In a long awaited order, FERC on Thursday ordered RTOs and ISOs to open their markets to distributed energy resource aggregations now largely limited to providing demand response (Order 2222, RM18-9).

The commission voted 2-1 in favor of the order at its monthly opening, with Democratic Commissioner Richard Glick joining Republican Chairman Neil Chatterjee. Republican Commissioner James Danly dissented, saying the order intrudes on state jurisdiction.

The commission said that existing RTO and ISO rules are unjust and unreasonable because of their barriers to broader participation by aggregated DERs in capacity, energy and ancillary service markets. 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, the commission said.

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.

The final rule largely follows the commission’s November 2016 Notice of Proposed Rulemaking (RM16-23, AD16-20). That NOPR also led to Order 841, which removed barriers to energy storage, in February 2018. The commission said then that it needed more information before it could take action on DERs, ordering a technical conference for later that year. (See FERC Rules to Boost Storage Role in Markets.)

100-kW Threshold

Order 2222 defines DERs as resources located on the distribution system or a distribution subsystem, or behind a customer meter, including energy storage, thermal storage, intermittent generation, distributed generation, DR, energy efficiency and electric vehicles and their charging equipment.

It requires RTOs and ISOs to allow DER aggregators to register as market participants under participation models that accommodate their physical and operational characteristics. Grid operators must set minimum size requirements for DER aggregations of no more than 100 kW.

Their revised tariffs must cover technical issues such as:

• • • locational requirements for DER aggregations;
    • distribution factors and bidding parameters;
    • information and data requirements;
    • metering and telemetry requirements;
    • coordination among the regional grid operator, the DER aggregator, the distribution utility and the relevant electric retail regulatory authority (RERRA);
    • modifications to aggregations; and
    • market participation agreements.

Chatterjee called the order “a landmark, foundational rule that paves the way for the grid of tomorrow.”

“DERs can hide in plain sight in our homes, businesses and communities across the nation. But their power is mighty,” he said during the open meeting. “Some studies have projected that the United States will see 65 GW of DER capacity come online over the next four years, while others have even 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.”

Chatterjee also cited the potential for EVs to eventually provide energy, spinning reserves or frequency regulation while plugged in.

No Opt Out

The commission declined to allow local or state regulators to prohibit DERs from participating in the wholesale markets through an opt-out, citing the D.C. Circuit Court of Appeals ruling upholding the commission’s similar position regarding behind-the-meter storage under Order 841. (See FERC Storage Order Survives State Challenge.)

But in recognition of potential cost impacts, the commission created an opt-in mechanism for small utilities, similar to that in Order 719-A for DR. It says RTOs/ISOs must not accept bids from aggregations that include DERs that are customers of utilities that distributed 4 million MWh or less per year unless the RERRA allows it.

The commission also declined to assert jurisdiction over the interconnection of DERs to distribution facilities for aggregations. It “does not require standard commission-jurisdictional interconnection procedures and agreements or wholesale distribution tariffs in connection with DER aggregations,” FERC staff said in a presentation at the meeting. “Rather, state or local law would govern distribution-level interconnections for DERs participating in RTO/ISO markets.”

“If we granted all state regulators the option [to prevent DER aggregation], we’d have a checkerboard approach where some states in an RTO would opt out and some wouldn’t, and it would artificially limit the amount of DER energy and capacity participating in these markets,” Glick said at the meeting. “States still have significant authority to protect distribution system reliability. States will continue to exercise their jurisdiction over interconnection of aggregate DER facilities. … I believe this is a fair compromise.”

Danly Dissent

Danly said he dissented 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.”

“Why promulgate a rule at all?” Danly asked. “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. We 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. I have greater faith in the power of market forces and in the discernment of the utilities and the states.”

The rule will become effective 60 days after publication in the Federal Register, with RTO and ISO compliance filings due nine months after publication.

Reaction

Reaction to the order was generally positive.

Louis Finkel, senior vice president of government relations for the National Rural Electric Cooperative Association, said the group — which had challenged Order 841 before the D.C. Circuit — was happy that FERC included the opt-in for small utilities.

“It is important that the commission has recognized the challenges that this order could pose for small utilities, including virtually all distribution co-ops,” Finkel said. “We look forward to carefully reviewing FERC’s decision in the coming days with the hope that it does indeed preserve state and local regulatory authority over retail electricity sales and local distribution service. Local control is critical, because every co-op is different and is uniquely positioned to meet the specific needs of the community it serves.”

Kelly Speakes-Backman, CEO of the Energy Storage Association, said the order builds on the foundation of Order 841 for distributed energy storage.

“Energy storage is increasingly located on local electric grids, in households and businesses, and is often integrated with distributed generation and controllable loads,” she said. “Enabling these flexible resources to participate together as ‘virtual power plants’ in wholesale markets is a victory for enhancing grid reliability, enabling a more resilient grid and lowering costs for consumers.”

The Advanced Energy Management Alliance said “a participation model for consumers and distributed energy resources enables crucial cost savings, flexibility, resilience and environmental benefits to the grid. … AEMA has been working through ISO stakeholder processes to encourage development of distributed energy resource participation but has also worked with state regulators and utilities to develop solutions through retail and state markets.”

Gregory Wetstone, CEO of the American Council on Renewable Energy, praised the ruling but said the commission was working at cross purposes by “continuing to erect barriers to the entry of new technologies in PJM and NYISO through the use of minimum offer price rules.”

“While today’s order on distributed energy resources follows in the forward-thinking footsteps of Order No. 841 on energy storage, no market can be free until arbitrary resource-specific price floors are eliminated,” he said.