A three-judge panel of the D.C. Circuit Court of Appeals did not seem particularly convinced Tuesday by state regulators’ and utilities’ arguments that FERC exceeded its jurisdiction when it issued Order 841.

Representing the National Association of Regulatory Utility Commissioners, Jennifer Murphy argued that FERC had violated provisions of the Federal Power Act that protected states’ authority over their local distribution systems with Order 841. Issued in February 2018, the order directed RTOs and ISOs to revise their tariffs to allow energy storage resources full access to their markets. (See FERC Rules to Boost Storage Role in Markets.)

Murphy said NARUC is supportive of the order except for “one small, unnecessary aspect,” in which the commission asserted that states could not prohibit storage resources on the distribution side from selling their power into wholesale markets. Along with Dennis Lane — representing organizations including the American Public Power Association and Edison Electric Institute — Murphy cited FPA Section 201b, which says FERC “shall not have jurisdiction … over facilities used in local distribution.”

Lane said that interconnecting distributed storage to the bulk electric system could require upgrades both to utilities’ distribution and transmission systems. “Our concern as distribution utilities is what adjustments we are going to have to make … to the distribution system to allow [a storage owner] to” sell wholesale power, he said. The distribution system “is assigned exclusively to states” under the FPA.

Judge Merrick Garland cited FERC v. EPSA, in which the Supreme Court overruled the D.C. Circuit and upheld FERC’s jurisdiction over demand response resources through Order 745. The D.C. Circuit had ruled that, because DR was a retail product, it was not subject to federal regulation. (See Supreme Court Upholds FERC Jurisdiction over DR.)

But Murphy said 745 allowed states to “opt out” and prevent DR resources from participating in the markets, which the Supreme Court had noted made it in compliance with Section 201b, contrary to the Electric Power Supply Association’s claims. “The issue in the EPSA case was the actual setting of [wholesale rates]; the opt-out happened beforehand, and the courts have said it is only an incidental effect if you’re changing the amount of [what is] participating in the [wholesale] markets,” she said.

Lane also noted that in EPSA, the Supreme Court had agreed with the D.C. Circuit that FERC could not regulate practices that indirectly affected wholesale rates and had noted that the commission had acknowledged this limitation when it issued 745.

Judge Robert Wilkins said, however, that if the petitioners’ “argument was correct, the opt-out wouldn’t fix the problem, because your argument is essentially that FERC can’t mandate the use of these behind-the-meter storage facilities. … It doesn’t matter if they give the states the ability to opt out of the mandate. Your argument is that they don’t have the power to do that in the first place.”

“Well, Judge Wilkins, I don’t want to sound facetious, but we’re pretty practical people,” Lane said, “and if they did an opt-out, we wouldn’t be raising this issue.”

“Although claiming the ability to negate such state decisions, the commission chose not to do so in recognition of the linkage between wholesale and retail markets and the states’ role in overseeing retail sales,” the Supreme Court wrote in EPSA.

Lane argued that the court had not addressed the question of whether the opt-out clause in 745 was legal under the FPA, only that it belied EPSA’s arguments of infringement on state authority. “We’re asking you now to address this question,” he said.

Standing?

The judges also questioned whether the petitioners had standing in the case. Wilkins noted that no request for rehearing of the order made the argument that Lane had about EPSA. He also noted that none of the petitioners had made the argument that FERC exceeded its authority in their opening briefs. They had only argued that the order adversely affected states’ ability to regulate their distribution systems.

The judges also asked multiple times how states and utilities were harmed by the order, noting that they had not made any claim that they were being forced to meet certain requirements. They also asked why the court should not wait until FERC challenged a state prohibiting a resource from accessing a wholesale market before it decided on the issue.

Garland asked Murphy if any state had laws or rules in place preventing distributed storage resources from selling into the wholesale market. Murphy conceded there were not. Garland also asked both her and FERC attorney Anand Viswanathan if the order usurped state authority to prevent storage resources from interconnecting at all; both said no.

Wilkins also asked if the order mandated that states facilitate storages’ participation in the markets. Viswanathan said, “Absolutely not.”

“The commission clarified throughout the rule that whatever authority states or retail regulators had before the rule to police matters like reliability and safety of the distribution system, none of those authorities are changed as a result of the rule,” Viswanathan said.

The petitioners’ arguments seemed to mirror those in Commissioner Bernard McNamee’s dissent a year ago in Order 841-A, which clarified aspects of but ultimately upheld the original order. McNamee said he would have granted rehearing to reconsider not providing states the ability to opt out of the participation model for storage resources located behind the meter. (See FERC Upholds Electric Storage Order.)

But Viswanathan pointed out that “no one at the commission level made the argument that the commission simply does not have authority to regulate electric storage resources.”

“What [the petitioners] have argued is that even if the commission has the authority over this practice, states still have to consent to it,” he continued. “The problem with that … is because of the limited nature of their challenge, either the commission has the authority over the practice, or it does not. … There’s no suggestion in the statute that the commission’s Federal Power Act authority hinges on states approving” that authority.

Analysis

“In our view, at least two of the three judges at the court appeared skeptical of claims brought by petitioners that FERC exceeded its statutory authority,” ClearView Energy Partners said in a memo. “Therefore, we think the court may uphold the provision, either by rejecting petitioners’ standing or by affirming the provision as within the commission’s exclusive jurisdiction.”

Even if the court agreed with the petitioners, ClearView said, “we do not expect a disruptive change to the opportunities for [storage] to participate in the wholesale markets and potentially earn new revenue streams” because their challenge was only to a narrow aspect.

“The court did not appear headed toward making a broad jurisdictional conclusion that would vacate 841,” Jeff Dennis, general counsel for Advanced Energy Economy, tweeted. “Seems like the court could either (1) dismiss for lack of standing, saying no state has shown precise harm to its regulation of distribution facilities or (2) find that 841 properly exercises FERC’s authority over wholesale transactions by local storage resources, while leaving to a future case how this exercise of authority interacts with state actions to regulate safety and reliability of distribution facilities.”