AEE Requests Declaratory Rulings on Federal Preemption for Energy Efficiency Resources in FERC-Regulated Markets

On June 5, 2017, Advanced Energy Economy (“Advanced”), a national trade association representing organizations within the energy efficiency, demand response, and other advanced energy industry sectors, filed a petition for a declaratory order with FERC.  Among other things, the petition requests that FERC assert exclusive jurisdiction over how Energy Efficiency Resources (“EERs”) can participate in markets operated by Regional Transmission Organizations and Independent System Operators (“RTOs/ISOs”).  In particular, Advanced highlights a recent proposal from PJM Interconnection, L.L.C. (“PJM”) to initiate a stakeholder process to ultimately grant state regulators the authority to bar, restrict, or otherwise condition EER participation in PJM’s capacity market.  The petition, filed while FERC still lacks a quorum to take action, came just days before the Kentucky Public Service Commission (“KYPSC”) issued an order restricting participation of EERs in PJM wholesale markets.

EERs are a type of wholesale capacity product that represents the electricity savings created through the sale and use of energy efficiency products such as high efficiency lighting, appliances, and modern HVAC systems.  In March 2017, the East Kentucky Power Cooperative (“East Kentucky”) filed an application for a declaratory order with the KYPSC in which it argued that it lacked the ability to accurately estimate its load for purposes of bidding into PJM’s capacity market as a result of East Kentucky retail customers simultaneously bidding EER-capacity products into the market as well.  To prevent acquiring expensive and unnecessary capacity, East Kentucky sought an order from the KYPSC to prevent direct or indirect participation of retail customers in PJM markets except through either a tariff or special contract on file with the KYPSC.

In response to East Kentucky’s application, PJM submitted a letter to the KYPSC in which it stated that, among other things, it would engage in a stakeholder effort to change its Open Access Transmission Tariff (“OATT”) to essentially allow state regulators to restrict EER participation in PJM’s wholesale markets in a manner similar to current restrictions on demand response resources.  To that end, PJM then introduced draft proposals in April and May 2017 to initiate such a stakeholder process and develop the necessary revisions for its tariff, governing documents, and manuals.  Advanced argued against allowing state regulators to control “wholesale EERs [that] have no legal nexus or connection with” state-regulated retail services, but ultimately filed its petition seeking a declaration from FERC.

In its June petition, Advanced argues that the PJM proposal lacks a jurisdiction, market design, or reliability justification.  “The creation and participation of Wholesale EERs in the RTO/ISO markets occurs wholly outside State-regulated electric utility service.” Allowing states to essentially bar participation of these EERs, Advanced argues, would result in unjust and unreasonable barriers to participation by EERs and hinder the ability of RTOs and ISOs to administer their markets under FERC’s guidance.  Advanced requests that FERC issue a declaratory order that, among other declarations, asserts its “exclusive jurisdiction over the rates, terms, and conditions under which wholesale EERs are sold in wholesale electricity markets.”

On June 6, 2017, following the submittal of Advanced’s petition, the KYPSC issued an order in response to East Kentucky’s application.  In that order, the KYPSC stated that “[n]o retail electric customer is authorized to participate directly or indirectly in any PJM wholesale market, including but not limited to DR programs and EER programs, except under a tariff or special contract on file with the [KYPSC].”  That next day, June 7, PJM’s Market Implementation Committee narrowly approved the proposal to begin a stakeholder process on how to allow state regulators to restrict EERs, by 51 to 49 percent, according to a news report from PJM.  However, it is unlikely that PJM will submit proposed tariff revisions until after FERC rules on Advanced’s petition—a ruling that would only be possible once FERC regains a quorum (see February 21, 2017 edition of the WER).

Advanced’s petition for declaratory order can be found here, as well as in FERC Docket No. EL17-75-000.

The KYPSC June 6, 2017 order can be found here.

A version of this article first appeared on the Washington Energy Report hosted by Troutman Sanders LLP.

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