FERC Opens Door for Participation of Distributed Energy Resource Aggregations in Wholesale Electric Markets

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On September 17, 2020, FERC issued a final rule (“Order No. 2222”) amending its regulations to require Regional Transmission Organizations and Independent System Operators (“RTO/ISO”) to revise their tariffs to facilitate the participation of distributed energy resource (“DER”) aggregations in organized wholesale electric markets.  In the order, FERC found current RTO/ISO DER aggregation market rules to be unjust and unreasonable, established new definitions for DERs and DER aggregations, and detailed RTO/ISO tariff revisions that will allow DER aggregations to participate in RTO/ISO markets.  Commissioner Danly dissented from the order, contending that FERC was overextending its jurisdictional authority and that, through the order, FERC was imprudently encouraging “resource development by fiat.”  RTO/ISOs are required to file the tariff changes needed to comply with Order No. 2222 within two hundred seventy (270) days of publication of the order in the Federal Register.

On November 17, 2016, FERC issued a Notice of Proposed Rulemaking (“NOPR”) in which it proposed to amend its regulations to remove barriers preventing electric storage resources and small distributed energy resources from participating in wholesale electric markets (see November 21, 2016 edition of the WER).  The NOPR’s proposed reforms with respect to the electric storage resources were later implemented through Order No. 841, but FERC determined that more information was needed with respect to the DER aggregation reforms (see February 20, 2018 edition of the WER).

In Order No. 2222, FERC found that existing RTO/ISO market rules were unjust and unreasonable, as the market rules hindered DER aggregations from participating in RTO/ISO markets despite the fact that DER aggregations were technically capable of participating in such markets.  FERC found it had jurisdiction over the participation of DER aggregators in RTO/ISO markets, stating that sales of electric energy by DER aggregators in RTO/ISO markets constitute wholesale sales and that the market rules governing such sales are practices affecting wholesale rates.  However, FERC declined to exercise jurisdiction over, and will not require tariffs or standard interconnection procedures and agreements with respect to interconnections between DERs looking to join a DER aggregation and distribution facilities.

Order No. 2222 expansively defined DERs as “any resource located on the distribution system, any subsystem thereof or behind a customer meter.” FERC expounded on this definition by stating that the definition was intended to be technology-neutral, thereby allowing any technically-capable resource to potentially aggregate.  Further, FERC defined DER aggregator as “the entity that aggregates on or more distributed energy resources for purposes of participation in the capacity, energy and/or ancillary service markets of the regional transmission organizations and/or independent system operators.”

Finally, RTO/ISOs will need to comply with DER aggregation-related updates to FERC’s regulations.  Of note, Order No. 2222 requires RTO/ISOs to revise their tariffs to:

  • establish new participation models that accommodate the physical and operational characteristics of DER aggregations;
  • implement a minimum size restriction of DER aggregations, not to exceed 100 kW;
  • create narrowly tailored restrictions to prohibit resources from participating in their markets through DER aggregations if such resource is being compensated as a part of another program;
  • allow solo DERs to be considered as single-resource DER aggregations if such resource would otherwise qualify under the tariff;
  • establish limitations on the locations of DERs within a DER aggregation, provided that such limitations are as broad as technically feasible;
  • address information, metering, telemetry, and other technical requirements for DER aggregations;
  • specify how the RTO/ISO will coordinate with electric retail regulatory authorities with regard to the participation of DER aggregations in RTO/ISO markets;
  • allow DER aggregators to add or remove DERs from the aggregation without the need to re-register or re-qualify; and
  • include a standard market participation agreement, to be signed by any DER aggregator looking to participate in the RTO/ISO markets, that defines the roles and responsibilities of DER aggregators.

FERC also prohibited RTO/ISOs from preventing any type of DER technology from participating in DER aggregations.

In his dissent, Commissioner Danly contended that FERC overstepped its jurisdictional authority in Order No. 2222, stating that retail sales and distribution remain under the authority of the states and not the federal government.  Commissioner Danly argued that FERC’s statement declaring that retail regulatory authorities cannot broadly prohibit DER aggregators from participating in RTO/ISO markets was an overreach of federal authority.  Additionally, Commissioner Danly stated his belief that the order, as a whole, was an imprudent exercise of FERC’s powers, and that the development of DER programs should be left in the hands of market forces, utilities, state authorities, and RTO/ISOs.

Order No. 2222 will go into effect sixty (60) days from its publication in the Federal Register, and RTO/ISOs are required file the tariff changes needed to implement the order’s requirements within two hundred seventy (270) days of such publication.

A copy of Order No. 2222 is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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