09/21/2018 - Electricity Law Initiative

Electricity Law Initiative: States Should Regulate Rates for Distributed Energy Resource Sales

by Ari Peskoe

Services supplied by distributed energy resources (DERs), including storage, energy production, and demand response, upend long-standing industry assumptions about infrastructure investments, consumer behavior, and rate setting. As DER deployment grows, utilities will need to adapt. While states have clear authority over utility planning and operations and rates paid by consumers for distribution service, jurisdiction over rates paid to DERs is fractured by decades-old federal laws.

A new white paper by our Electricity Law Initiative pieces together, from numerous orders and federal court decisions, how the Federal Energy Regulatory Commission’s (FERC) jurisdiction over interstate wholesale energy sales and transmission service applies to DERs. It finds that the resulting fragmented regulatory regime inhibits a cohesive regulatory framework for DERs. The paper recommends that FERC disclaim jurisdiction over DER energy sales, which would allow states to regulate all DER sales and services.

States would then be free to choose between DER development models. For example, states might separate values that are not compensable in wholesale markets, such as avoided pollution and operational benefits to the distribution grid, and require utilities to pay for those attributes while allowing DERs to sell energy, capacity and reserves to competing DER aggregators who sell through wholesale markets. Alternatively, a state might require utilities to purchase all DER products. FERC’s disclaimer of jurisdiction over DER energy sales would remove a legal obstacle to state supervision of developing DER market models.