Nat'l Assoc. of Regulatory v. FERC ( 2020 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 5, 2020 Decided July 10, 2020
No. 19-1142
NATIONAL ASSOCIATION OF REGULATORY UTILITY
COMMISSIONERS,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
TRANSMISSION ACCESS POLICY STUDY GROUP, ET AL.,
INTERVENORS
Consolidated with 19-1147
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Jennifer M. Murphy argued the cause for petitioner
National Association of Regulatory Utility Commissioners.
With her on the briefs was James Bradford Ramsay.
Dennis Lane argued the cause for petitioners American
Public Power Association, et al. With him on the briefs was M.
Denyse Zosa.
2
Cynthia S. Bogorad and William S. Huang were on the
brief for intervenor Transmission Access Policy Study Group
in support of petitioners. Jeffrey M. Bayne entered an
appearance.
Anand R. Viswanathan, Attorney, Federal Energy
Regulatory Commission, argued the cause for the respondent.
With him on the brief were James P. Danly, General Counsel,
Robert H. Solomon, Solicitor, and Jared B. Fish, Attorney.
Kim Smaczniak, Charles Carter Hall, Michael Panfil, and
John N. Moore were on the joint brief for Industry intervenors
in support of respondent. Vickie Patton entered an appearance.
Heather Curlee, Jeffery S. Dennis, and Andrew O. Kaplan
were on the joint brief for intervenors Solar Energy Industries
Association, et al. in support of respondent. Todd Glass, Gary
Greenstein, and Randall S. Rich entered appearances.
Xavier Becerra, Attorney General, Office of the Attorney
General for the State of California, Robert W. Byrne, Senior
Assistant Attorney General, Harrison Pollak, Acting Senior
Assistant Attorney General, David A. Zonana, Supervising
Deputy Attorney General, Dennis L. Beck Jr., Theodore
McCombs, and M. Elaine Meckenstock, Deputy Attorneys
General, Maura Healey, Attorney General, Office of the
Attorney General for the Commonwealth of Massachusetts,
Liam J. Paskvan and Megan M. Herzog, Special Assistant
Attorneys General, Karl A. Racine, Attorney General, Office
of the Attorney General for the District of Columbia, Dana
Nessel, Attorney General, Office of the Attorney General for
the State of Michigan, and Peter F. Neronha, Attorney
General, Office of the Attorney General for the State of Rhode
Island, were on the brief for amici curiae Commonwealth of
Massachusetts, et al. in support of respondent.
3
Samuel T. Walsh and Jason Neal were on the brief for
amici curiae Sunrun, Inc., et al. in support of respondent.
Before: ROGERS, GARLAND and WILKINS, Circuit Judges.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: In this consolidated action, the
Court must once again referee the Federal Power Act’s
jurisdictional line separating the Federal Energy Regulatory
Commission’s jurisdiction over the federal wholesale market
and States’ jurisdiction over facilities used in local distribution.
This time, Petitioners argue FERC is off-sides in Order No. 841
by prohibiting States from barring electric storage resources on
their distribution and retail systems from participating in
federal markets. We find no foul here, so we deny the Petitions.
I.
Under the Federal Power Act (“FPA” or “Act”), 16 U.S.C.
§ 791a et seq., Congress gives the Federal Energy Regulatory
Commission (“FERC” or “the Commission”) exclusive
authority over the regulation of “‘the sale of electric energy at
wholesale in interstate commerce,’ including both wholesale
electricity rates and any rule or practice ‘affecting’ such rates,”
FERC v. Elec. Power Supply Ass’n (EPSA), 136 S. Ct. 760, 766
(2016) (quoting 16 U.S.C. §§ 824(b), 824e(a)), along with
“jurisdiction over all facilities for such transmission or sale of
electric energy,” 16 U.S.C. § 824(b)(1). Congress charged
FERC with ensuring that “both wholesale rates and the panoply
of rules and practices affecting them” are “just and reasonable.”
EPSA, 136 S. Ct. at 773 (citing 16 U.S.C. § 824d(a)) (“FERC
has the authority – and, indeed, the duty – to ensure that rules
or practices ‘affecting’ wholesale rates are just and
4
reasonable.”). To achieve this goal, FERC often issues orders
aimed at “break[ing] down regulatory and economic barriers
that hinder a free market in wholesale electricity.” Id. at 768
(quoting Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist.
