a verification process to ensure that all EERs offered and cleared in PJM’s capacity market comply with any restrictions that may be imposed by an authorized RERRA. Also, the proposed revisions grant relief for sellers of EERs that already cleared in a prior PJM capacity market auction and are subsequently restricted from participation in PJM’s market by an authorized RERRA.

FERC determined that PJM’s proposed tariff and RAA revisions are just and reasonable and accepted them for filing, effective April 17, 2018, as requested.

In the order, FERC noted that the Association and AMP support PJM’s proposed revisions, but asserted that because some revisions proposed by PJM were premised upon rulings in the declaratory order, the Commission should make any acceptance of PJM’s filing subject to the resolution of the pending requests for rehearing and clarification of that order. AMP specifically asked that the Commission accept and suspend the EER market rules to become effective only upon and subject to the final resolution of the jurisdictional issue in question.

“We need not address AMP’s and APPA’s concerns regarding the timing of the issuance of this order as it relates to the requests for rehearing and clarification of the declaratory order,” FERC said, noting that the PJM order was being issued concurrently with the order on rehearing and clarification of the declaratory order in the Advanced Energy Economy proceeding.