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Group: PJM cannot allow states to block energy efficiency from PJM market

National business group Advanced Energy Economy has asked the Federal Energy Regulatory Commission to confirm that state commissions and other retail regulators lack the authority to bar, restrict or otherwise condition the participation of certain energy efficiency resources in wholesale power markets.

Neither the Federal Power Act nor any FERC precedent gives such authority to retail regulators, AEE argued in a petition for declaratory order.

AEE's petition specifically targets the PJM Interconnection's plan to initiate a stakeholder process aimed at amending its rules to give state commissions and other retail regulators authority over energy efficiency in the grid operator's capacity market.

PJM issued a statement on the topic in April following a push by the Kentucky Public Service Commission to require that energy efficiency resources in the state obtain a tariff or special contract from the state regulator to participate in the grid operator's markets. A PJM committee recently approved that statement, clearing a path for the committee to spend an estimated four to six months working on the new market rules through the stakeholder process.

PJM spokeswoman Paula DuPont said in an email that PJM is aware of the AEE petition. She added that PJM and its stakeholders are going to begin discussing possible market rule modifications so they can be ready once the Kentucky PSC and FERC rules on the matter.

Energy efficiency resources are increasingly bidding into and clearing PJM's capacity market. The most recent auction held in May for delivery year 2020-2021 cleared 1,710.2 MW of energy efficiency resources, representing 1.04% of total cleared capacity.

Allowing states and other retail regulators to bar energy efficiency resources from the wholesale markets will harm competition in wholesale markets, conflict with FERC's policy to eliminate barriers to participation by all technically capable resources, result in unjust and unreasonable rates and undue discrimination, and hinder the ability of RTOs and ISOs to independently administer their markets, AEE argued.

AEE said it hoped its filing would "ensure that RTOs/ISOs are not susceptible to being put in a position where they are obligated to act on behalf of specific stakeholders or market participants."

The group stressed that it was not looking for any broad declarations on state policies' impacts on wholesale markets but instead wants guidance and action taken on the specific PJM proposal, which it asserted was "put forth without any reasonable jurisdictional, market design or reliability justification."

AEE added that granting its petition would prevent the proposed new barriers to market participation inherent in the PJM proposal on energy efficiency from setting precedent for the creation of additional barriers for other resources, such as energy storage and distributed energy.

The energy efficiency resources at issue, referred to as wholesale EERs, "have no nexus with or connection to state-regulated retail electric utility service, and they are created and participate in the wholesale markets without impacting such retail electric utility service," according to AEE.

The group added that "wholesale EERs are distinguishable from energy efficiency programs operated by electric utilities under programs approved by retail regulators."

Thus, states have no "independent legal authority to regulate [EERs'] wholesale market participation," and any attempt to do so "would impermissibly seek to directly regulate a significant aspect of the wholesale markets," AEE contended.

While PJM in its statement said it essentially wants to add provisions allowing states to "opt in/opt out" regarding EERs' participation in wholesale markets, AEE countered that "unlike wholesale demand response resources, wholesale EERs are created and provide capacity in PJM, for example, without any need for dispatch and no ongoing communications or relationships with retail customers."

"As a result, the concerns of state regulators and utilities that drove the commission to adopt the 'opt in/opt out' procedures [for demand response] almost a decade ago in Order No. 719 — in particular, the concern that allowing retail customers to participate in wholesale DR activities could interfere with retail DR programs, burden retail regulators, or create new jurisdictional conflicts — are inapplicable to the participation of wholesale EERs," AEE argued.

Further, the group said an ISO stakeholder proceeding was the wrong avenue for granting retail regulators authority in an area over which FERC holds exclusive jurisdiction. Such authority must be sought directly from FERC "through an FPA Section 206 complaint or other vehicle, where the full impacts of granting that authority on the commission's statutory obligations can be considered under an appropriate evidentiary burden," AEE said.

Asserting that stakeholders have reached an impasse on questions of jurisdiction and authority pertinent to PJM's proposal, AEE asked FERC to issue an order on the matter within 60 days. (FERC docket EL17-75)

Jasmin Melvin is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.