Order 841 and Federal Power Act Jurisdiction

By Matthew Piggins*

Battery storage is “the bacon of the electric grid because it makes everything better.”[i] It is also the key to the decarbonizing the electric grid. Battery storage serves two primary functions. First, and more importantly, batteries can store electricity at periods of low demand and output electricity at periods of high demand,[ii] necessary for the large scale deployment of intermittent renewable energy, like wind and solar.[iii] Wind and solar generation can only produce power when the wind is blowing or the sun is shining. Battery storage allows those resources to operate more like conventional sources of generation, turning on and off when required.[iv] Without battery storage, the electric grid will not be able to operate reliably with high levels of renewable energy.[v]

Second, battery storage can improve the efficiency and reliability of the grid through frequency regulation.[vi] Frequency regulation provided by power generators helps to control the rate that an alternating current changes direction.[vii] This rate, measured in hertz, affects the efficiency of the electric grid and helps to maintain grid stability.[viii] Basically, batteries help to improve the value of the generation we already have.

Battery storage technology is heterogeneous. It’s owned by utilities and independent power producers (“front of the meter”).[ix] It’s installed in individuals homes and in commercial buildings (“behind the meter”).[x] It also uses various technologies—lithium ion, flow storage, lead acid and others. And it has improved drastically in recent years.

Yet battery technology is still nascent, and only a small amount of battery storage capacity has been installed in the United States.[xi] Consequently, interconnected system operators (ISOs) —the companies that set the rules for electricity markets—have not created procedures that allow battery storage to fully participate in these markets.[xii] Batteries, therefore, aren’t able to sell all of their services to the electric market, and they aren’t compensated fully for the services they do provide.

In February 2018, the Federal Energy Regulatory Commission (FERC) issued Order 841.[xiii] Its purpose is to allow battery storage technologies full access to electricity markets.[xiv] The Order instructs ISOs to remove barriers to market participation for energy storage.[xv] Specifically, the order requires ISOs to create market structures that compensate battery storage for all of the “physical and operational characteristics of electric storage resource,” including “all capacity, energy, and ancillary services that it is technically capable of providing.”[xvi] This means that ISOs need to develop rules to pay energy storage for all of the services it can provide to the electric system. If batteries are storing and selling electricity to the grid, providing frequency regulation, or providing back-up power they need to be paid the value of their services. ISOs and battery developers alike viewed this order as the beginning of a new era for energy storage deployment.[xvii]

But Order 841 is not without opponents. Representatives of the utility industry have been skeptical of the new rule.[xviii] They’ve filed suit against FERC, alleging the agency is overstepping its statutory authority.[xix]

Electricity markets operate on two distinct levels: wholesale and retail.[xx] The wholesale market is generally interstate and uses the transmission system—the big power lines that run next to highways.[xxi] It connects power generators with utility companies.[xxii] The retail market is localized and uses the distribution system—the smaller power lines you would see in a neighborhood.[xxiii] It connects utility companies with consumers.[xxiv] Essentially, utilities buy power from the wholesale market using the transmission system, then sell it to consumers through the retail market over the distribution system.[xxv]

The Federal Power Act (FPA) governs FERC’s authority to regulate electricity markets.[xxvi] FERC only enjoys jurisdiction over the interstate sales of electricity, allowing it to regulate the wholesale market and transmission system.[xxvii] The FPA delegates regulation of the retail market to state governments.[xxviii] While this has traditionally been a “bright line” distinction.[xxix] recent technological advances have allowed companies to stand “on either side of the line” by operating in the wholesale market while using the distribution system.[xxx]

Energy storage is one such technology. For instance, many people install batteries like the Tesla Powerwall in their home—behind the meter storage systems.[xxxi] These batteries connect to the distribution system through the lines running to people’s homes. Through these connections, they can both charge with power pulled from the distribution system and sell power back to the grid. Though individually they make small contributions, companies can aggregate lots of behind-the-meter batteries to create a virtual power plant.[xxxii] When prices are low, the batteries buy from the retail market. When prices are high, they sell it back to the wholesale market, as power plants can only sell to the wholesale market.[xxxiii]

This is where the issue arises. These behind-the-meter batteries are connected to the distribution grid—the jurisdictional terrain of state governments. But they are selling to the wholesale market which is regulated by FERC. As a result, they are straddling the jurisdictional line that separates federal and state regulation.

Order 841 attempts to regulates these batteries.[xxxiv] The Order stops local regulators from creating rules that prohibit these batteries from selling power back to the wholesale electricity market.[xxxv] Additionally, the Order does not allow states to opt out of this regulatory regime.[xxxvi] FERC argues that though the regulations affect retail markets, they are primarily wholesale market regulations and are within the Agency’s jurisdictional bounds.[xxxvii] This argument relies on the Supreme Court’s holding in FERC v. Electric Power Supply Association.[xxxviii] In that case, the Court found that wholesale market regulations that substantially affect retail markets do not exceed FERC’s jurisdiction.[xxxix]

Opponents of Order 841 claim that the regulation of battery storage connected to the distribution system infringes on states’ authority to regulate their retail markets.[xl] The National Rural Electric Cooperative and American Public Power Association challenged the order in federal court on these grounds.[xli] The suit does not seek to undo the whole of Order 841, only to reverse the portion of the order that prohibits states from restricting behind-the-meter batteries from participating in wholesale markets.[xlii] While this legal fight likely has serious implications for FERC’s power moving forward, it does not practically affect most installed electric storage capacity.

