D.C. Circuit Backs FERC on Electric Storage Rule

Akin Gump Strauss Hauer & Feld LLP

The U.S. Court of Appeals for the D.C. Circuit recently upheld the Federal Energy Regulatory Commission’s (FERC or “Commission”) Order No. 841, a 2018 rulemaking addressing electric storage resources. The purpose of Order no 841—discussed previously on Speaking Energy here and here—was to remove barriers to the participation of electric storage resources in the wholesale markets operated by regional transmission organizations and independent system operators (RTOs/ISOs). FERC required each RTO/ISO to revise its tariff to ensure, among other things, that storage resources can provide all of the energy, capacity and ancillary services they are capable of providing. 

Most controversially, FERC declined to allow states to decide whether storage resources interconnected at the local distribution level—the part of the power grid under state jurisdiction—may participate in the federally regulated RTO/ISO markets. That decision drew legal challenges, as locally interconnected storage projects must use the state-jurisdictional distribution facilities to reach the federally regulated wholesale power markets. The National Association of Regulatory Utility Commissioners, the American Public Power Association and others argued on appeal that FERC exceeded its jurisdiction by unlawfully regulating matters left to the states.

The D.C. Circuit was not convinced. Conceding that FERC’s rule will “lure” locally interconnected storage to the federal markets, which will require use of state-regulated distribution systems, the panel concluded that there is no jurisdictional problem: any impact on state regulation due to FERC’s rule is the type of “permissible effect” of federal regulation allowed under the Federal Power Act, as articulated in the U.S. Supreme Court’s EPSA decision.1 Nothing in Order No. 841 directly regulates the state-jurisdictional distribution system; states “remain equipped with every tool they possessed prior to Order No. 841 to manage their facilities and systems.”

The court explained that states retain the authority to ban local storage resources from participating in both the (state) retail and (federal) wholesale markets simultaneously. They may, therefore, force some storage resources to choose one market or the other. States also retain their authority to impose safety and reliability requirements on the distribution system, even if those requirements may “hinder FERC’s goal of making the federal markets more friendly” to storage. Under federal preemption jurisprudence, though, there is a distinction between states taking direct aim at matters within FERC’s jurisdiction and states taking measures aimed at fulfilling their own jurisdictional obligations. The former must fall when such action threatens the scheme of federal regulation. Ultimately, the Supremacy Clause in the U.S. Constitution, not Order No. 841, prohibits states from interfering with FERC’s regulation of electric storage in the wholesale power markets, the court held. 

In addressing this facial challenge to FERC’s rule, the court noted that its decision need not address every hypothetical state regulation. States and other parties will be free to challenge FERC’s rule on an “as applied” basis going forward.


1 FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 776 (2016).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP
Contact
more
less

Akin Gump Strauss Hauer & Feld LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.