Federal Energy Regulatory Commission orders that established rules for the participation of electric storage resources (ESRs) in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs) disregard the bright line between federal and state jurisdiction, the American Public Power Association, the Edison Electric Institute, the National Rural Electric Cooperative Association and American Municipal Power said.
In a recent court filing, the groups said that FERC Order Nos. 841 and 841-A ignore the bright line by limiting states to imposing conditions on individual interconnections needed by distribution-level storage to participate in wholesale markets but forbidding states from broadly prohibiting such participation.
The groups on Oct. 30 filed their joint opening brief at the U.S. Court of Appeals for the District of Columbia Circuit in their appeal of FERC Order Nos. 841 and 841-A.
Order No. 841, issued in February 2018, adopted rules aimed at removing barriers to the participation of ESRs in wholesale power markets operated by RTOs and ISOs. At the time, several organizations, including the Association, asked FERC to reconsider some aspects of Order No. 841, arguing that FERC was overstepping its jurisdictional authority and encroaching on state and local authority over distribution utilities and networks to the extent the orders would override restrictions on wholesale market participation for ESRs interconnected to an electric distribution system or behind a retail customer meter.
The Association also argued that FERC should have given state and local authorities the ability to opt out of allowing ESRs in their jurisdictions from participating in wholesale markets, as the Commission did for demand response aggregation in Order Nos. 719 and 719-A. FERC largely rejected these arguments in Order No. 841-A, issued in May 2019.
In July, the American Public Power Association joined other power industry groups in filing a petition for review with the U.S. Court of Appeals for the DC Circuit, initiating an appeal of Order Nos. 841 and 841-A.
Cooperative federalism cited by groups
Although the appeals court affords deference to FERC’s assertion of jurisdiction, that deference must recognize the cooperative federalism framework in Federal Power Act Section 201(b)(1) under which federal jurisdiction is complementary to state regulatory authority over facilities used for generation or in local distribution and retail sales, the American Public Power Association, EEI, NRECA and AMP said.
Order Nos. 841 and 841-A “upset that framework by forbidding states from broadly prohibiting participation by distributed storage in wholesale markets and by declining to follow prior FERC policy that allowed states to choose whether retail demand response resources could participate directly in wholesale markets,” they said.
Order Nos. 841 and 841-A assert that FERC’s exclusive jurisdiction over the wholesale markets extends to deciding whether to allow distributed storage to participate in wholesale markets.
“While FERC has undoubted authority over the rates, terms, and conditions applicable to interstate transmission and wholesale sales, FPA Section 201(b)(1) mandates it ‘shall not have jurisdiction’ over facilities used in local distribution or retail sales,” the groups told the appeals court.
Order Nos. 841 and 841-A “ignore this bright line between federal and state jurisdiction by limiting states to imposing conditions on individual interconnections needed [for] distributed storage to participate in wholesale markets, but forbidding states from broadly prohibiting such participation.”
The American Public Power Association, EEI, NRECA and AMP argued that nothing in FPA Section 201(b)(1) justifies restricting states’ authority in this manner. Rather, it allows states to take any action over local distribution facilities or retail sales without FERC interference, they said.
Order Nos. 841 and 841-A assert that a broad prohibition against distributed storage participation would be aimed directly at wholesale markets, and therefore the Commission can preempt state regulation to require such participation. FERC relied on the U.S. Supreme Court’s 2016 ruling in FERC v. EPSA for this assertion.
“But EPSA dealt exclusively with FERC’s authority to regulate wholesale rates for the retail customers that states, which ‘retain the last word,’ allow into the wholesale markets. Further, EPSA recognized that FERC cannot breach statutory jurisdictional boundaries no matter how direct or dramatic the impact on wholesale rates,” the groups pointed out.
FPA preemption cases examine whether state action actively imposes on wholesale market participants, in which case state action is preempted, or the state action imposes on facilities under state jurisdiction, in which case state action is not preempted, the groups said.
“This approach follows the statutory bright line jurisdictional divide that maintains state regulatory power. The court has repeatedly rejected potential impacts on federal policy as valid grounds for ignoring the FPA’s clear jurisdictional divide.”
