FERC reverses opt-out stance for demand response participating in DER aggregations

The Federal Energy Regulatory Commission June 17 backed off of a prior decision tied to its landmark rule opening wholesale power markets to aggregations of distributed energy resources, reversing its determination that state opt-out rules for demand response resources do not apply to those types of aggregations.

Instead, the commission will wait to assess the comments filed in response to the notice of inquiry (RM21-14) launched in March to explore whether state opt-out rules for a separate demand response rule still make sense. The comment deadline for that NOI was extended in light of the commission's latest action to July 23 for initial comments and August 23 for replies.

At issue is an opt-out provision for states in recognition of their exclusive jurisdiction under the Federal Power Act over the siting and permitting of their own energy infrastructure.

The commission afforded such a provision to states in Order 719, a 2008 rule requiring grid operators to allow aggregators to bid demand response into organized markets on behalf of retail customers. But FERC did not offer such a provision in Order 841, the 2018 rule directing grid operators to create market participation rules that recognize the unique physical and operational characteristics of electric storage resources.

FERC reasoned that the benefits of not doing so outweighed potential implementation costs for states, and a federal appeals court upheld that decision in 2020.

DER aggregations rule

Following up on its storage order, FERC in September 2020 issued its aggregated DER rule, Order 2222 (RM18-9), which similarly did not include a broad opt-out for states. It did, however, contain a limited opt-out for small utilities like rural electric cooperatives, recognizing the potential difficulties they may have in facilitating the participation of DERs, which can include small-scale solar arrays and battery installations.

The commission, at its March meeting, issued clarifications in Order 2222-A, addressing environmental groups and others' questions regarding the applicability of Order 719's opt-out provisions to aggregations of DERs containing demand response resources. At the time, FERC determined, over the objections of Commissioner Mark Christie, that a demand response resource could participate in an aggregation that included at least one other type of DER even if the demand response resource was located in a state that chose to opt-out of Order 719.

The latest order voted out at the commission's June 17 meeting "sets aside that determination," Chairman Richard Glick said.

"Although I supported the demand response provision in Order 2222-A, after reflecting on the comments made at the time by my colleague Commissioner Christie and after reviewing the rehearing requests that were submitted, I am persuaded that we should not be putting the cart before the horse," Glick said at the meeting. "These issues are best considered holistically in the context of the NOI, and we should await the outcome of our ongoing review of the Order 719 opt-out in the proper form."

Differing views

Christie, in a written statement dissenting in part to the order, expressed disappointment that Orders 2222 and 2222-A fail to allow states and local entities to manage the timing and conditions of deployment of behind-the-meter DERs, disregarding states' "authority to balance the competing interests of deploying new technologies while maintaining grid reliability and protecting consumers from unaffordable costs." As a result, consumers will be on the hook for "billions of dollars for grid expenditures likely to be rate-based in the name of 'Order 2222 compliance,'" he said.

"I would authorize states and other [relevant electric retail regulatory authorities] the right to exercise an opt-out from the requirements of those orders, if not permanently then at least for some period of years to enable them better to prepare for the impacts on retail customers and distribution grids they now face," Christie said.

To the contrary, Commissioner Neil Chatterjee, during the meeting, reiterated his "preference to issue a notice of proposed rulemaking to set forth a concrete proposal and seek comments from interested parties, rather than kicking the can down the road with a [NOI]."

"Now, three months later, we're extending the deadline for comments on the NOI, creating even more process and delaying much needed reforms to the Order 719 opt-out, which today's order reiterates was merely an exercise of the commission's discretion," Chatterjee said. "In my concurrence to today's order, I urge the commission to eliminate this outdated and anticompetitive policy, an action I believe is necessary to fully unleash the power of DERs and allow consumers to realize all the benefits demand response resources can provide the DER aggregations."

Reserving final judgment

Glick told reporters after the meeting that he didn't necessarily disagree with Chatterjee in terms of the overall outcome on the opt-out provision, but wanted to reserve final judgment until he'd had a chance to review the record in the NOI proceeding.

"I think we need to create a better record on this issue [of] ... whether the opt-out should continue or not, and not get rid of the opt-out for some situations and not for others," he said. "So that's why we pulled it back," and will determine through the NOI proceeding how to move forward.

As to Chatterjee's criticism that the matter was progressing too slowly, "I would point out that Commissioner Chatterjee was chair for several years and did not move forward to eliminate that opt-out," Glick said.