Thread by @AriPeskoe

Does FERC have authority to set wholesale market rules that allow DERs to sell energy and grid services to an RTO? 4 out of 4 FERC Commissioners say yes! Must FERC allow states to prohibit DERs within their borders from participating? 1 out of 4 FERC Commissioners says yes. 1/x

Background: In Order No. 841 issued last Feb., FERC told RTOs to set rules that enable storage resources to sell all products and services they are technical capable of providing. Market rules must apply to all storage resources over 100 kW that inject energy into the grid.

Several parties asked FERC to provide state regulators (and munis and coops) with an opportunity to decide whether storage resources connected to the distribution system or located behind the meter are allowed to sell to RTOs.

Yesterday, FERC denied these requests - ferc.gov/whats-new/comm… (PP 5-62). Commissioner McNamee dissented on this aspect of yesterday’s order. ferc.gov/media/statemen…

Bottom line: FERC says its exclusive authority to set eligibility rules for RTO markets includes authority to require RTOs to accept bids from resources connected to a distribution system (PP 31, 38).

The dissent agrees that FERC has authority to regulate energy sales from DERs to RTOs -- “if a state permits [storage] to connect to the distribution system and sell power at wholesale, the Commission has jurisdiction to regulate those sales.”

Put differently, according to the dissent sales from distribution-level storage to an RTO are FERC-jurisdictional, but FERC can’t require RTOs to set rules that allow for such sales unless those rules also provide states with an opt-out.

The heart of the dissent’s argument is the Federal Power Act does not provide FERC with jurisdiction over “facilities used in local distribution.” Therefore, FERC “cannot mandate that such access [to RTO markets] be provided on local distribution facilities.”

The majority responds that its order regulates RTOs. States and utilities do not have to do anything. If a state/utility allows a 100+kW storage resource to connect to a distribution grid and store and inject energy, the state may not prohibit that resource from selling to an RTO

This is worth re-repeating – the rule regulates RTOs and only RTOs. Under the rule, storage resources that have permission from their utility to connect and inject energy may choose to sell to RTOs. State and local regulators may not prohibit that choice.

The dissent insists that FERC’s storage rule is different from its demand response rule, which also involves retail ratepayers selling services to RTOs (although through an aggregator) and was upheld by the Supreme Court.

SCOTUS found that “every aspect of FERC’s regulatory plan [for DR] happens exclusively on the wholesale market.” Here, the dissent claims that mandating access to distribution facilities to sell to RTOs creates a regulatory plan that fails to “happen[] exclusively” at wholesale.

Key to this argument is the dissent’s understanding of physics. A storage device “quite literally pushes or pulls energy across the distribution facilities and thereby has a very real physical impact on the distribution system,” says the dissent.

Demand response, on the other hand, “literally does not ‘use’ the distribution facilities; it is affirmatively choosing to reduce its consumption of electricity.”

But that choice to consume less in response to RTO prices and sell that DR service to an RTO changes the amount of energy “pulled” across distribution facilities. Both storage and DR affect power flows. Regardless, I’m not sure why any of this has jurisdictional consequences.

To re-re-repeat – only storage resources that have permission from the utility to connect and inject energy may sell at wholesale to an RTO. Those resources are already pushing and pulling energy across distribution facilities.

The dissent draws a new legal line – FERC may not allow resources connected to local distribution facilities to sell energy at wholesale without first gaining consent from state or local regulators that energy may be delivered over local facilities.

I don't see this line in the FPA, and I don't think the dissent has a reasoned argument that gets there.

So what happens next? My guess is that at least one entity files a lawsuit at the DC Circuit. If FERC loses, presumably the storage rule remains intact, except that FERC has to grant an opt-out. So I think the bulk of the order is completely safe from litigation risk.

The next step for FERC is to finalize its DER aggregation rule. I don’t see meaningful distinctions between the legality of distribution-level storage and aggregations of other DERs.

There may be technical operational differences, so perhaps this rule is not a foregone conclusion. But if you’re against RTOs allowing DERs into the market, it makes sense to litigate this opt-out issue now wrt storage rule.

Sidenote 1: Yesterday's order endorses the arguments filed recently by the Arkansas PSC and @AEEnet's @EnergyLawJeff in the DER aggregation docket (linked from this article utilitydive.com/news/allowing-…

@AEEnet @EnergyLawJeff Sidenote 2: In a footnote, the dissent expresses concern that the rule “may be perceived as impermissible commandeering of the states to implement federal policy” in violation of the US Constitution.

@AEEnet @EnergyLawJeff But does the rule actually commandeer state officials? The dissent says yes – the rule “requires states to act in or to implement the Commission’s direction to permit storage to connect to distribution facilities…”

@AEEnet @EnergyLawJeff This is wrong. The rule doesn’t require states to interconnect any storage devices. Re-re-re-repeating myself - only devices permitted to connect and inject energy may sell to RTOs.

@AEEnet @EnergyLawJeff The dissent goes on to explain that distribution-level storage will have distribution-level consequences, which will require state regulators to “review and act” “before the distribution utility may implement” FERC’s rule.

@AEEnet @EnergyLawJeff The dissent goes on to explain that distribution-level storage will have distribution-level consequences, which will require state regulators to “review and act” “before the distribution utility may implement” FERC’s rule.

@AEEnet @EnergyLawJeff The dissent also hypothesizes that state law may need to be changed so as to permit storage to connect to distribution facilities. I believe that this is also wrong. As I have explained already, the rule does not require utilities to connect any devices.

@AEEnet @EnergyLawJeff That said, there could be consequences for local reliability and retail rates, and state regulators may need to act in response. But that’s pretty standard stuff in a system that assigns roles to state and federal regulators.

@AEEnet @EnergyLawJeff For instance, when FERC approves a regional transmission cost allocation, a transmission developer may then file for siting permission in a state. The state then has to respond to that application. FERC's order does not commandeer state officials.

@AEEnet @EnergyLawJeff Or, FERC may issue a NERC standard that requires physical protections at critical infrastructure facilities. The facility owner may need to apply for state or local building permits to comply. FERC’s action does not commandeer state officials.

@AEEnet @EnergyLawJeff Under SCOTUS precedent, the “Federal Government may not compel the States to enact or administer a federal regulatory program.” supreme.justia.com/cases/federal/… But dealing with effects of Federal programs, as PUCs may do here, is different from an impermissible compulsion.

@AEEnet @EnergyLawJeff Sidenote 3: All 4 FERC Commissioners agree that sales by a DER directly to an RTO are wholesale sales in interstate commerce, and therefore FERC has exclusive authority over rates.

@AEEnet @EnergyLawJeff I argue in version 1.0 of this paper that FERC has authority in interpret “in interstate commerce” such that energy sales by DERs to a local buyer are under state authority. Version 2.0 of this argument coming soon. eelp.law.harvard.edu/wp-content/upl… /end

@AEEnet @EnergyLawJeff Addendum to thread on McNamee's storage order dissent: The 7th Circuit rejected a 10th Amendment challenge to a FERC order in reviewing a transmission cost allocation order -- statepowerproject.files.wordpress.com/2014/03/illino…