FERC Order 2222 opens wholesale markets to distributed energy resource aggregators

U.S. electric utility regulators have issued an order requiring the nation's regional organized wholesale electric markets to allow participation by portfolios of solar projects and other distributed energy resources. The Federal Energy Regulatory Commission's Order 2222 finds that existing regional electricity market rules are unjust and unreasonable in light of barriers that they present to the participation of DER aggregations in these markets, and requires regional grid operators to revise their tariffs to accomodate distributed energy resource aggregators. While further process and uncertainty remain ahead, FERC Order 2222 should facilitate the development of distributed energy resources by removing barriers to electricity market participation.

As defined by the FERC, distributed energy resources (DER) encompass a variety of types of technology when installed on the distribution system, a distribution subsystem or behind a customer meter. Typically less than 10,000 kilowatts in capacity for each installation, DER technologies include solar photovoltaic systems and other distributed generation or intermittent generation, electric storage, electric vehicles and their charging equipment, thermal storage, and other consumer-side measures like demand response and energy efficiency. The U.S. is experiencing significant growth in the number and size of DERs installed on the system, due to factors including federal tax incentives and state incentives, as well as considerations of reliability and utility rate design.

Through Order 2222, issued on September 17, 2020, FERC has now found "that existing RTO/ISO market rules are unjust and unreasonable in light of barriers that they present to the participation of distributed energy resource aggregations in the RTO/ISO markets, which reduce competition and fail to ensure just and reasonable rates." As a result, the Commission adopted a final rule requiring regional transmission organizations and other organized wholesale market operators to establish DER aggregators as a type of market participant, to allow them to register their DERs under one or more participation models that accommodate the physical and operational characteristics of those resources and to participate in the regional organized wholesale capacity, energy and ancillary services markets. Order 2222 allows DERs to aggregate together to satisfy minimum size and performance requirements that they might not meet individually.

The boundaries between federal and state jurisdiction over DERs arise as a matter of federal law, and have occasionally been tested -- most recently in connection with FERC Order 841, governing storage. As noted by the Commission, its Order 2222 final rule "builds off the DC Circuit Court’s recent ruling on Order No. 841, in which the court affirmed the Commission’s exclusive jurisdiction over the regional wholesale power markets and the criteria for participation in those markets." Order 2222 prohibits state regulators from broadly excluding DERs from participating in regional markets, but gives state retail regulatory authorities some power by creating a "small utility opt-in", as well as respecting states regulators’ current ability to prohibit aggregators from bidding retail customers’ demand response into regional markets. Regarding interconnection, Order 222 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."

The final rule largely tracks a 2016 proposed rule developed by FERC staff, with some changes. The regulator appears excited to take this step. According to a fact sheet issued by the Commission under the title, "FERC Order No. 2222: A New Day for Distributed Energy Resources", Order 2222 "will help usher in the electric grid of the future and promote competition in electric markets by removing the barriers preventing distributed energy resources (DERs) from competing on a level playing field in the organized capacity, energy and ancillary services markets run by regional grid operators."

Order 2222's final rule will take effect 90 days after its publication in the Federal Register. Grid operators will then have 270 days within which they must submit to FERC a compliance filing and a plan for timely implementation of the final rule. While Order 2222 and federal laws place some constraints on what the grid operators may propose, each regional transmission organization or independent system operator has some leeway to develop and propose solutions it views as tailored to its own markets and needs. This feature of federalism will likely result in some diversity in terms of regional designs, to be considered through regional stakeholder discussion and the Commission's regulatory processes.

FERC distributed energy resource technical report

A technical report by U.S. electricity regulatory staff assesses the potential reliability issues and likely benefits to the bulk power system resulting from an increased penetration of distributed energy resources. According to the report, increasing penetration of distributed energy resources may bring several associated reliability benefits to the bulk power system -- or could cause reliability concerns, if the resources are not properly accounted for.

Distributed energy resources, or DERs, have no single definition -- but they are generally conceived of as small, geographically dispersed electric resources, installed and operated on the distribution system at voltage levels below the typical bulk power system levels of 100kV. Historically, the term focused on generation like rooftop solar panels or on-site combined heat and power plants, but its meaning has broadened to include energy efficiency, microgrids, and even new technologies like energy storage. Distributed energy resources can be cost-effective alternatives to traditional utility infrastructure and business models.