Foundational principles of FPA’s jurisdictional divide
Order Nos. 841 and 841-A assert that FERC’s jurisdiction extends to participation by distributed storage in wholesale markets because their participation directly affects wholesale market rates, and therefor states may not bar such participation absent express authorization by FERC.
“This assertion contradicts the foundational principles of the FPA’s jurisdictional divide: Congress was aware that state regulation might run counter to a federal plan, but still gave states complete regulatory authority over local distribution facilities and retail sales,” the American Public Power Association, EEI, NRECA and AMP said.
They pointed out that courts have generally found no preemption where state law prohibits the entry of a resource into a federally regulated market because the prohibition leaves nothing for the federal statute to regulate.
“Here, the challenged orders claim that a broad state prohibition against distributed storage entering wholesale markets would create, rather than remove, a barrier to participation, contrary to FERC’s policy for enhancing competition.
“But, putting aside whether a state’s broad prohibition would leave anything for FERC to regulate, the challenged orders’ premise — that any and all barriers to carrying out FERC’s wholesale market policy should be eliminated— contravenes the FPA’s respect for states’ rights even when the efficiency of the federal plan is diminished,” the groups told the appeals court.
The challenged orders also recognized that states may impose restrictions and requirements at specific interconnections between distributed storage and wholesale markets, but only if they are reasonably related to reliability, operational, safety, or cost concerns at the interconnection, and disallowed a broad prohibition on participation as not reasonably related to such concerns.
The problem is that no legal authority supports this “reasonably related” constraint on states’ power to regulate the use of distribution facilities, the groups said. “This constraint violates the FPA’s bright line approach to deciding jurisdictional questions in favor of an ad hoc approach to ’reasonably related’ determinations. This is a recipe for controversy and litigation.”
The groups argued that the appeals court should grant their petition, vacate Order Nos. 841 and 841-A “insofar as they preclude states from broadly prohibiting distributed electric storage resources from participating in wholesale markets.”
At the same time, the court should “remand with instructions that a provision by which a relevant state or local regulator may broadly prohibit distributed electric storage resources from participating in wholesale markets may properly be adopted as provided by states’ exclusive jurisdiction under FPA Section 201(b)(1).”
In its intervenor brief, the Transmission Access Policy Study Group (TAPS) said it agrees with and adopts the opening briefs of petitioners (including the American Public Power Association) regarding the issue of whether FERC exceeded its FPA authority by ruling that it can preempt state and local regulators from imposing conditions on retail service and state-jurisdictional interconnections that directly restrict associated distributed storage from participating in wholesale markets.
TAPS said it also supports the positions in the opening briefs of petitioners “that FERC acted arbitrarily and capriciously and otherwise not in accordance with law, by failing to provide state and local regulators an opt-out mechanism to restrict wholesale market participation by storage resources connected to distribution facilities or behind the retail meters of the distribution utilities they regulate.”
TAPS said that FERC’s storage rule “disproportionately affects small utilities, where the additional burdens of accommodating wholesale market participation by distributed storage are large and borne by a small customer base, and the number of such resources—and any potential wholesale market benefit—is likely to be small.”
TAPS Is an association of transmission-dependent electric utilities located in 35 states.
The National Association of Regulatory Utility Commissioners (NARUC) also filed an appeal of Order Nos. 841 and 841-A, raising similar issues as those of the American Public Power Association, EEI, NRECA and AMP.
“In the orders on review, FERC is pursuing the laudable goal of lowering barriers to entry for electric storage resources’ participation in the wholesale markets,” NARUC said in its Oct. 30 opening brief. “Unfortunately, in its enthusiasm to enable storage resources to participate in the federal wholesale markets, FERC has exceeded its jurisdictional reach.”
NARUC’s appeal has been consolidated with the appeal of the American Public Power Association, EEI, NRECA and AMP in the D.C. Circuit.
FERC’s brief is due at the appeals court by January 31, 2020, and intervenor briefs in support of FERC are due February 7, 2020. Petitioners’ reply briefs are due March 2, 2020.