No. 1, 554 U.S. 527, 536 (2008)).
However, relevant to the Orders challenged here, Congress
left states with jurisdiction “over facilities used in local
distribution or only for the transmission of electric energy in
intrastate commerce, or over facilities for the transmission of
electric energy consumed wholly by the transmitter,” 16 U.S.C.
§ 824(b)(1), “except as specifically provided in” the Act, id.
II.
The Orders challenged in this case concern FERC’s efforts
to remove existing barriers to the participation of electric
storage resources (“ESRs”) in the Regional Transmission
Organization and Independent System Operator markets
(“RTO/ISO markets”), independent, nonprofit companies that
manage segments of the federal grid. Hughes v. Talen Energy
Mktg., LLC, 136 S. Ct. 1288, 1292 (2016); Atl. City Elec. Co.
v. FERC, 295 F.3d 1, 5 (D.C. Cir. 2002). Each RTO/ISO
market creates its own set of “participation models,” which set
forth the tariff provisions, technical requirements, and other
rules for specific types of electric-energy-providing resources.
Because many participation models were designed for
traditional generation resources, e.g., power plants, newly
developed resources may be limited in the way in which they
can participate – that is, buy and sell electric energy – in these
markets. These limitations or “barriers to participation”
constrain competition, according to FERC, because novel
resources technically capable of participating are precluded
from doing so as they are forced to operate under participation
models designed for different technologies. ESRs, such as
5
batteries, are especially affected by such participation barriers
because ESRs have “unique physical and operational
characteristics” distinct from traditional resources: ESRs can
“both inject energy into the grid and receive energy from it.”
Elec. Storage Participation in Mkts. Operated by Reg’l
Transmission Org. & Indep. Sys. Operators, Order No. 841,
162 FERC ¶ 61,127, ¶¶ 2, 7 (Feb. 15, 2018).
To illustrate, consider the pumped-hydro storage resource,
which moves water between two reservoirs as a means of
storing and generating electricity. Id. ¶ 7 n.12. Or,
demonstrative of recent innovations, consider the end-user who
installs rooftop solar panels connected to batteries, which
enable the end-user to maintain power indefinitely even when
the end-user is unable to receive power from local service
stations, e.g., during a blackout. ESRs are quickly becoming
industry disrupters because they obliterate a foundational
notion underpinning our electrical systems – that electricity
cannot be efficiently stored for later use. See EPSA, 136 S. Ct.
at 768 (explaining, only a few years ago, that generation
resources are forced to generate electricity to match demand in
real time). As amici for FERC put it, “[t]he same technological
and economic forces that allow us to carry battery-powered
computers in our pockets” are now able to efficiently store
energy “anywhere on the grid” and can wait to release the
electricity when supply is scarce. Br. of Sunrun Inc. et al., as
amici curiae in Supp. of Resp’t, at 1.
To accommodate the technical and operational
“unique[ness]” of ESRs, FERC issued Order No. 841,1
requiring each market to establish a participation model that
ensures ESRs’ eligibility “to provide all capacity, energy, and
1
Order No. 841 modifies 18 C.F.R. § 35.28 (2018).
6
ancillary services that [they are] technically capable of
providing in the RTO/ISO markets.” Order No. 841 ¶¶ 3, 4.
FERC, seeking to clarify the set of resources for which the
federal markets must create a participation model, and also
seeking to ensure that the models will not be designed for any
particular electric storage technology, defined an ESR as “a
resource capable of receiving electric energy from the grid and
storing it for later injection of electric energy back to the grid.”
Id. ¶ 29. In Order No. 841, FERC explained that this definition
is intended to encapsulate “all types of electric storage
technologies, regardless of their size, storage medium . . . , or
whether the resource is located on the interstate grid or on a
[local] distribution system.” Id. ¶ 22. It is important to note
that any resource located on the local distribution system or
behind the meter2 must use the distribution facilities over
which the States3 exercise control to reach the federally
controlled markets.
