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Power & Pipes

FERC, CFTC, and State Energy Law Developments

The May 16 Order on Rehearing affirms FERC’s jurisdictional authority, and refuses calls for state opt-outs.

The Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 841 early last year, a final rule amending FERC’s regulations to facilitate participation of electric storage resources in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). Several entities have since challenged key aspects of the final rule, urging the Commission on rehearing to reverse course or modify its approach on a number of issues. On May 16, the Commission issued Order No. 841-A, denying those requests for rehearing, thereby upholding the initial rulemaking while providing some additional clarification.

A threshold issue in the Order No. 841 proceeding has been the reach of the Commission’s jurisdiction to regulate storage resources sited on the distribution system or behind the meter. Several petitioners had raised concerns that FERC’s rulemaking would have a significant, direct impact on retail sales and the ability of states to regulate that activity. FERC dismissed these arguments, characterizing Order No. 841 as a framework to govern participation in wholesale markets, and not an attempt to control states’ rights to regulate either the safety and reliability of, or access to, the distribution system. The Commission stressed that, to the extent Order No. 841 has an impact on retail activities, those impacts would be only the “natural consequences” of wholesale market regulation, which the US Supreme Court deemed legally permissible in EPSA v. FERC.

Some petitioners had argued that the Commission must, or should, allow state regulatory authorities to decide whether such resources should be permitted to participate in wholesale markets (i.e., an “opt-out”). Asserting a broad view of the Commission’s jurisdiction, the Rehearing Order concluded that the Commission is neither legally obligated nor compelled from a policy perspective to permit such opt-outs. The Rehearing Order pointed to FERC’s plenary authority under the Federal Power Act that allows it to ensure that all technically capable resources, including those interconnected to distribution systems, are eligible and able to participate in wholesale electric markets.

The Rehearing Order cautioned that, while states clearly have the right to dictate the terms of their retail programs, any retail program aimed directly at prohibiting all retail resources from selling into wholesale markets would be an impermissible intrusion on the Commission’s jurisdiction to regulate those markets. On these jurisdictional issues, Commissioner Bernard McNamee diverged from the rest of the Commission and issued a partial dissent arguing that (i) the Commission lacks jurisdiction over storage resources connecting at the distribution level or behind the meter, and (ii) states should have been provided the opportunity to opt out of the Order No. 841 participation models.

The Rehearing Order affirmed and clarified other key aspects of Order No. 841 related to implementing RTO/ISO storage participation models. For example, the Commission rejected calls to delay the December 3, 2019, compliance deadline or to change the 100 kW minimum size requirement for the RTO/ISO participation models. Brushing aside the myriad concerns over the minimum size requirement, the Commission maintained that the 100 kW threshold strikes the right balance between increased competition and implementation costs. The Commission also left open the possibility that it will consider rate proposals for the provision of wholesale distribution service to an electric storage resource for its charging.

The Rehearing Order also left several key questions unanswered. For example, the Commission declined to address whether a retail sale would be transformed into a wholesale sale if a customer participating in the markets sells more than it purchases for a billing period, or who ultimately bears the costs for metering changes that are necessary to distinguish between wholesale and retail activity.

In separate proceedings, the Commission is also weighing the participation models proposed by the RTOs/ISOs in order to meet compliance with Order No. 841. Earlier this month, the RTOs/ISOs followed those compliance filings with additional information on the mechanics of their proposed energy storage market rules in response to Commission Staff requests for information. Those proceedings are largely still pending.