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FERC issues final rule allowing DERs to participate in wholesale power markets

September 17, 2020

by Paul Ciampoli
APPA News Director
September 17, 2020

The Federal Energy Regulatory Commission on Sept. 17 approved a final rule that allows for distributed energy resource (DER) aggregators to compete in regional organized wholesale electric markets.

The action took place at the Commission’s monthly open meeting, which was held virtually due to the ongoing COVID-19 pandemic.

The final rule, Order No. 2222, enables DERs to participate alongside traditional resources in the regional organized wholesale markets through aggregations, opening U.S. organized wholesale markets to new sources of energy and grid services, FERC said in a fact sheet (Docket No. RM18-9-000).

The rule allows several sources of distributed electricity to aggregate in order to satisfy minimum size and performance requirements that each may not be able to meet individually.

Order 2222 “is a landmark, foundational rule that paves the way for the grid of tomorrow,” said FERC Chairman Neil Chatterjee.

Chatterjee noted that some studies have projected that the U.S. will see 65 gigawatts of DER capacity come online over the next four years, while others have projected upwards of 380 GW by 2025.

“While these estimates and analytical frameworks vary, there is no doubt that investments in these advanced technologies will only accelerate in the years to come, continuing the seismic shifts we’re seeing in our energy landscape,” he said.

Background

In November 2016, FERC issued a notice of proposed rulemaking (NOPR) that proposed to require RTOs and ISOs to revise their wholesale power tariffs to remove barriers to RTO-run wholesale market participation by energy storage resources such as large battery systems.

The NOPR also proposed to require RTOs and ISOs to allow aggregators of distributed energy resources to participate directly in the organized wholesale electric markets, and similarly remove barriers to DER aggregator participation.

In February 2018, FERC voted to remove barriers to the participation of electric storage resources in the capacity, energy and ancillary services markets operated by RTOs and ISOs.

At the same time, the commission said it would convene a technical conference that would be used to gather additional information to help determine what action to take on DER aggregation reforms proposed in the NOPR issued in late 2016, as well as discuss other technical considerations for the bulk power system related to DERs.

At the technical conference, the Commission heard from a wide range of power industry participants, including Paul Zummo, the Association’s director of policy research and analysis and Christopher Norton, director of market regulatory affairs at American Municipal Power.

APPA stressed need for local decision-making in DER aggregation

In response to a Commission notice inviting comments following the technical conference on DER aggregation issues, APPA said that FERC should defer to retail regulatory authorities on whether or not DERs should participate in wholesale aggregation programs and put aside the idea that successful DER participation in the wholesale markets would be best achieved by dictating a uniform approach for RTO and ISO DER aggregation programs.

Specifically, APPA supported a opt-out/opt-in framework for retail regulatory authorities similar to existing regulations for aggregated demand response bids in RTO and ISO markets. Under that framework, large utilities would be given the option to opt-out of DER aggregation and small utilities would need to opt-in. APPA also stated that if Commission declines to adopt such a mechanism, it should, at a minimum, adopt an opt-in mechanism for small distribution utilities.

Final rule builds off recent court ruling on Order No. 841

FERC said that Order No. 2222 builds off a recent ruling from the U.S. Court of Appeals for the District of Columbia Circuit on Order No. 841 in which the court affirmed the Commission’s exclusive jurisdiction over the regional wholesale power markets and the criteria for participation in those markets.

In July, the appeals court issued an opinion that denied an appeal filed by the American Public Power Association and several other parties that challenged certain aspects of Order Nos. 841 and 841-A, which established rules for the participation of electric storage resources in RTO and ISO markets. 

Retail regulatory authorities and small utilities

The rule does not allow retail regulatory authorities to broadly prohibit DERs from participating in the regional markets. However, it does allow retail regulators to continue prohibitions against distributed energy aggregators bidding the demand response of retail customers into the regional markets.

The rule also establishes a small utility opt-in. Specifically, it prohibits grid operators from accepting bids from the aggregation of customers of small utilities whose electric output was four million megawatt-hours or less in the preceding fiscal year, unless the relevant retail regulatory authority for a small utility allows such participation.