Currently, behind-the-meter systems make up a small portion of our system’s overall battery capacity, and experts expect them to remain a minority of total battery capacity on the grid.[xliii] Furthermore, owners of behind-the-meter systems are not currently likely to connect their batteries to the electric grid, as they are often used for back-up generation.[xliv] Lastly, in places with a high installed capacity of energy storage (places like California and New York), local regulators are likely to allow systems to sell to wholesale markets even if they aren’t compelled to do so.[xlv] As a result, the amount of battery storage likely kept out of wholesale market participation is small.

Though this jurisdictional fight may set important precedent for federal regulation of the electricity system, it likely will not undo the benefits of Order 841 for the great majority of energy storage on the grid.

*Matthew Piggins is a Junior Editor on MJEAL. They can be reached via email at mpiggins@umich.edu.

[i] Katherine Hamilton, Advances in Storage for Renewable Energy, P.R.I (Mar. 6, 2015).

[ii] David Roberts, Getting to 100% renewables requires cheap energy storage. But how cheap?, Vox (Sep. 20, 2019), https://www.vox.com/energy-and-environment/2019/8/9/20767886/renewable-energy-storage-cost-electricity.

[iii] Roberts, supra note 2.

[iv] Roberts, supra note 2.

[v] Roberts, supra note 2.

[vi] Batteries regulate frequency by dispatching or pulling small amounts of electricity on/off the grid. This keeps electric frequency within an ideal range and allows the grid to operate more efficiently and reliably. See Peterson, supra note 7.

[vii] John Peterson, Alternative Energy Storage: Why Frequency Regulation Is Important, Seeking Alpha (Nov. 25, 2008), https://seekingalpha.com/article/107832-alternative-energy-storage-why-frequency-regulation-is-important.

[viii] Peterson, supra note 6.

[ix] Peterson, supra note 7.

[x] Peterson, supra note 7.

[xi] Eric Gimon, How Market Rules Are Holding Back Energy Storage, Greentech Media (Jan. 24, 2019), https://www.greentechmedia.com/articles/read/energy-storage-wholesale-market-rules.

[xii] Gimon, supra note 8.

[xiii] Order No. 841, 162 F.E.R.C. ¶ 61,127.

[xiv] Id. at PP 11.

[xv] Id.

[xvi] Id. at PP 1, 4

[xvii] See Peter Maloney, FERC order opens ‘floodgates’ for energy storage in wholesale markets, Utility Dive (Feb. 20, 2018), https://www.utilitydive.com/news/ferc-order-opens-floodgates-for-energy-storage-in-wholesale-markets/517326/.

[xviii] H.J. Mai, NARUC: FERC went beyond ‘authority of power’ in issuing Order 841, Utility Dive (July 17, 2019), https://www.utilitydive.com/news/naruc-ferc-went-beyond-authority-of-power-in-issuing-order-841/558941/.

[xix] Id.

[xx] PJM Learning Center Market for Electricity, https://learn.pjm.com/electricity-basics/market-for-electricity.aspx (last visited Dec. 2, 2019).

[xxi] EPA U.S. Electricity Grid & Markets, https://www.epa.gov/greenpower/us-electricity-grid-markets (last visited Dec. 2, 2019).

[xxii] Collin Cain & Jonathan Lesser, A Common Sense Guide to Wholesale Electric Markets, Bates White 1, 6 (April 2007), https://www.bateswhite.com/media/publication/55_media.741.pdf

[xxiii] Id. at 2.

[xxiv] Id.

[xxv] Some utilities own their own power plants, but in areas with wholesale markets, they (generally) sell it to the wholesale market then buy it back. This helps to ensure the most efficient generators are running. Id.

[xxvi] 16 U.S.C. §§ 791-825.

[xxvii] Fed. Power Comm’n v. S. Cal. Edison Co., 376 U.S. 205, 209 (1964).

[xxviii] Id.

[xxix] Id. at 215-16 (“Congress meant to draw a bright line easily ascertained, between state and federal jurisdiction, making unnecessary such case-by-case analysis.”).

[xxx] Matthew R. Christansen, FERC v. EPSA Functionalism and the Electricity Industry of the Future, 68 Stan. L. Rev. Online 100, 101 (2016).

[xxxi] Peterson, supra note 7.

[xxxii] George Cannon, Jr. & John Michael White, FERC Affirms Energy Storage Rule, Denies State Opt-Out, JD Supra (May 21, 2019), https://www.jdsupra.com/legalnews/ferc-affirms-energy-storage-rule-denies-64663/.

[xxxiii] Cannon, supra note 27.

[xxxiv] Order No. 841-A at PP 1 (McNamee partial dissent).

[xxxv] Order No. 841-A at PP 41.

[xxxvi] Id. at PP 38.

[xxxvii] Id.

[xxxviii] 136 S.Ct. 760 (2016).

[xxxix] Id. at 776

[xl] NARUC Petitions Court to Review FERC Order 841, https://www.naruc.org/about-naruc/press-releases/naruc-petitions-court-to-review-ferc-order-841/ (last visited Dec. 2, 2019).

[xli] Id.

[xlii] Id.

[xliii] Wood Mackenzie U.S. energy storage monitor Q4 2019 executive summary, https://www.woodmac.com/research/products/power-and-renewables/us-energy-storage-monitor/ (last visited Dec 2, 2019). 

[xliv] Id.

[xlv] Id.

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