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Landmark FERC Order Opens Door for Wider Participation of Distributed Energy Resources in Wholesale Power Markets

September 22, 2020

On September 17, 2020, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 2222: Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators (“Order No. 2222” or “Final Rule”).  Order No. 2222 is a landmark rulemaking that will likely create numerous new opportunities for DER owners.  However, similar to Order No. 841, which governs the ability of energy storage resources to participate in organized wholesale markets, Order No. 2222 requires each RTO/ISO to address numerous compliance directives.  These individual RTO/ISO compliance processes will play a significant role in shaping the implementation of Order No. 2222 in each respective RTO/ISO region, and will likely require stakeholder coordination well into 2021.

Key Provisions of Order No. 2222

  • Requires RTOs/ISOs to revise their tariffs to recognize DER aggregators as a type of market participant, thereby allowing the aggregators to register their resources under one or more participation models that accommodate the physical and operational characteristics of those resources;
  • Prohibits retail regulatory authorities from broadly excluding DERs from participating in regional markets; and 
  • Prohibits RTOs/ISOs from accepting bids from the aggregation of customers of a small utility unless the retail regulatory authority for that utility allows such participation.

Key Definitions

Under the Final Rule, FERC defined DERs as “any resource located on the distribution system, any subsystem thereof or behind a customer meter,” and explained these “resources may include, but are not limited to, resources that are in front of and behind the customer meter, electric storage resources, intermittent generation, distributed generation, demand response, energy efficiency, thermal storage, and electric vehicles and their supply equipment – as long as such a resource is ‘located on the distribution system, any subsystem thereof or behind a customer meter.’” FERC stated that the definition of distributed energy resource it adopted in the Final Rule “is technology-neutral,” meaning DERs are not limited to those specific technologies listed in FERC’s order.

Order No. 2222 defines a DER aggregator as an “entity that aggregates one or more distributed energy resources for purposes of participation in the capacity, energy and/or ancillary service markets of the regional transmission organizations and/or independent system operators.”

Notable Observations for Developers or Owners of DERs

For developers or owners of existing DERs that may wish to enroll their resources for participation in RTO/ISO markets, they should note that FERC’s order does not require them to offer their products exclusively through a third-party aggregator, because FERC directed each “RTO/ISO to revise its tariff to allow a single qualifying distributed energy resource to avail itself of the proposed distributed energy resource aggregation rules by serving as its own distributed energy resource aggregator.” Moreover, different types of DERs can be included in the same aggregation, as FERC directed RTOs/ISOs “to revise [their] tariff[s] to allow different types of distributed energy resource technologies to participate in a single distributed energy resource aggregation.” Order No. 2222 calls different types of DERs in the same aggregation “heterogeneous aggregation.” 

The Final Rule notes that sometimes FERC’s definition of DERs and FERC’s existing definition of demand response resources will overlap, stating “demand response falls under the definition of distributed energy resource, an aggregator of demand response could participate as a distributed energy resource aggregator” (though FERC indicated that the rule does not impact existing demand response rules). It may be feasible for a DER to be compensated through multiple FERC or state-regulated programs, but subject to limitations to be potentially developed by RTOs/ISOs.

The order also requires “each RTO/ISO to revise its tariff to: (1) allow distributed energy resources that participate in one or more retail programs to participate in its wholesale markets; (2) allow distributed energy resources to provide multiple wholesale services; and (3) include any appropriate restrictions on the distributed energy resources’ participation in RTO/ISO markets through distributed energy resource aggregations.” However, FERC also stated it will allow “RTOs/ISOs to limit the participation of resources in RTO/ISO markets through a distributed energy resource aggregator that are receiving compensation for the same services as part of another program.” 

Further, while FERC stated that it “will not establish a minimum or maximum capacity requirement for individual distributed energy resources to participate in RTO/ISO markets through a distributed energy resource aggregation,” FERC “direct[ed] each RTO/ISO to propose a maximum capacity requirement for individual distributed energy resources participating in its markets through a distributed energy resource aggregation or, alternatively, to explain why such a requirement is not necessary, as discussed further below.” FERC also directed “each RTO/ISO to implement a minimum size requirement not to exceed 100 kW for all distributed energy resource aggregations.”  

Additionally, FERC held that “distributed energy resource aggregations must be able to meet the qualification and performance requirements to provide the service that they are offering into RTO/ISO markets.” FERC provided the example that “a type of resource like energy efficiency cannot be dispatched, metered, or telemetered” and therefore “it would likely be impossible for distributed energy resource aggregations comprised exclusively of energy efficiency resources to be able to provide energy or ancillary services to the RTOs/ISOs because the aggregation would not be technically capable of providing those services.” 

Other Important Aspects of the Final Rule

  • FERC directed “each RTO/ISO to establish market rules that address distribution factors and bidding parameters for distributed energy resource aggregations.” 
  • FERC directed “each RTO/ISO to establish market rules that address information requirements and data requirements for distributed energy resource aggregations.” 
  • FERC directed each RTO/ISO to “establish market rules that address metering and telemetry hardware and software requirements necessary for distributed energy resource aggregations to participate in RTO/ISO markets.” 
  • FERC directed “each RTO/ISO to modify its tariff to incorporate a comprehensive and non-discriminatory process for timely review by a distribution utility of the individual distributed energy resources that comprise a distributed energy resource aggregation.” 
  • FERC directed “each RTO/ISO to specify in its tariff . . . how [it] will accommodate and incorporate voluntary relevant electric retail regulatory authority involvement in coordinating the participation of aggregated distributed energy resources in RTO/ISO markets.” 

Implementation of Order No. 2222 and Next Steps

The Final Rule “require[s] each RTO/ISO to file the tariff changes needed to implement the requirements of [the] final rule within 270 days of the publication date of [the] final rule in the Federal Register.” FERC indicated further that it will “require each RTO/ISO to propose a reasonable implementation date, together with adequate support explaining how the proposal is appropriately tailored for its region and implements this final rule in a timely manner” and that FERC “will establish on compliance the effective date for each RTO’s/ISO’s compliance filing.” 

Therefore, compliance filings from the RTOs/ISOs will likely be submitted to FERC in early to mid-summer of 2021, with actual changes directed by Order No. 2222 likely not implemented in the respective RTO/ISO regions until later in 2021 or even 2022. 

Because of the flexibility that RTOs/ISOs have regarding how they seek to implement the requirements of Order No. 2222, which will likely impact the economic viability of DER aggregations in different RTO/ISO regions depending on how each RTO/ISO implements Order No. 2222’s directives, owners of DERs that wish for their resources to eventually participate in RTO/ISO markets should closely track, and possibly participate in, the individual RTO/ISO stakeholder proceedings that will give rise to each respective RTO/ISO’s compliance filing.

Please contact Dan Simon, Steven Shparber, Joe Donovan, Omar Bustami, or another attorney at Clark Hill, if you have questions related to your DER’s ability to participate in the RTO/ISO markets.

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