US Federal Energy Regulatory Commission Rejects Energy Efficiency Restrictions

The US Federal Energy Regulatory Commission has this week rejected a proposal filed earlier this year by PJM Interconnection seeking permission to restrict energy efficiency resources from entering the wholesale market, a move which has been praised by energy efficiency proponents.

Earlier this year, regional grid operator PJM Interconnection (which is part of the Eastern Interconnection and serves states throughout the east of the country) proposed a rule with the country’s Federal Energy Regulatory Commission (FERC) which would have given states in PJM’s territory the right to exclude or restrict energy efficiency resources from entering the wholesale market in their states.

PJM’s proposal stems from the East Kentucky Power Cooperative’s application to the Kentucky Public Service Commission (PSC) seeking the ability to restrict energy efficiency resources from the wholesale market, itself an effort by Kentucky utilities to reduce their spending on demand-side management programs in the face of declining energy sales.

Unsurprisingly, national business group Advanced Energy Economy (AEE) stood up to protest the proposal and filed a petition of declaratory order with the Federal Energy Regulatory Commission explaining that, “while state commissions have exclusive authority on retail energy decisions, the Federal Power Act gives sole jurisdiction in the wholesale markets to FERC and the associated regional transmission organizations (RTOs).” Specifically, if states and their regulators of the retail market were allowed to restrict energy efficiency resources this would result in “unjust and unreasonable rates” which would be “a direct violation of the Federal Power Act.”

Fast-forward to this week, and FERC released its decision preventing states from barring low-cost energy efficiency and other resources from competing in the wholesale electricity market without direct approval and permission from FERC. The ruling handed down by FERC explains that “we grant in part and deny in part the Petition” which means that they have widely denied the original PJM petition but have approved a narrow, Kentucky-specific exemption. Specifically, the exemption allows the state to restrict energy efficiency resources based on an exemption in the 2004 approval for the integration of the Kentucky Power Company into PJM Interconnection which granted the Kentucky Commission authority to approve or deny “any PJM-offered demand side response or load interruption programs.”

“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,” said Maria Robinson, director of wholesale markets at AEE.

“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.

“In its ruling, FERC confirmed that state utility commissions cannot bar particular technologies — in this case, energy efficiency — from participating in wholesale energy markets without its approval. 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. This is a win for advanced energy innovators and consumers alike.”