In two orders concurrently issued on April 17, 2018, FERC reaffirmed its jurisdiction over the participation of energy efficiency resources (“EERs”) in wholesale electricity markets and accepted an EER-related tariff filing from PJM Interconnection, L.L.C. (“PJM”). In one order, FERC denied rehearing and granted clarification of a December 1, 2017 order (“Declaratory Order”) asserting jurisdiction over EERs, rejecting claims that FERC had overstepped its “directly affects” jurisdiction under the Federal Power Act (“FPA”), and in the second order, FERC applied that understanding to find PJM’s proposal to integrate EERs into PJM’s wholesale markets just and reasonable.

On June 5, 2017, Advanced Energy Economy (“AEE”) filed a petition for declaratory order seeking, among other things, a FERC finding that relevant electric retail regulatory authorities (“RERRAs”) lack authority to bar, restrict, or otherwise condition the participation of certain EERs in wholesale electricity markets (see December 6, 2017 edition of the WER). AEE’s petition was prompted both by an ongoing PJM stakeholder process to allow RERRAs to restrict EER participation in PJM’s wholesale markets, and a Kentucky Public Service Commission (“Kentucky Commission”) proceeding to effectuate such restricted participation—a result formalized in a Kentucky Commission order issued the day after AEE filed its petition.

In its Declaratory Order, FERC found that it had jurisdiction over the wholesale EER participation as a practice “directly affecting” wholesale markets, rates, and prices, similar to FERC’s basis for jurisdiction over participation of and compensation for demand response in organized wholesale markets. Thus, FERC concluded that “RERRAs may not bar, restrict, or otherwise condition the participation of EERs in wholesale electricity markets unless the Commission expressly gives RERRAs such authority.” (Nonetheless, in the case of Kentucky in particular, FERC upheld the restrictions, “due to the fact that the Commission accepted such condition at the time the Kentucky Commission approved the integration of Kentucky Power into PJM.”).

Various parties requested rehearing of FERC’s Declaratory Order, arguing, among other things, that FERC had overstepped its FPA authority to regulate wholesale markets and practices “directly affecting” wholesale rates, terms, and conditions, and that FERC was impermissibly overriding legitimate state and local regulation of retail electric service. As one group argued, the Supreme Court’s decision in EPSA v. FERC (“EPSA”) upholding FERC jurisdiction over wholesale demand response participation (see February 2, 2016 edition of the WER) was premised on FERC’s “solicitude” or “deference” to the states, and thus, prevented any broad extension of FERC’s jurisdiction. Moreover, several parties asserted FERC’s assertion of federal preemption was misplaced, as state restrictions on EER participation are intended to achieve legitimate state purposes, such as ensuring reliable and reasonably-priced retail power.

Separately, following the culmination of its stakeholder proceeding, PJM filed tariff revisions in another docket to establish a procedure to implement any restrictions imposed on EERs by a RERRA. Among other aspects, under PJM’s proposal, EERs would be allowed to participate in PJM’s capacity market subject to a verification process to ensure that such resources comply with any (FERC-approved) restrictions imposed by an authorized RERRA. The proposal also sought to grant relief to EER sellers that may be subsequently restricted by an authorized RERRA after having already cleared a PJM capacity auction.

In the two separate orders, FERC (i) granted limited clarification but largely rejected rehearing requests of its Declaratory Order, and (ii) approved PJM’s EER tariff filing. In the first order, FERC rejected attempts to distinguish EPSA from the present case. As FERC argued, its decision was squarely in line with EPSA because FERC is regulating what takes place in the wholesale, as opposed to retail, market. In upholding FERC’s demand response regulations, FERC asserted, the Supreme Court merely observed, but did not rely upon, FERC’s “solicitude” in allowing states to opt out of wholesale demand response participation. In the order denying rehearing of the Declaratory Order, however, FERC clarified that its assertion of jurisdiction over EERs “does not preclude” taking state preferences into consideration, and that FERC would consider state proposals to opt out of allowing wholesale EER participation on a case-by-case basis. In the order addressing PJM’s EER tariff filing, FERC found PJM’s tariff revisions to be just and reasonable, and consistent with the Declaratory Order and FERC’s commitment to ensure that EER participation is on equal footing with demand response, generation, and transmission solutions. To that end, FERC also found that it was just and reasonable for PJM to grant relief for EER sellers that had cleared a capacity auction but were subsequently restricted by a RERRA.

A copy of FERC’s order denying rehearing and granting clarification in part of the Declaratory Order can be found here.

A copy of FERC’s order approving PJM’s EER-related tariff filing can be found here.