FERC picks clean energy turf battle with states, utilities

Source: By John Siciliano, Washington Examiner • Posted: Wednesday, May 2, 2018

The federal government’s independent electricity watchdog has been venturing into new territory with a series of regulations for clean energy that states and utilities warn trample on state authority and could cost consumers more money.

Jurisdictional battles between the Federal Energy Regulatory Commission and the states are nothing new, but they are becoming more common as the way energy is produced and managed rapidly changes.

Court cases between the states and the FERC over its jurisdiction when regulating energy consumers have increased in recent years, and the commission’s new rules under Trump’s chairman, Kevin McIntyre, is set to raise that number.

“FERC is continually pushing the envelope on its jurisdiction,” said Delia Patterson, senior vice president for advocacy and general counsel at the American Public Power Association. FERC understands where it is crossing the line, but commissioners want to expand their jurisdiction into the states’ domain, she said.

“I think they are evaluating the jurisdictional issues, but they’re pushing for more and more jurisdiction … where they are reasoning out of entering into cooperative federalism,” she said.

The association represents a large chunk of the utility industry made up of not-for-profit power providers and utilities, as opposed to the for-profit, investor-owned electric companies. APPA joined recently with the National Rural Electric Cooperatives Association, representing another big swath of the industry that is also not-for-profit, to lobby House lawmakers to put pressure on FERC to re-examine the state jurisdiction concerns under a new proposal for adding more renewables to the grid.

McIntyre and the commission have moved forward with two major regulations that state commissions and utility groups argue would overstep FERC’s authority under the Federal Power Act by moving the federal government into the energy retail market that states run.

The rules, which are in various stages of being finalized and implemented, blur the line on where the federal government’s jurisdiction ends, while potentially eroding state regulators’ authority, according to utility groups that have opposed the commission’s overreach on the rules.

Clean energy and renewables are one of the reasons for the blurring of the lines. The first rule would ease the integration of energy storage devices, such as large lithium-ion batteries, in the wholesale interstate transmission grid that FERC regulates. But since the devices are distributed within the state-operated grid, FERC’s “jurisdiction creep” is inevitable, according to Patterson.

A second rule, which FERC fought the utilities on, has to do with the treatment of energy-efficiency devices in the wholesale electricity markets. All segments of the utility industry protested the rule, including for-profit electric companies, asking for a rehearing on the rule. FERC looked at the jurisdictional arguments and decided to double down instead, saying the regulations do not violate states’ authority.

The National Association of Regulatory Utility Commissioners, which represents the states on federal utility matters, protested the energy storage rule, asking FERC for a rehearing. The commission is reviewing the regulation in light of the protests.

APPA and NRECA don’t see FERC stopping there. The commission has begun evaluating a new proposal for better regulating solar panels, wind turbines, and a host of other distributed electricity producers on the grid.

Distributed resources mean they can be spread around on the grid, such as a solar panel on a rooftop, unlike conventional power plants that are centrally located. That means they fall on the state side of the electricity market.

FERC oversees the interstate transmission grid, while states run the retail markets that include the lines that connect houses in a city. But the new proposed distributed energy rule looks to give third parties the ability to round up all the solar panels, for example, and bid them into the FERC-controlled markets as though they were a big natural gas or coal plant.

The utility trade groups sent a letter to the Republican chairman and top Democrat of the House Energy and Commerce Committee to advise them about the issue and get FERC to essentially back off from encroaching into the states’ territory.

But the growing number of distributed energy resources, or DERs, is driving the divide even further between the states and the federal government.

John Hughes, president and CEO of the Electricity Consumers Resource Council, said “there is a lot of activity on [distributed energy resources] … that is out of the public eye,” but it isn’t going away.

Hughes says FERC’s reliability watchdog, the North American Electric Reliability Corporation, has done a lot work on the issue, which could have been a problem for his members, which include large industrial users of electricity such as refiners and manufacturers.

NERC develops reliability standards that FERC helps to enforce, making businesses liable for fines up to $1 million per day if they don’t meet the standards.

Some of his clients have what are called “behind-the-meter” generators, small power plants inside their facilities. Hughes was concerned that NERC’s standards on distributed electricity resources would extend to them, making them subject to fines and enforcement if NERC had not differentiated between a FERC-controlled resource and a state-controlled one.

Hughes persuaded NERC to back off by better differentiating between the resources that are regulated and those that are not.

A similar issue is coming up because it also deals with behind-the-meter generators.

Rural utilities are worried that FERC is setting up a situation where third parties would be in charge of their resources, which would undermine how the utilities serve their customers.

“We’re also just concerned that a DER aggregator who’s operating in the wholesale market could undermine operations … and raise the cost for the entire cooperative to try to accommodate that wholesale participation,” said Randy Elliott, NRECA senior director and regulatory counsel.

But the bottom line is distributed energy, be it solar, small wind, batteries, or natural gas microturbines the size of a duffel bag, is here to stay, and FERC needs to develop regulations that help integrate their use effectively, Hughes says.

“A lot of DER is being installed, so grid operation and market designs have to accommodate it,” he said.

Many renewable energy, environmental, advanced technology, and other green tech groups are pushing for FERC’s new regulations as moving toward a grid less dependent on fossil fuels.

Those groups pushed FERC hard to reject NARUC’s claims of a jurisdictional divide. The APPA and NRECA letter urges the House energy committee leadership to urge McIntyre to take into account jurisdictional concerns before moving ahead on another grid regulation.

Rep. Fred Upton, R-Mich., chairman of the committee’s energy policy panel, entered the letter into the record at a hearing on FERC’s budget last month. A spokesman for Upton said “we’re tracking” the issue but have not decided on any actions.

Patterson said the issues likely will get worked out in court.

She pointed out that a new court order by the D.C. Circuit Court of Appeals slamming FERC on jurisdictional grounds gives the utility group hope they can prevail.

The public power group was a party in the case, which had to do with FERC overstepping its authority in regulating pipelines, which APPA is confident can apply to the electricity side of the commission’s operations. The court found that FERC had no authority over the sale of natural gas by the city of Clarksville, Tenn., to the town of Guthrie in Kentucky.

The court agreed that the utility was acting on behalf of the town and therefore is not subject to FERC’s authority, which regulates only people and companies.

Both Patterson and Elliott say legal action is an option in the electricity cases. Patterson says the April 24 court ruling would help demonstrate the limits of FERC’s authority over the grid.