By Rory D. Sweeney

Environmentalists last week urged FERC to decide whether states can control participation of energy efficiency resources (EERs) in RTOs, while state officials said the commission should take no action.

The group Advanced Energy Economy petitioned FERC on June 2 to issue a declaratory order ruling that it has “exclusive jurisdiction” under the Federal Power Act to regulate EER aggregators involved in wholesale markets (EL17-75). AEE further requested that FERC make clear that retail regulators, such as state public utility commissions, have no such authority unless FERC grants it to them.

The group — whose members include Johnson Controls, Landis+Gyr, Lockheed Martin and other technology companies — asked FERC to rule after PJM began a stakeholder process to examine how it allows EER aggregations to participate in its wholesale markets. The initiative also was to investigate the potential for creating an “opt out” mechanism for regulators like what PJM developed for demand response in response to Order 719.

PJM’s initiative began after the East Kentucky Power Cooperative discovered an aggregator was attempting to sell into the RTO’s markets EERs that originated in its distribution territory. EKPC requested a legal opinion from the state Public Service Commission, which responded and later provided a declaratory order denying aggregators the right to sell Kentucky EERs into PJM’s markets without receiving its blessing.

At the Kentucky commission’s request, PJM then proposed the stakeholder process, which received substantial discussion before being endorsed. Rick Drom, an attorney representing the still-unidentified aggregator in Kentucky, argued that the process was “a flawed solution seeking a problem,” while PJM’s Denise Foster defended the RTO’s actions as reasonable preparation to develop appropriate rules should a regulatory agency act. (See “EE Problem Statement Narrowly Approved,” PJM Market Implementation Committee Briefs.)

Stakeholders from around the country weighed in last week before the deadline on filing comments. PJM said it neither supports nor opposes the petition, but it asked FERC to clarify states’ role “relative to retail customers that participate, either directly or indirectly, as supply-side EERs in the PJM capacity market.”

The Sierra Club, the Natural Resources Defense Council, the Sustainable FERC Project and the Environmental Defense Fund filed in support of the request. They supported AEE’s argument that there is no “nexus” between aggregating the EER credits and impacts on retail electricity usage.

“Because the transaction creating the EER occurs at the level of the manufacturer or the distributor of the energy efficiency product, a retail regulator’s authority over retail customers is not implicated,” according to a joint filing from the environmental groups. “We urge FERC to issue a focused order that resolves the cloud of uncertainty hanging over the participation of wholesale EERs in PJM’s market, while carefully avoiding a broad determination of state-federal jurisdiction that would be unnecessary and detrimental to the flexibility inherent in the statute.”

It also asked FERC to “redirect” PJM’s stakeholder process, saying the RTO “wrongly predetermined the framing and outcome of the process to address concerns about retail interactions of EERs.”

The Organization of MISO States, the Kentucky PSC, Kentucky Attorney General Andy Beshear, the Illinois Municipal Electric Agency (IMEA), the American Public Power Association and the National Rural Electric Cooperative Association all filed in opposition to the petition.

The Kentucky parties, filing jointly, argued that the sales do “have a direct nexus with retail electric customers” and that EE aggregation pose a “significant, adverse impact” to load-serving entities in the state. Energy savings are not separate from sales because PJM defines EERs as a “continuous reduction” in consumption, they said.

“The Kentucky parties argue that such sales would solely benefit the EER provider to the detriment of the LSE’s retail ratepayers,” they said. “Absent a retail customer’s load reduction, there is no EER to participate in the PJM market. The fact that the EER bidder has no contract or agreement with the retail electric customer, who may not even know that it is participating in the PJM wholesale market, is irrelevant. If the retail electric customer’s load reduction is bid by an EER into the PJM market, that customer is indirectly participating in the wholesale market.”

Unknown aggregations would cost ratepayers money, they argued.

“Absent inclusion of the EERs in the resource assessment of a Kentucky utility, it will either over procure capacity, resulting in higher than necessary costs for retail customers, or have excess capacity that should have been sold to benefit retail customers. Thus, without participation through a tariff or special contract, EERs in Kentucky are being enriched by higher rates paid by the utility’s other retail customers,” they said.

IMEA asked FERC to reject the petition and let the PJM stakeholder process play out. It argued that allowing aggregators to pull out individual customers from LSEs can threaten their financial and resource planning while “allowing a customer that provides no benefits to the system or to Milltown’s [a fictional IMEA municipal member] other customers to access the revenue [streams] from PJM’s markets to the detriment of [the LSE’s] own system benefits and ratepayers.”

NRECA also said the petition was premature, as PJM hasn’t developed tariff language and Kentucky hasn’t taken any action to limit EER bids.

“Too many facts are unknown, and the scope of the declaratory relief being sought is ill-defined,” NRECA spokesperson Tracy Warren said. “And in no case should FERC revisit the basis for its 2008 order on DR bids, as the petition invites.”

OMS filed in support of using the same “opt out” process as developed for DR in Order 719. “Wholesale EERs present the same type of concerns that were raised during the robust process leading to the issuance of Order 719.”

The organization warned that allowing EE aggregator participation would impact utility planning and attainment of mandated efficiency targets.

“It’s worth noting that the single energy efficiency program type that AEE relies on throughout its petition, reducing product cost directly at a retailer/supplier, typically has a very high [benefit-to-cost] ratio and is often a centerpiece of utility energy efficiency programs. By allowing aggregators to sign up retailers and suppliers for purpose of generating wholesale EERs, those same retailers and suppliers are no longer available to utilities to implement their own programs. Furthermore, the utility may have assumed the availability of certain retailers to participate in a utility efficiency program,” OMS said.