FERC Continues Efforts to Facilitate DER Participation in Wholesale Markets

Background

In September 2020, FERC released its landmark Order No. 2222, requiring organized wholesale markets to examine their market rules and to prepare appropriate revisions to remove barriers to the participation of distributed energy resource (“DER”) aggregations.  DER aggregations are “distributed” across the network, typically installed on lower-voltage “distribution” networks, rather than the higher-voltage “transmission” network, and can include combinations of different resource types (such as solar plus battery storage).  Many organized market operators have rules for interconnection and market participation that are calibrated to traditional forms of generation, such as natural gas-fired generators and utility-scale solar and wind farms. Most organized markets are now engaging in stakeholder proceedings to determine whether and to what extent their interconnection and market rules need to be revised to comply with Order No. 2222.  At its March open meeting, the Commission announced concurrent actions that, together, broaden the reach of Order No. 2222 and indicate a continued focus on expanding market opportunities for distributed technologies.  

Order No. 2222-A

On rehearing of Order No. 2222, the Commission reversed an aspect of the order concerning “demand response” participation in DER aggregations. In the September order, the Commission determined that the participation of demand response in DER aggregations renders those aggregations subject to a retail regulator opt-out rule adopted several years ago in Order Nos. 719 and 719-A with respect to “participation models” for “demand response” resources that are not part of an aggregation.  Under the state opt-out rule, retail regulators have the ability to prevent demand response aggregators—which are solely aggregations of retail customers—from participating in FERC-jurisdictional markets.

Order No. 2222-A declined to extend the retail regulator opt-out to demand response resources participating in “heterogeneous” DER aggregations. Such aggregations are heterogeneous because they are comprised of demand response plus at least one other resource type.  The Commission cited the ability of DER aggregations that include demand response to deliver synergistic market and reliability capabilities, and the Commission’s policy of ensuring a technology-neutral approach to DER aggregations, among other considerations. The opt-out will—for now (see below)—continue to apply to DER aggregations composed solely of demand response resources.  In addition, Order No. 2222-A preserved the opt-in for smaller utility systems, which the Commission had initially adopted in an effort to avoid the potentially greater burden on small utilities in complying with the requirements of Order No. 2222. 

Addressing requests that it clarify its approach to the interconnection of Qualifying Facilities (“QFs”) participating in DER aggregations, the Commission declined to exercise jurisdiction over the interconnections of DERs, including QFs, to distribution facilities for the purpose of participating in RTO/ISO markets solely as part of a DER aggregation. Thus, interconnection of QFs that participate in RTO/ISO markets exclusively as part of a DER aggregation will be treated comparably to interconnection of non-QF DERs.  The Commission justified this approach based on concerns that exercising jurisdiction over QF DERs could create a potentially “overwhelming volume” of interconnection requests that would unduly burden RTOs and ISOs. 

Notice of Inquiry: Order No. 719 Opt-Out

While Order No. 2222-A preserved the ability of retail regulators to prevent demand response aggregators from participating in wholesale markets, in the concurrently issued Notice of Inquiry (“NOI”), FERC invited comment on whether to eliminate the opt-out from Order Nos. 719 and 719-A entirely.  In doing so, it pointed to “significant legal, policy, and technological developments that may warrant reconsideration….”  Comments on the NOI are due 90 days following publication in the Federal Register, and reply comments are due 30 days thereafter. 

Potential Impacts

Both actions drew strong opposition from Commissioners Christie and Danly, who cited federal intrusion into traditional state authority over distribution systems and the rules pertaining to retail accounts; increasing costs of service in states participating in an ISO/RTO; and, in the case of the proposed removal of the demand-response opt-out, disruption of well-settled regulatory regimes in the eighteen states that have opted-out of allowing demand response participation in FERC-jurisdictional wholesale markets. These dissenting voices reflect the ongoing tension regarding the division of state and federal authority under the Federal Power Act, which is likely to continue.  In addition, it remains to be seen whether FERC’s efforts to clarify jurisdictional boundaries relative to interconnection responsibilities will create certainty or further muddy the waters.  Yet, apart from these considerations, FERC’s actions clearly signify a continued interest in expanding the role of distributed resources in jurisdictional markets and a view that demand response can and should be permitted to participate in wholesale power markets and provide value to the interstate grid—positions that are likely to increase business opportunities for developers and providers of such resources.