By Rich Heidorn Jr.

FERC has waded into yet another state-federal jurisdictional dispute, claiming “exclusive authority” over the participation of energy efficiency in wholesale markets but preserving a carveout it approved earlier for Kentucky utilities.

The commission’s ruling came in response to Advanced Energy Economy’s request for a declaratory order on FERC’s authority over energy efficiency resources (EER). AEE, which represents companies such as General Electric, Nest and Johnson Controls, filed the petition in June after the Kentucky Public Service Commission ruled that retail customers cannot participate in any PJM wholesale market without the state’s permission.

The PSC’s order was in response to a filing by East Kentucky Power Cooperative, which said it was buying more capacity than needed because of providers bidding EER products from its service territory into PJM’s capacity auction.

AEE’s concerns focused on third-party EERs, such as those created when an aggregator contracts with the manufacturer and retailer of high-efficiency appliances, light bulbs or heating and cooling systems.

FERC sided with AEE, saying the commission “has exclusive jurisdiction over the participation of EERs in wholesale markets,” and that relevant electric retail regulatory authorities (RERRAs) “may not bar, restrict or otherwise condition the participation of EERs in wholesale electricity markets unless the commission expressly gives RERRAs such authority.” Commissioner Richard Glick, who was sworn in Nov. 29, did not participate in the Dec. 1 order (EL17-75).

PJM Integration

However, FERC said it would honor its 2004 order approving Kentucky Power’s integration into PJM, which granted the utility the right to prevent its customers from participating in the RTO’s demand response or load interruption programs. The opt-out stipulation was later extended to Duke Energy Kentucky and EKPC when they joined PJM.

FERC rejected opponents’ claims that AEE’s petition was premature. “We agree with AEE that the novel issues of federal and state jurisdiction presented here warrant commission guidance,” FERC said, noting that PJM also asked the commission to weigh in.

The commission also said that FERC Order 719 “does not provide for a RERRA to exercise an opt-out and bar or restrict the sale into the wholesale electricity markets of EERs originating in their state or local area.” The 2009 order required RTOs and ISOs to permit aggregators to bid DR on behalf of retail customers directly into the grid operators’ markets unless the RERRA bars participation by retail customers.

“Although in Order No. 719 and Order No. 745 the commission granted RERRAs an opt-out from allowing resources to participate as wholesale demand response, we find that the commission was not obligated to do so,” FERC said, citing the Supreme Court’s 2016 ruling in FERC v. Electric Power Supply Association. The EPSA ruling upheld Order 745, which required RTOs to pay DR the same LMPs as generation. (See Supreme Court Upholds FERC Jurisdiction over DR.)

The commission also said the effects of EER participation on the retail markets “are not substantial.”

“Unlike demand response resources, EERs are not likely to present the same operational and day-to-day planning complexity that might otherwise interfere with [a load-serving entity’s] day-to-day operations. Even if PJM’s add-back mechanism failed to ensure that an LSE’s procurement obligation was unaffected, we agree with AEE that any such impacts should be addressed through PJM’s tariff provisions and not through a broad prohibition on EER participation in wholesale markets.”

But FERC said it was “appropriate” to allow the Kentucky opt-out “as a longstanding agreement relied upon by the parties and entered into prior to the clarification of jurisdiction over wholesale demand-side management in EPSA and this order.”

The commission said although some EERs originating in Kentucky have cleared in PJM capacity auctions, “we find that any necessary market changes should be implemented in a manner that does not require changes to the [auction] results.”

The commissioners declined to state the requirements they would impose in the future if a retail regulator seeks to restrict third-party EER sales.

Back to the Courts?

The Supreme Court has issued three rulings interpreting state-federal jurisdiction under the Federal Power Act since 2015. The commission’s preservation of the carve out would seem to foreclose a court challenge by Kentucky regulators. But it’s no guarantee that other states lacking such agreements won’t seek to overturn the ruling. (See Court’s Reticence Frustrates Energy Bar.)

AEE nevertheless praised FERC’s ruling as a “win for advanced energy innovators and consumers alike.”

FERC’s assertion of jurisdiction “is critical for maintaining free and open competition, with all technologies competing on price and performance,” the group said.