FERC on Thursday reversed its ruling giving state regulators the power to prevent demand response from participating in distributed energy resource aggregations (RM18-9-002) and signaled it may eliminate the opt-out requirements of Orders 719 and 719-A (RM21-14).

The first order responded to issues raised on a request to rehear Order 2222, which directed RTOs and ISOs to open their markets to DER aggregations (Order 2222, RM18-9).

The commission’s September ruling found existing RTO and ISO rules unjust and unreasonable because of their barriers to broader participation by aggregated DERs in capacity, energy and ancillary service markets. The commission said DERs are generally too small to meet the minimum size requirements to participate in the markets and also may be unable to meet certain qualification and performance requirements because of their operational constraints.

Removing the barriers will improve competition and allow grid operators to avoid the dispatch of more expensive resources to meet system needs, FERC said. DERs can locate where price signals indicate they’re most needed, reducing congestion costs, it added.

Orders 719 and 719-A, adopted in 2008, allow “relevant electric retail regulatory authorities” to prevent an aggregator of retail customers’ DR from participating in RTO/ISO markets.

Before Order 2222, FERC had not addressed how Order 719’s opt-out provision applies to DR resources that participate in RTO/ISO markets through an aggregation that includes resources other than DR.

The order issued Thursday said that the Order 719 opt-out should not apply to heterogeneous DER aggregations but would continue to apply to DER aggregations composed solely of DR.

FERC attorney Karin Herzfeld said aggregations including DR “do not fall squarely” within the Order 719 opt-out because they are not solely aggregations of retail customers.

Extending the opt-out to DR in heterogeneous DER aggregations would undermine Order 2222’s potential to eliminate barriers to competition and its commission’s goal of ensuring a technology-neutral approach to DER aggregations, she said.

The order said one of the biggest values of DER aggregations is their ability to take advantage of the different resources’ operational attributes and complementary capabilities. Ensuring that DR can combine with other forms of DERs could increase both the number and the variety of DER aggregations, FERC said.

Chairman Richard Glick and Commissioners Allison Clements and Neil Chatterjee supported the order, while Mark Christie and James Danly were opposed.

Christie said the ruling would impact municipal and public power authorities and electric cooperatives in addition to state regulators. He also predicted it would result in “significant” costs to consumers.

“If I was going to describe this order in one word, I think I would use the Greek word ‘hubris,’” Christie said. “It’s based on the belief that the members of this commission know better how to manage the complicated issues of timing, grid reliability and the costs of behind-the-meter DER deployment than all the state regulators in all the 50 states.”

He said it also reflected the “false belief” that state regulators, co-ops and public power officials are opposed to BTM DER deployments.

“I know that that’s just not true,” said Christie, who joined FERC in January after almost 17 years as a Virginia regulator. “States have been dealing with these issues for years and taking the lead in DER deployments. So have the munis; so have the public power authorities; so have the co-ops.”

Christie also responded to Chatterjee’s insistence that the ruling does not intrude on state authority. “Well, of course it does,” Christie said. “That’s the whole point of this order.”

Glick said he knows some state regulators have been frustrated with FERC’s jurisdictional approach in Order 222 and Order 841, which required RTOs to remove barriers to participation by energy storage.

“The states have a legitimate interest in the reliability of their distribution systems, and some are concerned that the participation of BTM resources in wholesale markets will make it more difficult,” he said. “In my view, the states still retain important tools such as jurisdiction over DER interconnection and the ability to condition DER participation in retail markets in a manner that ensures DER participation in wholesale markets won’t interfere with reliability.

“It’s important that FERC work as closely with state [regulatory commissions] as possible as this nation continues to transition to a clean energy future,” he added. “The old lines between retail and wholesale have become increasingly blurred with the advent of new technologies and services, and we need to work together to ensure a common goal.”

Notice of Inquiry

Separately, the commission also issued a Notice of Inquiry on whether it should reconsider the ability of states to prevent DR from participating in wholesale markets under Order 719. The NOI asks whether the circumstances regarding the DR opt-out have changed since 2008 and about the potential benefits and “resulting burdens” of removing it.

“A lot has changed since that order was first issued, and I think it is prudent for us to reconsider whether the opt-out remains appropriate,” Glick said.

Among the changes, FERC staffer Joe Baumann cited improvements in technologies used to aggregate retail customers as well as smart thermostats, “grid interactive” buildings, and smart meters that allow for load to be managed through geographically targeted demand reductions.

At a press conference after the meeting, Glick responded to Chatterjee’s suggestion that the commission initiate a Notice of Proposed Rulemaking to consider eliminating the opt-out. “I wasn’t comfortable at this point going to that because I’m not entirely convinced at this point that the record is sufficient to make a determination that the opt-out should be eliminated,” he said.

The commission said it was not reconsidering the DR opt-in rule for small utilities (those distributing 4 million MWh or less annually). Initial comments will be due 90 days after publication of the order in the Federal Register, with reply comments due 30 days after that.

QF Interconnections

The Order 2222 reconsideration also clarified FERC’s jurisdictional approach to the interconnections of qualifying facilities (QFs) under the Public Utility Regulatory Policies Act that participate in DER aggregations. The commission said that the presence of DER aggregations is a new circumstance not previously considered in the commission’s QF interconnection precedent and that Order 2222 addresses only DER aggregators’ participation in RTO/ISO markets, not a DER’s direct participation in those markets.

The order clarifies that the interconnections of QFs that participate in RTO/ISO markets exclusively through DER aggregations will be treated the same as the interconnections of non-QF DERs that participate in DER aggregations.

The commission said its approach would avoid a significant increase in the number of distribution-level QF interconnections subject to the commission’s jurisdiction, which could burden RTOs and ISOs.