Groups urge FERC to reject objections to small utility opt-in mechanism under DER order

by Paul Ciampoli
APPA News Director
November 16, 2020

The American Public Power Association and the National Rural Electric Cooperative Association are urging the Federal Energy Regulatory Commission to reject objections to a small utility “opt in” mechanism that the Commission adopted in Order No. 2222, a final rule that allows for distributed energy resource (DER) aggregators to compete in regional organized wholesale electric markets.

In addition, APPA and NRECA said that FERC should not carve out an exception to the small utility opt-in for energy efficiency resources (EERs) in a Nov. 3 filing.

Order No. 2222, which FERC approved in September, 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 (Docket No. RM18-9-000).

In October, the Sierra Club, Sustainable FERC Project, and Natural Resources Defense Council filed a request for rehearing and clarification in response to Order No. 2222.

These groups argued challenged the final rule’s small utility opt-in on the grounds that “state authorities simply do not possess the power to directly determine whether resources are permitted to participate in RTO/ISO markets,” asserting that “such state actions directly ‘aim at’ wholesale transactions and are therefore field preempted.”

This argument “mischaracterizes the nature of the small utility opt-in, which is not a unilateral assertion of state and local authority over wholesale transactions, but rather a framework adopted by the Commission pursuant to its jurisdiction to establish the criteria for participation in wholesale markets,” APPA and NRECA said in a joint answer to the filing made by the Sierra Club, Sustainable FERC Project, and Natural Resources Defense Council.

NRECA and APPA pointed out that under the small-utility opt-in, state and local actions do not directly “aim at” FERC-regulated wholesale transactions.

“Rather, the Commission accounts for state and local preferences and concerns in determining eligibility to participate in wholesale markets.” In adopting the small-utility opt-in, the Commission “appropriately exercised its discretion to determine that, given the burdens that the final rule could impose on small utilities, retail customers of those utilities are not eligible to participate in DER aggregations under Order No. 2222” unless the relevant electric retail regulatory authority affirmatively allows such retail customer participation.

“This is an exercise of the Commission’s jurisdiction, not an intrusion upon it,” APPA and NRECA said.

APPA, NRECA also argue that FERC should not carve out an exception for EERs

Meanwhile, APPA and NRECA told FERC that it should not carve out an exception to the small utility opt-in for EERs.

That proposal was made in an Oct. 19 request for clarification, or, in the alternative, rehearing filed by Advanced Energy Economy (AEE) and Advanced Energy Management Alliance (AEMA).

“As a threshold matter, AEE and AEMA do not establish that participation of EERs in DER aggregations could have no impacts on small distribution utilities or their regulators that justify providing the opt-in,” APPA and NRECA argued.

AEE and AEMA pointed to the Commission’s assertion in a case involving AEE that, compared to demand response, EERs are not likely to present the same operational and day-to-day planning complexity that might otherwise interfere with a load-serving entity’s day-to-day operations.

But FERC “never said that EER wholesale market participation could impose no obligations on distribution utilities, nor would such an assertion be accurate,” APPA and NRECA noted.

“For example, a small distribution utility with EERs on its system participating in an aggregation might need to monitor how any capacity provided by the EERs was accounted-for in determining the utility’s resource adequacy obligations.”

Similarly, under Order No. 2222, small distribution utilities and/or their regulators might need to coordinate with RTOs and ISOs concerning whether a resource participating in a state or local energy efficiency program should be restricted from participating in a wholesale aggregation under the provisions of Order No. 2222 that are designed to avoid double compensation, APPA and NRECA said

“Indeed, just the obligation for distribution utilities and their regulators to monitor and track the complex RTO and ISO rules that will govern DER aggregation could impose a significant burden on small distribution utilities.”

Further, the fact that EERs are not subject to the Commission’s opt-in/opt-out regulations under Order Nos. 719 and 719-A is not a reason to exclude EERs from the small utility opt-in, as AEE and AEMA contend, the public power and cooperative trade groups argued. Order Nos. 719 and 719-A addressed improvements to RTO governance.

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

FERC in September said that Order No. 2222 builds off a ruling earlier this year 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.