The Federal Energy Regulatory Commission in a Dec. 1 order, barred states from blocking energy efficiency from competing in regional electricity markets, reaffirming its authority over wholesale power markets.

It's a win for advocates of demand management technologies, particularly as electricity sales stagnate and utilities may consider spending less on managing or reducing those loads.

Kentucky exemption

The commission's decision did carve out an exemption for the case that launched the proceeding. East Kentucky Power Cooperative had asked the Kentucky Public Service Commission to restrict energy efficiency resources from the wholesale market, part of a bid by utilities to reduce spending on demand-side management, as electricity consumption declined. But FERC's narrow exemption means it will apply only to the Kentucky situation.

In allowing Kentucky utilities to enter the PJM Interconnection, FERC approved a settlement with the state's PSC stipulating that no PJM “demand-side response or load interruption programs” would be made available to Kentucky customers unless authorized by the Kentucky commission.

The agreement didn't specifically mention efficiency measures, but the FERC order notes that under Kentucky law, demand-side management "is a broad enough term to include energy efficiency. ... Moreover, energy efficiency measures would also generally qualify as demand-side management under the industry’s common understanding of the term."

In order to implement the restriction, PJM proposed a rule change that would have given states in its territory the right to bar or restrict energy efficiency resources from entering the wholesale market in their states. Advanced Energy Economy, a business group focused on clean energy technologies, argued that while state commissions have authority on retail energy decisions, the Federal Power Act gives sole jurisdiction in the wholesale markets to FERC and the associated regional transmission organizations.

In June, AEE filed a petition with FERC for a declaratory order establishing those limits.

“We applaud FERC for this important decision that encourages open competition in the electricity markets it regulates, which account for more than half the country," Maria Robinson, director of wholesale markets at AEE, said in a statement following the decision. “We look forward to working with states to ensure that consumers benefit from advanced energy technology participation in markets, driving adoption of clean, secure and lowest-cost energy resources.”

States can't bar technologies

The real impact is that FERC has confirmed that state regulators cannot bar particular technologies from wholesale energy markets without its approval, Robinson told Utility Dive. Access to open markets is a key to successful energy markets, and FERC's decision is a win for both "advanced energy innovators" and consumers, she said.

"This standard is critical for maintaining free and open competition, with all technologies competing on price and performance, to deliver the best electric power services at the most reasonable cost to businesses and households," Robinson said.

Part of the issues in this proceeding are the opt-in/opt-out provisions governed by relevant state agencies, which determine how products are offered into the wholesale market. Providers of demand response resources are subject to this requirement, but efficiency resources are not.

Kentucky not the issue

AEE had asked the commission to comment on how future opt-out requests might be handled, but the commission declined the invitation.

"We decline to establish broad standards for the commission to apply for future proceedings where opt-outs for [energy efficiency resources] or other energy technologies are requested," FERC said in its order. But FERC "would act on any such submitted request in a manner consistent with the Commission’s obligations to ensure that the rates, terms, and conditions of wholesale markets are just and reasonable and not unduly discriminatory or preferential," it added.

The specific Kentucky exemption, covering only efficiency, was not the issue that roused AEE's opposition. 

"We saw a potential for individual state commissions to start making decisions that would keep technologies from competing in wholesale markets," AEE's Robinson told Utility Dive. "This particular case was limited to energy efficiency markets, but you could certainly see a negative precedent being set, and we didn't want to see that happen."

PJM, in addressing the Kentucky exemption, had proposed a rule that went much farther, Robinson said. The group feared seeing exemption requests "spread like wildfire."

"We are seeing FERC continue to delineate its role in markets," Robinson said. It is also "another place where we want to make sure new technologies have the opportunity to compete with some more established technologies that currently exist."