The goals of restructured wholesale electric markets often conflict with state electric goals. In 2016, the U.S. Supreme Court addressed two of these conflicts; (1) regulation of demand response; FERC v. Electric Power Supply Ass’n.1 (participation by demand response resources in FERC jurisdictional markets is not the regulation of retail sales subject to state jurisdiction) and (2) state subsidies for new generation; Hughes v. Talen2 (ruling that states cannot subsidize new generation in a manner that affects FERC jurisdictional wholesale capacity markets). State subsidies to keep nuclear facilities operating have spawned numerous FERC complaints and federal district court litigation. There is a pending open FERC docket, Docket No. AD17-11-000, State Policies and Wholesale Markets Operated by ISO New England Inc., New York Independent System Operator, Inc., and PJM Interconnection, L.L.C., where the issue is reconciling state policies on generation — primarily new renewables but also existing nuclear — with the existing wholesale power markets in the Northeast, specifically the proper functioning of FERC jurisdictional capacity markets.

The latest conflict — the jurisdiction over the resources obtained from energy efficiency improvements.

  • The battleground — a petition for declaratory order filed June 2, 2017, by Advanced Energy Economy (AEE), a trade association representing energy efficiency resources (EERs) in FERC Docket No. EL17-75.
  • The resources at issue — energy efficiency resources;3 aggregating energy efficiency improvements and then selling those improvements as a product in the wholesale market, specifically capacity.4
  • The issue — whether states can prevent the energy efficiency resources in their state from participating in the wholesale market, particularly the capacity market.
  • The combatants — AEE, East Kentucky Power Company (EKPC), the Kentucky Public Service Commission (KPSC), and PJM.

Early skirmishes occurred at the KPSC and PJM. EKPC filed a petition with the KPSC5 asking that the KPSC prohibit EERs from participating in the PJM market except under a tariff or special contract approved by KPSC.6 EKPC also asked PJM to prohibit the EERs in their service territory from participating in the PJM wholesale market unless the KPSC approved. PJM initiated a stakeholder process that would prevent EERs from participating in the future (and if necessary provide a process for wiping out current capacity commitments) if a state restricted its EERs from participating in the wholesale market.7

The AEE responded to PJM’s actions by filing its petition asking FERC to exercise jurisdiction over wholesale EERs (and stop the stakeholder process.)8 The petition seeks a FERC declaration:

  1. That under the Federal Power Act, the Commission has exclusive jurisdiction over the rates, terms, and conditions under which Wholesale EERs are sold in wholesale electricity markets;9 and
  2. That an RERRA may not bar, restrict, or otherwise condition the participation of Wholesale EERs in wholesale electricity markets unless the Commission expressly adopts rules or regulations giving states and retail regulators such authority.10

FERC Docket No. EL17-75. Comments due July 5, 2017.

A key issue in the case will be whether EERs are just another form of demand response. If FERC decides EERs are a form of demand response, they will likely find that (i) a state can prohibit its EERs from participating in the wholesale market — the same as demand response resources — and (ii) more specific to Kentucky, that allowing EERs in EKPC’s service territory to participate in the PJM wholesale market, without KPSC approval, would be inconsistent with the KPSC decisions integrating EKPC’s assets into PJM.11

EKPC and the Kentucky PSC are likely to argue that EERs are the same as demand response. Both involve retail customers reducing load — the only difference being one of timing, demand response being a temporary reduction by the retail customer, energy efficiency being a permanent reduction by the retail customer. As the KPSC decision says:

In basic terms energy efficiency produces a similar result as demand response: both reduce a customer's load which, in sum, reduces demand on the utility supplier’s system. They differ in the respect that energy efficiency is typically a permanent reduction in load, while demand response is typically a temporary reduction or shifting of the load during certain hours of the day. However, both have the same impact by reducing the load of the supplying utility.12

The AEE will counter that while the resources may have developed from the load of retail customers, there is no nexus with or connection to state-regulated retail electric service; specifically (i) EERs are developed separate and apart from any purchases or sales of retail electricity, (ii) retail customers are not dispatched to produce those resources, and (iii) there is no ongoing communications or relationships with retail customers.13