Demand response aggregator Voltus filed a complaint with FERC on Tuesday challenging the state “opt-out” provision in Order 719, saying it is undermining MISO’s reliability and increasing ratepayers’ costs (EL21-12).

The complaint, filed on the company’s behalf by Earthjustice, asks the commission to revoke the opt-out provision of the 2008 order along with MISO Tariff provisions authorizing states to bar third-party DR providers from participating in the RTO’s markets.

Voltus said most states in MISO have used the opt-out provision, which it says insulates their utilities from DR competition and results in rates that are not just and reasonable. The company also said the provisions are unduly discriminatory because utility-run DR programs are permitted to participate in MISO’s markets and because FERC and the courts have rejected blanket opt-outs for energy efficiency, distributed energy resources and energy storage.

Voltus provides DR services to commercial and industrial customers in PJM, NYISO, ERCOT, CAISO and ISO-NE in the U.S., as well as Ontario’s Independent Electricity System Operator and the Alberta Electric System Operator. But in MISO the company says it can only operate as an aggregator of retail customers (ARC) in Illinois, Michigan (serving the 10% of load that is allowed to buy electricity from competitive suppliers), Texas, and a few municipal and cooperative utilities that have allowed the company to operate.

It said it could be delivering more than 9,000 MW of DR in MISO, which it said could save ratepayers $130 million and generate nearly $500 million in revenue for Voltus annually. The company asked FERC to consider its complaint on a fast-track schedule and deliver a ruling in time for the company to enter MISO’s 2021 Planning Reserve Auction in March.

“The failure to unleash demand competition poses an acute threat in MISO, where a combination of factors, including reduced reserve margins, increased forced outages and the integration of variable renewable resources has led to increased maximum generation emergency events, signaling increasing operational risk to the grid,” Voltus said.

MISO did not immediately respond to a request for comment, saying only that it was reviewing the complaint.

Order 719

In all but three of MISO’s 15 states, aggregators of DR that are not acting on behalf of a load-serving entity are barred from directly participating in the RTO, Voltus said.

Order 719 directed RTOs and ISOs to allow ARCs to bid DR on behalf of retail customers “unless the laws or regulations of the relevant electric retail regulatory authority do not permit a retail customer to participate.”

On rehearing, the commission amended the order, saying RTOs cannot accept an ARC bid for small utilities that distribute less than 4 million MWh without the utility’s permission. For larger utilities, the grid operator must accept an ARC bid unless the relevant authority prohibits it.

Most states — Indiana, Iowa, Michigan, Minnesota, Missouri, North Dakota, South Dakota and Wisconsin — adopted restrictions on ARC participation around 2009 or shortly thereafter, following the commission’s rehearing ruling on Order 719, Voltus said.

Others — Kentucky, Louisiana and Mississippi — adopted ARC bans in 2017 and 2019, in response to efforts by aggregators to enter the markets, Voltus said.

In addition, Arkansas enacted a bill in 2013 restricting ARCs unless the Public Service Commission approved their participation as in the public interest. In August, PSC staff recommended that ARCs be allowed to participate; the case is pending.

Inconsistent with Recent Orders, Rulings

Voltus said court rulings since Order 719 was adopted “now [dictate] that the opt-out approach taken in Order 719 is inconsistent with the Federal Power Act’s basic jurisdictional divide, as states simply do not possess the authority to directly determine whether resources are permitted to participate in RTO/ISO markets.”

It cited both the outcome of litigation over Order 745 and Order 841 and the commission’s issuance of Order 2222 last month.

Order 745 in 2011 set rules for compensating DR. In its 2016 FERC v. EPSA decision, the Supreme Court rejected a challenge to the order, saying market operators’ payment of DR commitments directly affect wholesale rates and that the commission’s rulemaking did not intrude on state jurisdiction. (See Supreme Court Upholds FERC Jurisdiction over DR.)

In Order 841 in 2018, the commission refused to grant states the right to block energy storage resources (ESRs) from participating in wholesale markets, even when they are interconnected at the distribution-level. In July, the D.C. Circuit Court of Appeals rejected complaints that the lack of an opt-out provision violates states’ authority to regulate their distribution systems. “Nothing in Order No. 841 directly regulates those distribution systems. … States remain equipped with every tool they possessed prior to Order No. 841 to manage their facilities and systems,” the court said. (See FERC Storage Order Survives State Challenge.)

In September, FERC also rejected a broad opt-out in Order 2222, which removed barriers to aggregations of distributed energy resources. Instead, the commission created an opt-in mechanism for small utilities, similar to that in Order 719-A for DR. (See FERC Opens RTO Markets to DER Aggregation.)

“The commission’s conclusion that its exclusive jurisdiction over wholesale market rates precludes states from barring participation of storage or distributed energy resources applies with equal force to demand response,” Voltus said. “Order 719’s anomalous treatment of demand response can no longer stand.”

MISO’s Need for DR

The complaint cites MISO’s acknowledgment of its increasing need for intraday flexibility as its region adds increasing quantities of intermittent and emergency-only resources.

“Though it had previously not experienced a maximum generation emergency since 2007, between 2016 and 2019, MISO experienced 27 such emergencies. It additionally declared a maxgen alert requiring conservative operation on Feb. 21, 2020, and again in July and August,” Voltus said.

“At the same time that MISO recognizes that the additional operational flexibility offered by demand response is critical to the challenges it faces now and for the foreseeable future, it considers the suite of demand response resources currently available insufficient to meet operational needs. In particular, although a large quantity of capacity participates in MISO as ‘load modifying resources’ (LMRs), MISO has found the historical performance and operating characteristics of existing LMRs to be inadequate to meet MISO’s changing needs.”

About 90% of DR in MISO are LMR resources — DR and behind-the-meter generation that clear MISO’s PRA and provide interruptible load services during capacity shortages. About 20% of LMRs require longer than a six-hour notification. “In contrast, emergency demand response products in PJM, CAISO and NYISO allow for only 30-minute to at most two-hour notice,” the company said.

Without incentives from their regulators, Voltus said, traditionally regulated utilities are unlikely to adopt ambitious DR programs. “Unsurprisingly, the operational capabilities of existing demand response assets in MISO lag significantly behind that of other organized markets, even though many utility-run programs are supported by significant subsidies through retail rate charges. Lack of competition brings exactly the lackluster results one would expect: high cost and poor performance.

“Worse, the absence of competition is holding back the full capability of demand response within MISO at a time when it is needed more than ever to provide the grid flexibility in the face of shrinking reserve margins and a changing resource mix. During some recent events, a mere hundred megawatts or so of demand response, available in the right location and able to respond quickly, could have alleviated tight supply conditions.”

It noted FERC’s conclusion that DR can mitigate generator market power and cited a PJM study that found “a modest 3% load reduction in the 100 highest peak hours corresponds to a price decline of 6 to 12%.”

Relief Sought

Voltus said MISO’s acceptance of opt-outs other than that of Arkansas — the result of legislation — violates Order 719.

“The commission should order MISO at minimum, and potentially all other RTO/ISOs, to incorporate consideration of demand response aggregators in the ongoing stakeholder work to implement Order 2222 coordination mechanisms,” it said. It also requested the commission issue a Notice of Proposed Rulemaking to eliminate Order 719’s opt-out.

“The tremendous potential of Order 2222 will remain unrealized while the demand response opt-out remains in place,” it said.