“Several commenters raised concerns that costs borne by small utilities and their customer bases may outweigh the benefits of DER aggregation participation in RTO/ISO markets and that small distribution utilities may not have the resources needed to coordinate with aggregators and RTOs and ISOs,” a FERC staff member noted during the meeting.

The rule said that state and local authorities remain responsible for the interconnection of individual DERs for the purpose of participating in wholesale markets through a DER aggregation.

Grid operators must revise tariffs

As a result of the final rule, ISOs and RTOs must revise their tariffs to establish DERs as a category of market participant.

These tariffs will allow the aggregators to register their resources under one or more participation models that accommodate(s) the physical and operational characteristics of those resources, FERC said. Each tariff must set a size requirement for resource aggregations that do not exceed 100 kW.

The tariffs also must address technical considerations such as:

  • Locational requirements for DER aggregations;
  • Distribution factors and bidding parameters;
  • Information and data requirements;
  • Metering and telemetry requirements; and
  • Coordination among the regional grid operator, the DER aggregator, the distribution utility and the relevant retail regulatory authority

The rule also directs the grid operators to allow DERs that participate in one or more retail programs to participate in its wholesale markets and to provide multiple wholesale services, but to include any appropriate, narrowly designed restrictions necessary to avoid double counting.

Final rule takes effect 90 days after publication in Federal Register

Order No. 2222 takes effect 90 days after publication in the Federal Register.

Grid operators must make compliance filings to FERC within 270 days of the effective date and each compliance filing must propose an implementation plan appropriately tailored for its region and must outline how the final rule will be implemented in a timely manner.

Commissioner James Danly offered a dissent to the final rule.

“I dissent because, regardless of the benefits promised by DERs, the Commission goes too far in declaring the extent of its own jurisdiction and because the Commission should not encourage resource development by fiat,” wrote Danly.

The Federal Power Act delineates the respective roles of the Commission and the states, assigning powers in accordance with each sovereigns’ core interests, he said.

“The federal government is tasked with ensuring just and reasonable wholesale rates, prohibiting state action that would either encumber interstate commerce or harm other states. The states retain authority over the most local of concerns: choice of generation, siting of transmission lines, and the entirety of retail sales and distribution. Each sovereign has a sphere of authority, and in each sphere, the relevant sovereign’s powers are supreme,” wrote Danly.

Respect for the states’ role in the federal system and under the FPA “would counsel against even modest, non-essential declarations of our authority, if done at the states’ expense. Why, when issuing a directive to the RTOs and ISOs (undoubtedly Commission-jurisdictional entities), must we also declare that ‘retail regulatory authorit[ies] cannot broadly prohibit the participation in RTO/ISO markets of all distributed energy resources or of all distributed energy resource aggregators’? Perhaps the states should not or cannot prohibit such participation.”

But it is not “for us to make sweeping declarations regarding the States’ jurisdiction over distributed generation,” Danly argued.

Rather, he argued that the Commission’s jurisdiction over wholesale rates “would ideally be vindicated, were it to collide with a state prohibition, through a challenge to a specific enactment or regulation by making arguments ‘armed with principles of federal preemption and the Supremacy Clause.’”

Apart from FERC’s “injudicious jurisdictional declarations, today’s order stands as an imprudent exercise of the Commission’s power. Why promulgate a rule at all? Reluctance to govern by fiat is counseled particularly in a case like this in which the generation resources the majority seeks to promote, by their very nature, inevitably will affect the distribution system, responsibility for which is assigned, with no ambiguity, to the states.”

FERC should allow the RTOs and ISOs “(or the states or the utilities) to develop their own DER programs in the first instance. If the promises of DERs are what they purport to be, the markets will encourage their development. And if those programs result in wholesale sales in interstate commerce, then the question of the Commission’s jurisdiction will be ripe. Commission directives are unnecessary to encourage the development of economically-viable resources.”

Danly said he has “greater faith in the power of market forces and in the discernment of the utilities and the states.”

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