To meet this definition, the ESR must be “both physically
designed and configured to inject electric energy back onto the
2
“Behind the meter” refers to a location on the customer’s side of
the point of delivery or retail level. Transmission Access Policy
Study Grp. v. FERC, 225 F.3d 667, 725 n.14 (D.C. Cir. 2000), aff'd
sub nom. New York v. FERC, 535 U.S. 1 (2002).
3
“State” is a short-hand for all non-federal “relevant electric retail
regulatory authorities,” or RERRAs, as Order No. 841 refers to them.
A RERRA is any “entity that establishes the retail electric prices and
any retail competition policies for customers,” Wholesale
Competition in Regions with Organized Elec. Mkts., Order 719, 125
FERC ¶ 61,071, ¶ 158(c) (Oct. 28, 2008), and thus the term captures
the state-level public utility commissions down to locally owned
electric utilities or electric cooperatives. See 16 U.S.C. § 824(b)(1)
(using “State” and “State commission” interchangeably); Order No.
841, Comm’r McNamee Concurrence in Part and Dissent in Part ¶ 2
n.3.
7
[federal] grid and, as relevant, [be] contractually permitted to
do so (e.g., per the interconnection agreement between an
[ESR] that is interconnected on a distribution system or behind-
the-meter with the distribution utility to which it is
interconnected).” Id. ¶ 33. Finally, although an ESR is not
required to participate in the federal markets, the Commission
expressly rejected commenters’ requests for a type of state opt-
out in which States could “decide whether [ESRs] in their state
that are located behind a retail meter or on the distribution
system are permitted to participate in the RTO/ISO markets
through the [ESR] participation model.” Id. ¶ 35. FERC
added, however, that “nothing in this Final Rule is intended to
affect or implicate the responsibilities of distribution utilities to
maintain the safety and the reliability of the distribution system
or their use of [ESRs] on their systems.” Id. ¶ 36. (For ease of
reference, we shall refer to this subset of ESRs – those that must
transmit their electric energy through state-regulated systems
and facilities in order to reach the federal markets – as “local
ESRs.”)
In Order No. 841-A, FERC denied rehearing with respect
to Order No. 841’s lack of State opt-out for local ESRs. Elec.
Storage Participation in Mkts. Operated by Reg’l
Transmission Orgs. & Indep. Sys. Operators, Order No. 841-
A, 167 FERC ¶ 61,154 (May 16, 2019). FERC explained that
its authority to regulate the RTO/ISO markets gave it the
“authority to determine which resources are eligible to
participate in [those] markets.” Id. ¶ 38. FERC emphasized,
again, that Order No. 841 did “not specify[] any terms of sale
at retail,” id., but a State may not “broadly prohibit[] all retail
customers from participating in RTO/ISO markets,” id. ¶ 41,
since States cannot “intrude on the Commission’s jurisdiction
by prohibiting all consumers from selling into the wholesale
market,” id. Finally, FERC noted that “Order No. 841 does not
modify [S]tates’ authority to regulate the distribution system,
8
including the terms of access, provided that they do not aim
directly at the RTO/ISO markets.” Id. ¶ 48 (internal quotation
marks, alterations, and emphasis omitted).
Two petitions for review followed. The Court
consolidated No. 19-1142, filed by National Association of
Regulatory Utility Commissioners (“NARUC”), and No. 19-
1147, filed by American Public Power Association, National
Rural Electric Cooperative Association, Edison Electric
Institute, and American Municipal Power, Inc. (collectively,
“Local Utility Petitioners”). Petitioners do not question
FERC’s authority to require ESR-specific participation models
at the federal grid, nor do they disagree with FERC’s “laudable
goal of lowering barriers for entry for [ESRs’] participation in
the wholesale markets.” NARUC Opening Br. at 2; see also
Local Utility Pet’rs’ Opening Br. at 5 (indicating general
support for Order No. 841). Instead, both NARUC and Local
Utility Petitioners argue that FERC has exceeded its
jurisdiction by barring States from “broadly prohibiting” local
ESRs from participating in RTO/ISO markets. Order No. 841-
A ¶ 41. Along the same lines as its exceeding-jurisdiction
argument, NARUC argues that the lack of opt-out “impinge[s]
on the States’ authority,” EPSA, 136 S. Ct. at 767, and
“commandeer[s]” the state administrative processes.
