FERC JURISDICTION: A BLURRY, NOT BRIGHT, LINE SCOTTMADDEN, INC. | 12 FERC, the states, and the EPA are pushing and testing the boundaries of their traditional jurisdictions to pursue their respective policy priorities. Border skirmishes ensue. Three Playing Fields for Contested Jurisdiction Demand Response Compensation Power Generation Markets and Price Formation Environmental Regulation of Power Sector The Battlefront • Power generators challenge FERC Order 745, which requires wholesale market operators to pay the same compensation to demand response (DR) providers for conserving energy as paid to generators for producing it—implicit in these arguments is yet another regarding the increasingly hazy line between transmission (FERC) and distribution (states) jurisdictions resulting from the growing impacts of DERs (including DR) • Maryland and New Jersey authorize long-term contracts with power plant developers that guarantee a fixed price • Factual debate over whether Maryland required those developers to bid in PJM capacity auction • EPA releases Clean Power Plan (CPP) with limited consultation with FERC • “Building blocks” include resource and performance standards (more renewables, higher plant utilization rates, move to gas) and timeline that may impact reliability Challenger’s Arguments • DR is an inherently retail activity, subject to the ratemaking authority of the states, not FERC • DR has effect of “luring” retail customers into the wholesale markets and driving down compensation for “steel in the ground” projects • If allowed to “affect” retail prices, a limiting principle may be hard to find – e.g., why couldn’t FERC regulate net metering? • DR-induced avoidance of consumption is not a “sale of energy for resale” as typically characterized wholesale (FERC- jurisdictional) power • Guaranteed price to developer alters bidding behavior and undermines FERC- approved mechanism in PJM to set capacity and energy prices • If a generator would get the guaranteed price only if it cleared PJM’s auction (and mitigate the state’s financial obligation), generator could bid low to ensure the assets in question cleared the PJM auction • Artificially low prices affect efficiency of market because price signals for development are not fully seen by market participants • EPA’s “best system of emissions reduction” under the CPP goes beyond the fence line, attempting to regulate the bulk power system, not just the emitter, and encroaching on FERC’s jurisdiction • As a result of CPP, state air regulators may make significant decisions that state utility commissioners have made for decades