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FERC Issues Landmark Order to Allow Participation by Distributed Energy Resources in the Wholesale Markets

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On September 17, 2020, the Federal Energy Regulatory Commission (FERC) issued Order No. 2222, a landmark order that allows distributed energy resources (DERs) to participate in the organized wholesale markets and offer through aggregators energy, capacity, and grid services for compensation.  Order No. 2222 directs the organized market operators to revised their tariffs to identify DERs as a market participant and establish the rules for their participation based on the guidance provided by FERC.  Once implemented, DERs through aggregators will be able to participate in the PJM, CAISO, NYISO, MISO, SPP, and ISO-NE wholesale markets.  The details of how Order No. 2222’s framework will be implemented will be worked out over the next several months in stakeholder meetings in each market, which will ultimately lead to a compliance filing by each market operator by July 19, 2021 providing proposed tariff revisions for FERC’s review.  Highlights of Order No. 2222 include:

  • The order adopts broad definitions for DERs and aggregators and includes behind-the-meter resources: “Distributed energy resource as used in this section means any resource located on the distribution system, any subsystem thereof or behind a customer meter” and “Distributed energy resource aggregator as used in this section means the 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.”

  • DER aggregators will be subject to regulation as “public utilities” under the Federal Power Act and will need to obtain market-based rate authorizations, file quarterly reports, obtain FERC approval for certain mergers and acquisitions, and meet other public utility requirements.  However, the order confirms that DER owners (e.g., behind-the-meter residential solar system owners that are retail customers) will not be subject to FERC’s jurisdiction as a public utility (“Hence, an individual distributed energy resource’s participation in a distributed energy resource aggregation would not cause that individual resource to become subject to requirements applicable to Commission-jurisdictional public utilities.”).

  • Each organized market operator must adopt rules to allow DER aggregators to register DER aggregations under one or more participation models that accommodate the physical and operational characteristics of the distributed energy resource aggregations.  Operators can set minimum size requirement for aggregations, but that requirement cannot exceed 100 kW.  Each operator’s tariff must also address technical issues, such as locational requirements, bidding parameters, information and data requirements, metering and telemetry requirements, and coordination among the operator, the DER aggregators, distribution utilities, and the state utility commissions.

  • State utility commissions have discretion as to whether to allow the aggregation of DER-owning customers of smaller utilities and must opt-in such customers.  However, the state utility commissions cannot preclude customers of larger utilities from participating in the organized markets through an aggregator.  The order states (underlining added) that each organized market operator “must accept bids from a distributed energy resource aggregator if its aggregation includes distributed energy resources that are customers of utilities that distributed more than 4 million megawatt-hours in the previous fiscal year.  However, an independent system operator or regional transmission organization must not accept bids from a distributed energy resource aggregator if its aggregation includes distributed energy resources that are customers of utilities that distributed 4 million megawatt-hours or less in the previous fiscal year, unless the relevant electric retail regulatory authority permits such customers to be bid into RTO/ISO markets by a distributed energy resource aggregator.”

As noted above, the market operators’ compliance filings are due by July 16, 2021.  Parties have sought rehearing of aspects of Order No. 2222, and on November 19, 2021, FERC issued a notice stating that it would issue an order on rehearing addressing the rehearing requests.  Thus, FERC may modify or clarify aspects of Order No. 2222 in a future order. 

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