NARUC’s Opening Br. 31. Lastly, Local Utility Petitioners
argue that even if FERC did stay within the bounds of its
statutory authority, the lack of an opt-out is otherwise arbitrary
and capricious under 5 U.S.C. § 706(2)(A).
III.
Before reaching the merits of the petitions, we must assure
ourselves of subject-matter jurisdiction. See, e.g., Am. Bankers
Ass’n v. Nat’l Credit Union Admin., 934 F.3d 649, 660 (D.C.
9
Cir. 2019). We conclude that Petitioners have standing to bring
these claims and the matters are ripe for review.
“To establish Article III standing, an injury must be
‘concrete, particularized, and actual or imminent; fairly
traceable to the challenged action; and redressable by a
favorable ruling.’” Clapper v. Amnesty Int’l USA, 568 U.S.
398, 409 (2013) (quoting Monsanto Co. v. Geertson Seed
Farms, 561 U.S. 139, 149 (2010)). Because these Petitioners
bring these petitions on behalf of their members, they “must
demonstrate [that their] members would otherwise have
standing to sue in their own right, the interests at stake are
germane to the organization[s’] purpose[s], and neither the
claim asserted nor the relief requested requires the participation
of individual members in the lawsuit.” Sierra Club v. EPA, 926
F.3d 844, 848 (D.C. Cir. 2019) (internal quotation marks
omitted). Finally, “[a]t least one [petitioner] must have
standing to seek each form of relief requested in the [petitions
for review].” Town of Chester v. Laroe Estates, Inc., 137 S.
Ct. 1645, 1651 (2017).
NARUC, an association representing the interests of state
utility commissions charged with regulating the electric
utilities in their respective jurisdictions, has standing to seek
the requested relief. Its members, the state utility commissions,
have a plausible claim that they have the authority to block
local ESRs from entering the federal market and FERC’s
Orders expressly take away that authority. The state utility
commissions therefore plead an injury to their “judicially
cognizable interest in the preservation of [their] own
sovereignty” at the hands of FERC. Bowen v. Pub. Agencies
Opposed to Soc. Sec. Entrapment, 477 U.S. 41, 50 n.17 (1986)
(internal quotation marks omitted); accord Bond v. United
States, 564 U.S. 211, 221 (2011) (“The federal balance is, in
part, an end in itself, to ensure that States function as political
10
entities in their own right.”). Cf. Del. Dep’t of Nat. Res. &
Envtl. Control v. FERC, 558 F.3d 575, 578-79 (D.C. Cir. 2009)
(finding no injury where the state suffered no injury to a
“concrete substantive interest” under the statutory scheme).
An order from this Court vacating the challenged Orders and
remanding to FERC to comply with the Act’s jurisdictional
provisions would redress the claimed injury of allegedly
improper intrusion upon the States’ jurisdiction.
Additionally, Local Utility Petitioners have standing to
seek vacatur of the relevant portions of the challenged
Orders. As Commissioner McNamee recognized in his dissent
to the Commission’s denial of rehearing, and as FERC failed
to contest at oral argument, Local Utility Petitioners’ members,
which include local electric utilities that own or operate local
distribution systems, have decision-making roles with respect
to the connections of behind-the-meter ESRs to local
distribution systems. They bear the operational burdens of
those ESRs delivering electricity to federal wholesale
markets. FERC’s “refusal to adopt a framework” that provides
state and local decision-makers with greater flexibility over
their facilities causes injury to Local Utility Petitioners’
members, Local Utility Pet’rs’ Br. at 37, and such injury would
be redressed by an order from this Court vacating FERC’s
Orders.
Finally, these matters are ripe for judicial resolution.
While there are no conflicting state laws presented to the Court
at this time, the challenge here is akin to a facial challenge, and
the Court is merely asked to decide whether the Orders, on their
face, either violate the Act’s jurisdictional division or
constitute an arbitrary and capricious agency action. See Ass’n
of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 442
(D.C. Cir. 2012) (facial challenges to regulations rest on the
premise that “no set of circumstances exist under which the
11
regulations would be valid”) (brackets omitted). Thus, the
purely legal issues presented here are fit for review, and there
is no reason the court cannot now address the challenges
presented. See Nat’l Park Hosp. Ass’n v. Dep’t of the Interior,
538 U.S. 803, 807-08 (2003).
IV.