Distributed energy resources installations have increased significantly in some regions of the United States in recent years thanks to factors including technology advances and state energy policies. In 2016, when distributed energy resources of all types accounted for about two percent of the nation's installed generation capacity, distributed solar photovoltaic (PV) installations alone represented over 12 percent of new capacity additions.  At the same time, regulators and industry participants are working to integrate these resources into the grid from engineering, reliability, and system planning perspectives.

In February 2018, staff of the Federal Energy Regulatory Commission published a report, "Distributed Energy Resources: Technical Considerations for the Bulk Power System." This report filed in Docket No. AD18-10-000 considers how the increasing penetration and integration of distributed energy resources in specific regions may affect bulk power system reliability. It summarizes technical assessments performed by Commission staff using industry power system models and commercially available power system simulation software "to identify the potential reliability issues and likely benefits to the bulk power system" from increasing distributed energy resource penetration. The study notes that its modeling of distributed energy resource capacity was "based on current trends for technology types, operational capabilities, and deployment distributions."

According to the report, greater penetration of distributed energy resources could have associated reliability benefits for the bulk power system. For example, by providing power close to the customer distributed resources can serve to reduce grid losses and reduce system peak load, or can serve as non-transmission alternatives that displace the need for more expensive wires upgrades.

At the same time, the report warns that "increasing DER capacity, if not properly accounted for, could cause reliability concerns for the bulk power system." It calls for improving and refining the data that is available for distributed energy resources for incorporation into planning and operating models, noting, "Collecting and using the most current and accurate data is key to getting a complete picture of how DERs affect the bulk power system."

The report identified key bulk power system reliability topics to explore in light of the growing adoption of distributed energy resources in the U.S., including:

• The impact of the current common industry modeling practice of netting DERs with load, which may mask the effects of DER operation;
• DER capabilities for voltage and frequency ride through during contingencies;
• The potential for improved voltages due to the unloading of the bulk power system associated with the location of DERs at or near customer loads;
• Potential effects upon system -wide transmission line flows and generation dispatch due to changing load patterns;
• The sensitivity of voltage or power needs to different types of DER applications (i.e., providing energy, capacity, or ancillary services);
• The need to develop planning processes that capture more detailed models of DERs and allow for modeling of the interface between the transmission and distribution systems to enable information exchange and more accurate calculations of the DER impact on the bulk power system; and
• The advantages and disadvantages of allowing DERs to participate directly in the organized wholesale electric markets.

The report also calls for continued examination of other issues, such as "sensitivities with higher DER penetration levels, changes in siting patterns, and potential impacts to the system’s response to events, disruptions and outages, including frequency events." It concludes, "Efforts such as these could help track and assess the impact of changing conditions on the bulk power system to identify emerging trends and address potential future reliability challenges."

Emerging technologies and the electric grid

A task force examining the deployment of emerging technologies across the North American electric grid has identified three imperatives necessary to ensure the continued reliability and efficiency of the bulk electricity system, relating to: renewable supply and integration; greater situational awareness; and controlling an increasingly distributed energy system, with increased deployment of distributed energy resources.

The 39-page report, “Emerging Technologies: How ISOs and RTOs can create a more nimble, robust electricity system,” was published on March 16, 2017, by a group of nine Independent System Operators (ISO) and Regional Transmission Organizations (RTO) known collectively as the ISO/RTO Council (IRC).

With respect to integrating renewable resources, the IRC noted that it "[s]upports policies and positions recognizing the electricity system’s ability to accommodate large amounts of renewables and realizing their growing potential."  While remaining "agnostic to specific technologies that may faciiltate renewable integration", IRC supports policies that accommodate emerging renewable integration technologies, while "avoiding early technological lock-in."

With respect to situational awareness, the IRC notes the lack of available data on the penetration of distributed energy resources, but that a lack of data or its sharing should not limit grid operators' understanding of what's happening on the grid.  IRC suggests the development of a general operational data framework, "where increasingly comprehensive operational data from the distribution system is provided as DER penetrations reach different thresholds."

