In a recent order, FERC pulled back, for now, its decision to sharply limit the ability of retail regulators to prohibit distributed energy resource (DER) aggregators from bidding retail customer demand response (DR) into wholesale markets.  Instead, the issue will be considered in  an ongoing inquiry that is addressing whether to totally eliminate the ability of retail regulators to keep retail DR resource offers out of FERC-jurisdictional wholesale markets.

Offering retail customer DR into wholesale markets raises sensitive Federal-state jurisdictional issues.  While all five commissioners voted to set aside the prior decision, the three Republican commissioners issued separate statements with differing views of retail regulator control of DR offers into wholesale markets.  Commissioner Chatterjee would not allow retail regulators to keep DR resources out of wholesale markets while Commissioners Danly and Christie would.

FERC’s order should be of interest to a wide range of electricity market participants, including utilities, generation companies, investors in storage and other electricity resources and electricity customers.

Background

FERC’s landmark Order No. 2222 requires Regional Transmission Organization (“RTO”) and Independent System Operator (“ISO”) tariffs to include provisions specifically aimed at allowing DER aggregators to participate in the organized wholesale markets. As discussed in a prior post to this blog, a March 2021 rehearing order largely upheld Order No. 2222 but scaled back a provision that allowed retail regulators to prohibit DER aggregators from bidding the demand response of retail customers into wholesale markets.  FERC withdrew this “opt-out” provision with respect to aggregations that include a mix of DR and other types of resources (“heterogeneous aggregations”), but allowed the opt-out to continue to apply to aggregations of solely demand response resources.  However, FERC also issued a Notice of Inquiry (NOI) seeking comments on the potential impacts of removing the demand response opt-out provision entirely.

The basis of the opt-out provision is FERC’s 2008 Order No. 719, which required RTOs/ISOs to permit aggregators to bid retail customer demand response directly into their wholesale markets.  The participation in FERC wholesale markets of resources located on a distribution system or behind a retail customer’s meter raises sensitive Federal-state jurisdictional issues.  To alleviate concerns of retail regulatory authorities, FERC allowed retail regulatory authorities to prohibit retail customer demand response from being bid into RTO/ISO markets by aggregators.

In excluding heterogeneous aggregations that include demand response from the opt-out provision, the March 2021 order found that they “do not fall squarely within the Order No. 719 opt-out …because they are not solely aggregations of retail customers,” and they take advantage of the different resources’ operational attributes and complementary capabilities.  In contrast, DER aggregations of only demand response resources are “materially indistinct” from the aggregations of retail customers allowed by the Order No. 719 opt-out.

The recent rehearing order

Responding to requests for rehearing of the March 2021 order, FERC set aside its decision not to extend the opt-out to DR resources that participate in heterogeneous DER aggregations.  The Commission acknowledged that some states that have implemented Order No. 719 by broadly prohibiting DR participation in RTO/ISO markets may not have anticipated that those broad prohibitions would be questioned in this aggregation proceeding.  Accordingly, the issues regarding the opt-out provision in the aggregation proceeding will be fully considered in the ongoing NOI that is exploring whether to remove the Order No. 719 opt-out provisions entirely.  FERC extended the date for initial comments in the NOI to July 23, 2021.

In addition, FERC rejected the arguments of retail regulators that taking away the opt-out provision exceeded FERC’s Federal Power Act jurisdiction.  FERC continued to find that it was not legally required to grant the opt-out in Order No. 719 or in this proceeding.

Commissioners’ separate statements

In a concurrence, Commissioner Chatterjee expressed support for eliminating the Order No. 719 opt-out, saying it has prevented DR resources in many states from participating in wholesale markets and cannot be reconciled with FERC’s statutory duty to ensure just and reasonable rates.

In their statements, Commissioners Danly and Christie support the decision in the rehearing  order to allow retail regulators to retain authority over their retail customers’ DR and would not consider eliminating that authority.

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Photo of Bud Earley Bud Earley

Bud Earley, a non-lawyer senior advisor, provides analysis and advice on a wide range of federal and state energy regulatory issues, including transaction and rate issues, regional transmission organization (RTO) tariffs and rules, interconnection, retail choice and demand response for electricity customers…

Bud Earley, a non-lawyer senior advisor, provides analysis and advice on a wide range of federal and state energy regulatory issues, including transaction and rate issues, regional transmission organization (RTO) tariffs and rules, interconnection, retail choice and demand response for electricity customers, a natural gas pipelines and hydroelectric facility licenses, and LNG export authorizations.

Working with Covington teams, Mr. Earley has provided expert advice and analysis to investment firms, utilities, independent power producers, project developers, customers, marketers and U.S. and international energy companies,

Prior to joining Covington, Mr. Earley served for over 30 years in various staff positions at the Federal Energy Regulatory Commission (FERC). While at the FERC, Mr. Earley was instrumental in developing and applying policies regarding the transition of the electric utility industry to competition, including policies regarding independent power producers, transmission access, standard generator interconnection procedures, organized electricity markets, mergers and market-based rates.