“Where we conclude that a challenged regulatory
provision does not exceed [the statute’s] limits and otherwise
satisfies the requirements of the APA, we will uphold the
provision and preserve the right of complainants to bring as-
applied challenges against any alleged unlawful applications.”
Duncan, 681 F.3d at 442. As explained below, that is the case
here.
A.
EPSA instructs us to confront Petitioners’ exceeding-
jurisdiction challenge in three parts.4 First, we ask whether the
challenged practice at issue in the Orders – prohibition of State-
imposed participation bans – “directly affect[s] wholesale
rates.” 136 S. Ct. at 773. Second, we look to whether the
Commission has regulated state-regulated facilities,5 see id.,
4
“FERC’s interpretations of the jurisdictional provisions of the
Federal Power Act . . . enjoy Chevron deference.” NARUC v.
FERC, 475 F.3d 1277, 1279 (D.C. Cir. 2007). Here though, we need
not rely on that deference since FERC’s authority under the Act is
unambiguous. See EPSA, 136 S. Ct. at 773 n.5.
5
Section 824(b)(1) preserved States’ jurisdiction in three categories:
(1) within-state wholesale sales (i.e., sales for resale), (2) retail sales
of electricity (i.e., sales directly to end users), and (3) facilities used
in local distribution, electric generation, only for the transmission of
electric energy in intrastate commerce, or for the transmission of
electric energy consumed wholly by the transmitter. 16 U.S.C.
12
and, lastly, we ensure that our determinations do not “conflict
with the Act’s core purposes” of “curb[ing] prices and
enhanc[ing] reliability in the wholesale electricity market.” Id.
We swiftly conclude that FERC’s prohibition of state-
imposed participation bans directly affects wholesale rates.
FERC bears the responsibility of regulating the wholesale
market, which encompasses “both wholesale rates and the
panoply of rules and practices affecting them.” EPSA, 136 S.
§ 824(b)(1). EPSA involved the States’ authority with respect to the
second category, but here, Petitioners seek to vindicate their
authority with respect to the third category.
State authority over that third category is limited when the Act
“specifically provide[s]” otherwise, 16 U.S.C. § 824(b)(1)—a
limitation that did not apply to the retail sales at issue in EPSA. See
Transmission Access, 225 F.3d at 696 (noting the FPA’s multiple
grants of jurisdictional authority). FERC does not rely on that
limitation here. Instead, it seemingly agrees with Petitioners that the
relevant question is whether its order “directly regulates local
distribution facilities,” but argues that it has not done so. FERC Br.
36. We accept that premise arguendo because we agree that FERC
has not regulated local distribution facilities. But we note that this
court has held that FERC may regulate electric generating
facilities so long as it is addressing a practice affecting wholesale
rates. See La. Pub. Serv. Comm’n v. FERC, 522 F.3d 378, 390 (D.C.
Cir. 2008). And we further note that states have jurisdiction over
electric-generating facilities subject to the same excepting clause that
applies to the local distribution facilities at issue here.
However, as just said, Petitioners would fall short even if the
FPA had barred FERC from ever regulating local distribution
facilities. Thus, for purposes of this opinion, we treat “retail sales,”
“local distribution systems,” and “behind the meter” interchangeably
as all referring to matters over which States have jurisdiction and
proceed on the assumption, arguendo, that FERC may not regulate
local distribution facilities.
13
Ct. at 773. Order No. 841 solely targets the manner in which
an ESR may participate in wholesale markets. This action is
intentionally designed to increase wholesale competition,
thereby reducing wholesale rates. Keeping the gates open to
all types of ESRs – regardless of their interconnection points in
the electric energy systems – ensures that technological
advances in energy storage are fully realized in the
marketplace, and efficient energy storage leads to greater
competition, thereby reducing wholesale rates. Even NARUC
acknowledges that local ESR participation in federal wholesale
markets could have benefits. If “directly affecting” wholesale
rates were a target, this program hits the bullseye.
Petitioners focus their energy on the second test: whether
Order No. 841 unlawfully regulates matters left to the States.
See EPSA, 136 S. Ct. at 775. Petitioners argue that by
prohibiting States from blocking the gates to the federal
markets, FERC is directly regulating access to those gates, a
matter left to the States by statute. See 16 U.S.C. § 824(b)(1).
