964 F.3d 1177
D.C. Cir.2020Background
- FERC issued Order No. 841 requiring RTO/ISO markets to adopt participation models enabling electric storage resources (ESRs) to provide capacity, energy, and ancillary services, defining ESRs to include resources located on the interstate grid, distribution systems, or behind-the-meter.
- Order No. 841 and Order No. 841-A reject a state "opt-out" that would allow States to broadly prohibit local/distribution-connected ESRs from participating in federal wholesale markets.
- Petitioners (NARUC and a coalition of local utilities) challenged the Orders, arguing FERC exceeded its Federal Power Act (FPA) jurisdiction, intruded on State authority over local distribution facilities, and unlawfully commandeered State administrative processes; local utilities also argued the lack of an opt-out was arbitrary and capricious under the APA.
- The court found petitioners had standing and the challenges were ripe, and it framed review around (1) whether the Orders directly affect wholesale rates, (2) whether FERC unlawfully regulated state-regulated facilities, and (3) whether the Orders conflicted with the FPA’s core purposes.
- The D.C. Circuit held Order Nos. 841 and 841-A do not facially exceed FERC’s jurisdiction and that FERC’s decision to forbid a broad state opt-out was not arbitrary or capricious, so the petitions were denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Order No. 841 exceeds FERC's FPA jurisdiction by prohibiting States from broadly barring local ESRs from wholesale participation | NARUC: FERC unlawfully regulates facilities used in local distribution and usurps State authority under § 824(b)(1) | FERC: Order governs eligibility to participate in wholesale markets (a federal subject) and thus legitimately affects wholesale rates; it does not regulate distribution facilities themselves | Held: Order directly affects wholesale markets and is a permissible federal regulation; it does not facially regulate state distribution facilities and thus does not exceed FERC's jurisdiction |
| Whether the Orders commandeer States or improperly force them to administer a federal program | Petitioners: The prohibition on broad state bans effectively commandeers States by dictating state retail-service conditions and administrative choices | FERC: It is enforcing the federal wholesale regulatory field; the Orders restate ordinary preemption principles and do not command States to administer federal programs | Held: Commandeering claim fails—FERC is not forcing States to administer federal law and is applying ordinary federal preemption to protect wholesale market regulation |
| Whether FERC acted arbitrarily and capriciously by denying a State opt-out for local ESRs | Local utilities: FERC failed to justify departing from prior opt-out practice (e.g., demand-response rules) and ignored reliability/cost concerns and existing State ESR policies | FERC: Considered prior opt-out policy and explained why broad eligibility is needed to ensure competition, technological neutrality, and just/reasonable wholesale rates; weighed State burdens and found benefits outweighed them | Held: Not arbitrary/capricious—FERC provided a reasoned explanation and reasonable policy judgment for rejecting a broad State opt-out |
Key Cases Cited
- FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (Supreme Court 2016) (establishes that FERC regulates wholesale rates and rules/practices affecting them and frames state/federal boundary analysis)
- Oneok, Inc. v. Learjet, Inc., 575 U.S. 373 (Supreme Court 2015) (explains field preemption and the inquiry into the target of state law for preemption analysis)
- Northern Natural Gas Co. v. State Corp. Comm'n of Kan., 372 U.S. 84 (Supreme Court 1963) (discusses limits on state regulation when Congress occupies a regulatory field)
- Nw. Cent. Pipeline Corp. v. State Corp. Comm'n of Kan., 489 U.S. 493 (Supreme Court 1989) (addresses preemption where state regulation impacts federal interests in comprehensive regulation)
- Miss. Power & Light Co. v. Miss. ex rel. Moore, 487 U.S. 354 (Supreme Court 1988) (refers to supremacy of federal regulation over conflicting state actions in energy context)
- Murphy v. NCAA, 138 S. Ct. 1461 (Supreme Court 2018) (articulates the anticommandeering principle relied on by petitioners)
- NARUC v. FERC, 475 F.3d 1277 (D.C. Cir. 2007) (cited for deference to FERC's jurisdictional interpretations)
- La. Pub. Serv. Comm'n v. FERC, 522 F.3d 378 (D.C. Cir. 2008) (supports that FERC may regulate facilities insofar as it addresses practices affecting wholesale rates)