D.C. Circuit Decision Upholds Access to Wholesale Markets for Energy Storage Resources, but Will More Litigation Follow?

On July 10, 2020, the D.C. Circuit upheld FERC Order 841, the landmark order requiring wholesale markets to allow participation by energy storage resources.  Challengers had contended that by prohibiting states from barring energy storage resources on the distribution system from participating in wholesale markets, FERC had exceeded its jurisdiction and infringed on state authority.

The D.C. Circuit rejected those claims.  First, it found that Order 841 was targeted at practices affecting wholesale rates – “If ‘directly affecting’ wholesale rates were a target, this program hits the bullseye.”  Next, it found that Order 841, although it requires access to wholesale markets that will occur over distribution systems, did not directly regulate those distribution systems.  The Court noted that states “remain equipped with every tool they possessed prior to Order No. 841 to manage their facilities and systems.”  While the challengers argued that prohibiting states from closing their distribution systems to energy storage resources seeking to participate in wholesale markets took away one such tool, the Court countered that, regardless of Order 841, the Federal Power Act’s exclusive grant of authority over participation in wholesale markets to FERC preempted such an absolute closure.

This decision is an important victory for energy storage resources’ access to wholesale markets.  But it will not end debate about the precise metes and bounds of federal and state jurisdiction over electricity transactions, even in this narrow context.  Indeed, the Court’s decision included the following statements, intended to console states regarding their retained authority, which may foreshadow the playing field for future litigation:

States retain their authority to prohibit local ESRs from participating in the interstate and intrastate markets simultaneously, meaning States can force local ESRs to choose which market they wish to participate in. States retain their authority to impose safety and reliability requirements without interference from FERC, and ESRs must still obtain all requisite permits, agreements, and other documentation necessary to participate in federal wholesale markets, all of which may lawfully hinder FERC’s goal of making the federal markets more friendly to local ESRs.

The line between “lawfully hinder[ing]” market participation and impermissibly foreclosing such participation may prove to be fertile ground for future disputes.  As the Court itself acknowledged, “Petitioners are likely correct that litigation will follow as States try to navigate this line, but such is the nature of facial challenges.”

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