A landmark order passed by FERC in 2018 paving the way for energy storage deployment has been upheld in court.
FERC's Order 841 is aimed at removing barriers to the participation of storage in wholesale markets run by the ISOs and RTOs. Storage resources may face barriers because they have unique physical and operational characteristics distinct from traditional resources. Order 841 directs each ISO/RTO to ensure that its participation models allow storage resources "to provide all capacity, energy, and ancillary services that [they are] technically capable of providing." In a decision handed down on July 10, 2020, the US Court of Appeals for the DC circuit emphasized that keeping the gates open to all types of storage resources "ensures that technological advances in energy storage are fully realized in the marketplace, and efficient energy storage leads to greater competition, thereby reducing wholesale rates."
The core issue before the DC Circuit was whether FERC exceeded its jurisdiction under the Federal Power Act by unlawfully regulating matters left to the states, namely their power to oversee and manage the local electric distribution system. The Federal Power Act grants FERC exclusive authority to regulate the sale of electricity in wholesale markets, but at the same time expressly provides for states to retain jurisdiction over "facilities used in local distribution or only for the transmission of electric energy in intrastate commerce" and "facilities for the transmission of electric energy consumed wholly by the transmitter" except where otherwise provided under the Act. A national organization of state utility commissioners and other groups of local electric utilities that own or operate local distribution systems challenged Order 841 at the DC Circuit after FERC refused to adopt a proposed state opt-out right on rehearing. They claimed it took away their authority to regulate state distribution systems and block local storage resources from entering the federal market. They argued that favorable participation models are sure to lure local storage resources to the federal marketplace, and to participate in the federal marketplace, behind-the-meter and many other local storage resources will need to use states' distribution systems to interconnect. Thus it is the states who "bear the operational burdens" of storage sources transporting electricity to wholesale markets.
The Court sided with FERC, finding that nothing in Order No. 841 directly infringes upon state control over local electric distribution systems and that "States remain equipped with every tool they possessed prior to Order No. 841 to manage and oversee their facilities and systems." Moreover, the Court pointed out that under the Federal Power Act, FERC has the exclusive authority to determine who may participate in the wholesale markets. Therefore, the Supremacy Clause of the US Constitution – not Order No. 841 – requires that states not interfere with FERC's jurisdiction. Any attempt by states to broadly ban local storage assets from participating in wholesale markets would "invalidly invade the federal agency's exclusive domain."
Although Order 841 was ultimately upheld, it should be noted that the court was careful to strike somewhat of a delicate balance between federal and state power. Under the ruling, states still have important powers when it comes to regulating local storage resources, such as the following:
- States can prohibit local storage resources from participating in federal and local markets simultaneously, meaning states can force local storage resources to choose which market they wish to participate in.
- States can impose safety and reliability requirements without interference from FERC. Storage resources must obtain all requisite permits.
- States will be free to challenge FERC orders as applied to a particular state law or policy.
The court noted that more litigation will likely follow as states try to navigate the delicate state-federal jurisdictional line.