Federalism in Microcosm, the Station Power Conundrum

By Jeffrey M. Gray, PhD

In electricity law, it is axiomatic that interstate transmission and wholesale sales are federal jurisdictional, and local distribution and retail sales are state jurisdictional. But, if a merchant power plant sells wholesale electricity into the interstate transmission grid, and also buys retail electricity from the local utility, how do federal and state jurisdiction interrelate for that generating station? Or do they interrelate at all? More importantly, who cares? These questions were answered in a recent D.C. Circuit Court of Appeals decision in Calpine Corp., et al. v. FERC, No. 11-1122 (D.C. Cir. Dec. 18, 2012) (“Calpine”), which affirmed two Federal Energy Regulatory Commission (“FERC”) Remand Orders that eviscerated FERC’s long-standing policies for the self-supply of station power.

Station power is the electricity used by a generating station to start its turbines, provide lighting, heating, and air conditioning, and operate various on-site machinery and equipment. Under FERC’s long-standing policies, as reflected in wholesale tariffs, a merchant power plant would be deemed to have self-supplied its station power if the generating station is net positive (i.e., gross output exceeds station power requirements) over a monthly netting period. Conversely, the merchant power plant would be deemed to have purchased station power at retail, subject to state jurisdiction and the local utility’s retail tariff, if the generating station is net negative over the monthly netting period.

FERC issued the Remand Orders in response to the Court’s remand in Southern California Edison Co. v. FERC, 603 F.3d 996 (D.C. Cir. 2010) (“Edison”). The Edison Court characterized the question before it as “stark:” whether “the netting period [FERC] approved to calculate energy delivered to and taken from the grid by generators [for determining] transmission charges must also govern [retail] charges the utilities seek to impose [on] the generator’s own use of power?” The Court concluded that the answer to the foregoing question is no, and vacated and remanded the case to FERC for further proceedings. The Remand Orders followed.

In the Remand Orders, FERC concluded “as explained by the [Edison] Decision, [FERC] and the states can use different methodologies when [FERC] determines the amount of station power that is transmitted on the [FERC]-jurisdictional transmission grid and the states determine the amount of station power that is sold in state-jurisdictional retail sales.” Further, FERC noted that “the [Edison] Decision stated that, in the context of approving the terms and conditions of the [California Independent System Operator Corp. (“CAISO”)] Tariff’s Station Power Protocol, [FERC] had effectively, and improperly, set the netting period for retail energy sales” and “[s]hould generators face increased costs due to the application of different federal and state netting periods, any increased charges due from generators are a result of that state’s approach to estimating station power and are, simply put, not within our jurisdictional purview….”

So, why all the fuss? If the local utility were to apply a shorter (e.g., hourly) netting period pursuant to a state-jurisdictional retail tariff, then a merchant power plant that runs only during peak hours would be unable to self-supply its station power during most hours. Instead, most of its station power usage would be subject to retail charges by the local utility under the retail tariff. Under such a scenario, merchant peaking plants in CAISO, for example, would face increased costs that would not apply to the local utility’s own power plants. Because of those discriminatory costs, utility-owned power plants would have a competitive advantage over merchant power plants, which runs contrary to FERC’s goal of promoting non-discriminatory wholesale markets.


Jeffrey M. Gray, PhD is an energy lawyer and economist, and is admitted to the Michigan, Wisconsin, New York, and District of Columbia Bars.  Jeff focuses his practice on energy markets, energy infrastructure, commercial transactions, public policy, and state and federal regulation.  He provides sophisticated legal services to clients including renewable energy developers, electric and natural gas utilities, commodities firms, and electric transmission companies.  Additional information about his practice is available at www.graypllc.net.