But FERC is not regulating matters of access. There is little
doubt that favorable participation models will lure local ESRs
to the federal marketplace, which will require use of States’
distribution systems, but that is the type of permissible effect
of direct regulation of federal wholesale sales that the FPA
allows. See EPSA, 136 S. Ct. at 776 (effects on retail rates of
actions respecting wholesale transactions are “of no legal
consequence”). Nothing in Order No. 841 directly regulates
those distribution systems. Accord NARUC v. FERC, 475 F.3d
1277, 1281 (D.C. Cir. 2007) (“[A]ssertion of jurisdiction over
specified transactions, even though affecting the conduct of the
owner(s) with respect to its facilities, is not per se an exercise
of jurisdiction over the facility.”). States remain equipped with
every tool they possessed prior to Order No. 841 to manage
their facilities and systems.
14
Petitioners argue that one tool is missing: the ability to
close their facilities to local ESRs seeking to transport electric
energy to the wholesale markets. After all, States have the
authority to manage and oversee their distribution systems. But
because FERC has the exclusive authority to determine who
may participate in the wholesale markets, the Supremacy
Clause – not Order No. 841 – requires that States not interfere.
See Miss. Power & Light Co. v. Miss. ex rel. Moore, 487 U.S.
354, 374 (1988). The Supremacy Clause renders federal law
the “supreme Law of the Land,” U.S. CONST. art. VI, and
Congress may “pre-empt, i.e., invalidate, a state law through
federal legislation,” Oneok, Inc. v. Learjet, Inc., 575 U.S. 373,
376 (2015). In field preemption, “Congress may have intended
‘to foreclose any state regulation in the area,’ irrespective of
whether state law is consistent or inconsistent with ‘federal
standards.’” Id. at 377 (quoting Arizona v. United States, 567
U.S. 387, 401 (2012)). “In such situations, Congress has
forbidden the State to take action in the field that the federal
statute pre-empts.” Id. Here, FERC’s statement in Order No.
841-A that States may not block RTO/ISO market participation
“through conditions on the receipt of retail service,” Order No.
841-A ¶ 41, or impose any “condition[] aimed directly at the
RTO/ISO markets, even if contained in the terms of retail
service,” id., is simply a restatement of the well-established
principles of federal preemption. See Oneok, Inc., 575 U.S. at
386 (explaining that preemption depends on “the target at
which the state law aims in determining whether that law is pre-
empted”).
While the FPA creates two separate zones of jurisdiction,
the Supremacy Clause creates uneven playing fields. N. Nat.
Gas Co. v. State Corp. Comm’n of Kan., 372 U.S. 84, 93 (1963)
(“Not the federal but the state regulation must be subordinated,
when Congress has so plainly occupied the regulatory field.”);
see Nw. Cent. Pipeline Corp. v. State Corp. Comm’n of Kan.,
15
489 U.S. 493, 515-16 (1989) (“State regulation . . . may be pre-
empted as conflicting within FERC’s authority over interstate
transportation and rates . . . if a state regulation’s impact on
matters within federal control is not an incident of efforts to
achieve a proper state purpose.”). Hence, NARUC’s argument
that a local ESR does not participate in the federal wholesale
market (and thus cannot fall with FERC’s authority) until after
it navigates through State-regulated facilities fails. Any State
effort that aims directly at destroying FERC’s jurisdiction by
“necessarily deal[ing] with matters which directly affect the
ability of the [Commission] to regulate comprehensively and
effectively” over that which it has exclusive jurisdiction
“invalidly invade[s] the federal agency’s exclusive domain.”
N. Nat. Gas Co., 372 U.S. at 91-92. While the Act’s
preemptive scope should be construed “narrowly in light of
Congress’ intent – manifested in [§ 201](b) of the Act – to
preserve for the State the authority to regulate [non-federal
jurisdictions],” Oneok, Inc., 575 U.S. at 383-84,
“[n]evertheless, [ ]pre-emption . . . is to be applied,” Nw. Cent.
Pipeline Corp., 489 U.S. at 515 n.12.
Thus, Order No. 841 does not “usurp[] state power,”6
EPSA, 136 S. Ct. at 777, nor does it impose a new “reasonably
related” test that re-draws the jurisdictional divide between
FERC and the States. Local Utility Pet’rs’ Opening Br. at 31.
