DC Circuit Court Affirms FERC Ruling Opening Markets for Energy Storage

On July 10, 2020, in National Association of Regulatory Utility Commissioners v. FERC, the U.S. Court of Appeals for the DC Circuit affirmed Federal Energy Regulatory Commission (FERC) Order No. 841, thereby ensuring that energy storage resources can participate in the energy, capacity, and ancillary services markets on the nation’s grids, in accordance with approved tariffs. This was a significant win for Pierce Atwood’s client, the U.S. Energy Storage Association.

Order No. 841 was designed to remove barriers that would preclude energy storage resources (ESRs) from participating in the wholesale markets. In its Order, FERC defined ESRs broadly to include “all types of electric storage technologies, regardless of their size, storage medium . . . , or whether the resource is located on the interstate grid or on a local distribution system.”

It was this aspect of the ruling, perceived by some, including the National Association of Regulatory Utility Commissioners, Edison Electric Institute, American Public Power Association, and American Municipal Power Inc., as FERC’s overreach into the states’ jurisdiction, that the appeal was brought.

In evaluating the jurisdictional issue, the court acknowledged that FERC designed Order No. 841 “to lure local ESRs” to the federal marketplace knowing that participation in the wholesale market could require use of states’ distribution systems. In dismissing the appeal, however, the court noted that FERC has an inherent right under the Federal Power Act to oversee wholesale sales of electricity and that ESRs – as defined by FERC -- are participants in the wholesale markets.

Thus, according to the court, Order No. 841 appropriately provides jurisdictional authority over ESRs. And, under the Supremacy Clause of the Constitution, states are precluded from enacting barriers that directly block ESRs from participating in the RTO/ISO markets.

Importantly, the court noted that by implementing Order No. 841, FERC did not impede on the rights of states to continue to operate and manage their facilities with the same authority they possessed prior to the issuance of that Order. Specifically, the court pointed out that Order No. 841 does not preclude states from approving retail rates or imposing rules to ensure reliability and/or safety. Instead, states are only prohibited from enacting rules that directly conflict with FERC’s mandates.

The court also dismissed the arguments that FERC should have provided states with the opportunity to opt-out of the federal requirements. FERC had provided an opt-out option in other cases where it recognized the linkage between the wholesale and retail markets. In Order No. 841 however, FERC explained its reasoning for not offering states the chance to opt-out of the federal mandates and specified that “promoting more participation of ESRs in wholesale markets increases competition, likely causing prices to lower, and more diversity in the types of ESRs encourages participation models that will be untethered to specific storage technologies.” Having provided ample reasons for its decision, the court affirmed that FERC did not act in an arbitrary or capricious manner by foregoing an opt-out opportunity.

For more information about this ruling, or to discuss how your energy storage project could participate in both the wholesale and retail markets per the parameters of the DC Circuit Court’s decision, please contact Pierce Atwood energy partner Andrew Kaplan.