The report also notes, "Because of emerging technologies, North America’s electricity systems are moving toward a more distributed arrangement." In 2016, the Federal Energy Regulatory Commission issued a Notice of Proposed Rulemaking in which it proposed rule changes "to remove barriers to to the participation of electric storage resources and distributed energy resource aggregations" in organized wholesale electric markets.  Recognizing that such a rule change could set a framework for future DER growth, the IRC calls for continued coordination, data sharing, and flexibility.

NH net metering under review

New Hampshire utility regulators have paused their review of a utility’s proposed changes to rates for customers with solar and other distributed energy resources, pending a more holistic review of the state’s net metering policy. Interest now focuses on Docket DE 16-576, in which the Commission may develop new alternative net metering tariffs or other regulatory mechanisms applicable to customer-sited generation.

Under New Hampshire law, the net energy metering section of the Limited Electrical Energy Producers Act, each electric distribution utility must make standard tariffs providing for net energy metering available to eligible customer-generators in accordance Public Utilities Commission regulation.

On April 29, 2016, distribution company Unitil Energy Systems, Inc. (Unitil) filed a petition to the New Hampshire Public Utilities Commission seeking authority to, among other things, implement new permanent delivery rates for distribution service, beginning June 1, 2016. Among Unitil’s proposed changes was a new tariff schedule for Domestic Distributed Energy Resources, called Schedule DDER, applicable to certain residential customers with renewable distributed generation systems installed behind the retail meter. If adopted, it would change how Unitil’s customers may net meter solar panels and other eligible distributed generation.

Changes to net metering policy can be controversial.  Consumers and solar advocates typically support net metering as a key incentive for solar project development, even if it might undercompensate consumers relative to the value of solar.  But some utilities oppose net metering, arguing that it hurts their revenues or shifts costs to customers without solar panels.  Debate over the issue led the New Hampshire legislature to enact a net metering bill, House Bill 1116, earlier this year. Signed by Governor Hassan on May 2, 2016, House Bill 1116 amended several provisions of RSA 362-A:9.

Among the new statutory language is new paragraph XVI, requiring the Commission, within a ten month period, to initiate and conclude a proceeding to develop new alternative net metering tariffs, which may include other regulatory mechanisms and tariffs, taking into consideration a number of specified factors deemed relevant to such development. By Order of Notice issued on May 19, 2016, the Commission opened Docket DE 16-576 to conduct this holistic review of net metering.  That case remains ongoing.

Given the overlap between the holistic net metering case and Unitil’s proposed Schedule DDER, on June 9, the New Hampshire Public Utilities Commission issued an order suspending the investigation of, and staying any litigation regarding, Unitil’s proposed tariff schedule. In its June 9 order suspending the investigation, the Commission concluded that “it it would be inconsistent with the intent of HB 1116 and would represent an inefficient allocation of limited Staff, stakeholder, and Unitil ratepayer resources to address rate design proposals directly affecting net-metered customer-generators in this proceeding as well as in Docket DE 16-576.”

In the Commission’s words, it initiated Docket DE 16-576 based on the legislative mandate “to conduct a proceeding involving all regulated electric distribution utilities to develop new alternative net metering tariffs, which may include other regulatory mechanisms.” Noting that Schedule DDER is effectively a net metering tariff, the Commission found that separately reviewing, evaluating, and litigating Schedule DDER in both the Unitil docket and Docket DE 16-576 would impose additional burdens on the limited resources of Staff and its consultant, as well as on those of other parties and stakeholders, and “could result in conflicting schedules, redundant discovery, and potentially inconsistent results in the separate proceedings.”

The Commission noted that under the HB 1116 amendments to the net metering law, “net metering will continue indefinitely and without limit, unless and until otherwise determined by the Commission in the proceeding we have opened as Docket DE 16-576… In effect, customer -generators will continue to participate in net metering under RSA 362-A:9 even in excess of the 100 megawatt “cap,” but those above this statutory limit ultimately will be subject to the new alternative net metering tariffs approved by the Commission in Docket DE 16-576.”

Accordingly, the Commission placed the suspension and stay of the Unitil case in effect until the completion of Docket DE 16-576.  The net metering review in that case remains pending, with a schedule set through the coming winter.