In Final Rule, FERC Orders RTOs To Remove Barriers To Participation Of Aggregated Distributed Energy Resource In Wholesale Markets

September 17, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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The Federal Energy Regulatory Commission (FERC) said that it approved a final rule, Order 2222, enabling distributed energy resource (DER) aggregators to compete in all jurisdictional regional organized wholesale electric markets.

"The final rule enables these resources to participate in the regional organized wholesale capacity, energy and ancillary services markets alongside traditional resources. Multiple DERs can aggregate to satisfy minimum size and performance requirements that they might not meet individually," FERC said

Under the new rule, regional grid operators must revise their tariffs to establish DER aggregators as a type of market participant, which would allow them to register their resources under one or more participation models that FERC said is to accommodate the physical and operational characteristics of those resources.

FERC Staff said that the final rule largely adopts the proposals in the November 2016 Notice of Proposed Rulemaking issued in Docket Nos. RM16-23-000 and AD16-20-000, but with certain modifications reflecting feedback from the stakeholder process

In discussing the rule before the FERC vote (still termed a draft as it was before the vote), Staff said, "The draft final rule finds that existing RTO/ISO market rules are unjust and unreasonable in light of barriers that they present to the participation of DER aggregations in the RTO/ISO markets. As discussed in the draft final rule, DERs tend to be too small to meet the minimum size requirements to participate in the RTO/ISO markets on a stand-alone basis, and may be unable to meet certain qualification and performance requirements because of the operational constraints they may have as small resources. Existing participation models for aggregated resources, including DERs, often require those resources to participate in the RTO/ISO markets as demand response, which limits the services that they are eligible to provide to the markets. Such conditions create barriers to the participation of DERs that are technically capable of providing some services on their own or through aggregation. This restriction on competition can reduce the efficiency of the RTO/ISO markets, potentially leading an RTO/ISO to dispatch more expensive resources to meet its system needs. By removing barriers to the participation of such resource aggregations in the RTO/ISO markets, this draft final rule will enhance competition and, in turn, help to ensure that the RTO/ISO markets produce just and reasonable rates."

According to Staff, the final rule defines a DER as any resource located on the distribution system, any subsystem thereof or behind a customer meter and defines a DER aggregator as the entity that aggregates one or more DERs for purposes of participation in the capacity, energy and/or ancillary service markets of the RTOs and/or ISOs.

Each RTO/ISO must develop tariff provisions that allow DER aggregations to participate directly in RTO/ISO markets and establish DER aggregators as a type of market participant that can register DER aggregations under one or more participation models that accommodate their physical and operational characteristics.

The tariff provisions must also establish a minimum size requirement for DER aggregations that does not exceed 100 kW. And the tariff provisions must address various technical and operational issues, such as locational requirements, bidding parameters, metering and telemetry, coordination between relevant parties and authorities, modifications to aggregations, and market participation agreements.

"This draft final rule declines to include a mechanism for all relevant electric retail regulatory authorities to prohibit all DERs from participating in the RTO/ISO markets through DER aggregations, otherwise known as an opt-out. However, the draft final rule recognizes the potentially significant indirect costs borne by smaller entities to facilitate DER participation in wholesale markets. To address this concern, the draft final rule establishes an opt-in mechanism for small utilities, similar to the opt-in provided in Order No. 719-A with respect to demand response. Specifically, the final rule requires that an RTO/ISO must not accept bids from a DER aggregator if its aggregation includes DERs 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 DER aggregator," Staff said

"Additionally, the Commission in this draft final rule declines to exercise jurisdiction over the interconnection of a DER to a distribution facility when that resource interconnects for the purpose of participating in RTO/ISO markets exclusively through a DER aggregation. Therefore, the draft final rule does not require standard Commission-jurisdictional interconnection procedures and agreements or wholesale distribution tariffs in connection with DER aggregations. Rather, state or local law would govern distribution-level interconnections for DERs participating in RTO/ISO markets exclusively through an aggregation," Staff said

The rule does allow retail regulators to continue prohibitions against distributed energy aggregators bidding the demand response of retail customers into the regional markets.

The rule explains that state and local authorities remain responsible for the interconnection of individual DERs for the purpose of participating in wholesale markets through a DER aggregation.

Docket No. RM18-9-000

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