6
NARUC’s commandeering argument fails for the same reasons. As
explained, FERC is not requiring States to guarantee access to States’
distribution facilities in order to reach wholesale markets, so it is not
“command[ing]” States “to administer or enforce a federal regulatory
program.” See Murphy v. National Collegiate Athletic Ass’n, 138 S.
Ct. 1461, 14777 (2018); id. at 1475 (“The anticommandeering
doctrine . . . is simply the expression of a fundamental structural
decision incorporated into the Constitution, i.e., the decision to
withhold from Congress the power to issue orders directly to the
States.”).
16
States continue to operate and manage their facilities with the
same authority they possessed prior to Order No. 841. See
EPSA, 136 S. Ct. at 777 (noting no interference with state
authority because “States continue to make or approve all retail
rates, and in doing so may insulate them from price fluctuations
in the wholesale market”); Conn. Dep’t of Pub. Util. Control v.
FERC, 569 F.3d 477, 481-82 (D.C. Cir. 2009) (where
economic impact of FERC regulation would likely force States
to construct new generation facilities, such state response was
not a “direct regulation” but the product of a state’s response to
changed incentives). States retain their authority to prohibit
local ESRs from participating in the interstate and intrastate
markets simultaneously, meaning States can force local ESRs
to choose which market they wish to participate in. States
retain their authority to impose safety and reliability
requirements without interference from FERC, and ESRs must
still obtain all requisite permits, agreements, and other
documentation necessary to participate in federal wholesale
markets, all of which may lawfully hinder FERC’s goal of
making the federal markets more friendly to local ESRs. Any
such hinderance is of no concern because FERC’s “vision of
reasonableness and justice,” EPSA, 136 S. Ct. at 774, cannot
override the statutory limitations of FERC’s jurisdiction, “no
matter how direct, or dramatic, [that limitation’s] impact on
wholesale rates,” id. at 775. Supreme Court “cases have
consistently recognized a significant distinction, which bears
directly upon the constitutional consequences, between” a
State’s regulations “aimed directly” at matters in FERC’s
jurisdiction, “and those aimed at” fulfilling a State’s own
jurisdictional obligations. N. Nat. Gas Co., 372 U.S. at 94.
“The former cannot be sustained when they threaten . . . the
achievement of the comprehensive scheme of federal
regulation.” Id.
17
But the Court need not fret about hypothetical state
regulations now – nor need it resolve every hypothetical
presented in Petitioners’ briefs. A facial challenge prevails
where “no set of circumstances exists under which the [Orders]
would be valid.” Duncan, 681 F.3d at 442. Petitioners fail to
meet this standard, but States will be free to challenge the
Orders as applied to their own state regulations or imposed
conditions. Id. Petitioners are likely correct that litigation will
follow as States try to navigate this line, but such is the nature
of facial challenges.
Lastly, because we do not conclude that FERC has
perpetuated federal policy goals to the detriment of the
statutory authority granted to the States, our determination is
consistent with the FPA’s purpose of maintaining the
respective zones of jurisdiction while ensuring that FERC can
carry out its duty of ensuring just and reasonable federal
wholesale rates. EPSA, 136 S. Ct. at 781.
Because the challenged Orders do nothing more than
regulate matters concerning federal transactions – and reiterate
ordinary principles of federal preemption – they do not facially
exceed FERC’s jurisdiction under the Act. Our decision today
does not foreclose judicial review should conflict arise between
a particular state law or policy and FERC’s authority to
regulate the participation of ESRs in the federal markets.
B.
The Court must set aside the Orders if they are “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). Local Utility
Petitioners – joined by Transmission Access Study Group,
Intervenor on behalf of Petitioners, (“Transmission Access”) –
argue that even if FERC has the authority to prevent States
18
from broadly prohibiting local ESR participation in federal
markets, its decision to exercise that authority in Order No. 841
was arbitrary and capricious. We disagree, concluding that
FERC’s decision to reject a state opt-out was adequately
explained.
“[T]he court must uphold a rule if the agency has examined
the relevant considerations and articulated a satisfactory
explanation for its action, including a rational connection
between the facts found and the choice made.” EPSA, 136 S.
