Electricity Markets

FERC largely upholds storage order; McNamee voices concerns

The Federal Energy Regulatory Commission on May 16 issued an order in which it largely upheld determinations it made in Order No. 841, which established rules for the participation of electric storage resources (ESRs) in markets overseen by regional transmission organizations and independent system operators.

However, Commissioner Bernard McNamee raised jurisdictional concerns over FERC’s action, saying he is troubled that Order 841 and the order on rehearing (Order 841-A) “do not fully respect or consider the impact they may have on local distribution systems, the states that regulate those local distributions systems, and local retail customers,” concerns that were previously raised by the American Public Power Association, American Municipal Power and the National Rural Electric Cooperative Association.

Parties sought rehearing of Order No. 841

FERC issued Order No. 841 on Feb. 15, 2018. The final rule required RTOs and ISOs to revise their tariffs to establish a “participation model” for electric storage resources, consisting of market rules that properly recognize the physical and operational characteristics of electric storage resources.

Several parties requested rehearing of Order No. 841, including the American Public Power Association, the National Rural Electric Cooperative Association and American Municipal Power. They filed a joint request for rehearing at the Commission in March 2018.

They voiced concerns that Order No. 841 suggests that ESRs located on a distribution system or behind a retail meter “may circumvent restrictions under state or local law on retail customers directly purchasing from, or selling into, the wholesale market -- actions that are beyond the Commission’s jurisdiction to authorize.”  They argued that the Commission should accommodate state and local regulatory authority by giving these regulators the right to opt-out of allowing wholesale market participation by ESRs on the distribution system.

But in its order on rehearing, FERC said that it found that the Federal Power Act “and relevant precedent does not legally compel the Commission to adopt an opt-out with respect to participation in RTO/ISO markets by electric storage resources interconnected on a distribution system or located behind a retail meter.”

McNamee weighs in

In a partial concurrence and partial dissent to Order 841-A, McNamee said he believes that Order Nos. 841 and 841-A “are on solid footing when they deal with ESRs connected to the transmission system and how ESRs may participate in the wholesale market,” and he concurred in those aspects of the order on rehearing.

But he said he was troubled that the orders “do not fully respect or consider the impact they may have on local distribution systems, the states that regulate those local distributions systems, and local retail customers” and he therefore dissented from the order on rehearing.

McNamee said he would have granted the rehearing requests asking the Commission to reconsider:

  • Its finding that it has jurisdiction over whether ESRs located behind-the-meter or on the local distribution system are permitted to participate in the RTO/ISO markets through the ESR participation model and thereby asserting jurisdiction over distribution facilities; and
  • Its failure to provide states the opportunity to opt-out of the participation model created by the storage orders.

McNamee concluded that FERC’s majority “has exceeded the Commission’s jurisdictional authority by depriving the states of the ability to determine whether distribution-level ESRs may use distribution facilities so as to access the wholesale markets. By doing so, in my view, the Commission claimed jurisdiction over functions and assets reserved by statute to the states.”

Further, even if the majority thought they could rightly exercise jurisdiction in this matter, McNamee believes that they should have furthered the path of “cooperative federalism” by permitting the states to choose whether or not behind-the-meter and distribution-connected ESRs may participate in the wholesale markets through an opt-out provision.

McNamee noted that FERC’s majority relied on the Supreme Court’s decision in EPSA to support their decision to prohibit states from preventing an ESR on a distribution system or behind-the-meter from participating in the RTO/ISO markets through the participation model.

“In my opinion, EPSA is distinguishable from the issues considered by the Commission in Order No. 841,” wrote McNamee.

He said that the EPSA decision involved whether the Commission had jurisdiction over demand response transactions and, if it did, whether the Commission could justify, under specific circumstances, the equal compensation of DR providers and wholesale generation.

In Order No. 841, the Commission asserted that because ESRs can effect wholesale rates, ESRs must be allowed to connect behind-the-meter and to the distribution facilities in order to participate in the wholesale markets, the Commissioner noted.

McNamee said that another important distinction between EPSA and the matter before FERC related to 841 rehearing requests is that under FERC Order Nos. 719 and 745, “as the EPSA Court itself recognized, wholesale operators were required to accept ‘demand response bids from aggregators of electricity consumers, except when the state regulatory authority overseeing those users’ retail purchases bars such demand response participation.’ Thus, the DR program under review in EPSA already provided for an opt-out for the states.”

McNamee would have granted rehearing to find that the Commission exceeded its jurisdiction by prohibiting states from determining whether ESRs could be connected to distribution facilities.

“Regardless of whether the Commission has jurisdiction over ESRs connected to distribution facilities, I would have supported the Commission exercising its discretion to provide an opt-out provision for the states,” he wrote.

McNamee argued that the Commission could have achieved a more just result by exercising its discretion to offer the states an opt-out provision.

He noted that Edison Electric Institute, the American Public Power Association, AMP and NRECA challenged the Commission’s failure in Order No. 841 to include an opt-out.

“The memberships of these entities combined represent the vast majority of load serving entities in the United States. It is important to take their concerns seriously and to address them,” McNamee said.

The Commission’s order on rehearing is available here and McNamee’s partial concurrence and partial dissent is available here.