Ct. at 782 (internal quotation marks and brackets omitted).
This narrow scope of review does not question whether the
administrative action was the best regulatory decision possible,
“or even whether it is better than the alternatives,” because it is
not the role of a court to substitute its own judgment for that of
the agency. Id.
Local Utility Petitioners rely heavily on the existence of a
State opt-out in the programs reviewed in EPSA. There, the
FERC orders at issue allowed States to “decide the eligibility
of retail customers” in demand response programs. Wholesale
Competition in Regions with Organized Electric Markets,
Order No. 719-A ¶ 50, 128 FERC ¶ 61,059, FERC Stats. &
Regs. ¶ 31,292, on reh’g, Order No. 719-B, 129 FERC ¶ 61,252
(2009); EPSA, 136 S. Ct. at 772 (explaining that the order
challenged there “continue[d] Order No. 719’s policy of
allowing any state regulatory body to prohibit customers in its
retail market from taking part in wholesale demand response
programs”). In a nutshell, the demand response program
enabled wholesale markets to compensate consumers for not
using electric power at peak times, as a means of reducing
pressure on the grid and lowering wholesale rates. See EPSA,
136 S. Ct. at 769-71; 18 C.F.R. § 35.28(b)(4) (defining
“demand response” as “a reduction in the consumption of
electric energy by customers from their expected consumption
19
in response to an increase in the price of electric energy or to
incentive payments designed to induce lower consumption of
electric energy”). The Supreme Court described the opt-out
feature as “cooperative federalism,” EPSA, 136 S. Ct. at 780,
evidencing FERC’s “recognition of the linkage between
wholesale and retail markets and the States’ role in overseeing
retail sales,” id. at 779. That said, Local Utility Petitioners
correctly acknowledge that EPSA did not condition its holdings
on the existence of an opt-out. Even if EPSA serves as an
endorsement of different programs in the future, not even the
Supreme Court can “substitute [its] own judgment for that of
the Commission.” 136 S. Ct. at 782.
More importantly, FERC’s departure from such a policy
in Order No. 841 is neither unexplained nor unsupported. The
Commission was acutely aware of its opt-out in Order No. 719.
See Order No. 841-A ¶¶ 51-52 (distinguishing ESR
participation in wholesale sales from demand response
resources participating in wholesale bids). The Commission
specifically considered the benefits of enabling broad ESR
participation to promoting just and reasonable wholesale rates.
Order No. 841 ¶¶ 2, 19, 29. For example, the Commission
explained that promoting more participation of ESRs in
wholesale markets increases competition, likely causing prices
to lower, and more diversity in the types of ESRs encourages
participation models that will be untethered to specific storage
technologies. Id. Along the same lines, a federal market
unfriendly to certain sizes, capacities, and system operations
inhibits future developers from designing such ESRs. Id. ¶ 12.
Importantly, Local Utility Petitioners do not question those
benefits.
Local Utility Petitioners and Transmission Access also
take issue with FERC’s failure to address States’ existing
policies dealing with ESRs and the increased need for State
20
oversight since ESRs raise additional concerns about a
distribution system’s safety and reliability with energy flowing
in two directions. But FERC did address concerns that States
may bear additional administrative burdens, and it also noted
that States would remain unimpeded in their ability to manage
their utilities, “allocat[ing] any costs that they incur in
operating and maintaining their respective power systems.”
Order No. 841-A ¶ 45; see Order No. 841 ¶ 36; see also Order
No. 841-A ¶ 42. FERC simply decided that such negative
effects were outweighed by the benefits of the program. Order
No. 841-A ¶ 45. Local Utility Petitioners may disagree with
that calculus, but FERC’s decision is not arbitrary and
capricious. “This is the kind of reasonable agency prediction
about the future impact of its own regulatory policies to which
we ordinarily defer.” La. Energy & Power Auth. v. FERC, 141
F.3d 364, 370 (D.C. Cir. 1998).
V.
For the reasons stated above, Petitioners fail to show that
Order Nos. 841 and 841-A run afoul of the Federal Power Act’s
jurisdictional bifurcation or that they are otherwise arbitrary
and capricious. We therefore deny the petitions in Nos. 19-
1142 and 19-1147.
So ordered.