A September 17, 2020 Final Rule adopted by the Federal Energy Regulatory Commission (“Commission”) removes barriers to the participation of distributed energy resource aggregators in Regional Transmission Organization (“RTO”) and Independent System Operator (“ISO”) markets. The Commission’s modified regulations require each RTO/ISO to revise its tariff to ensure that its market rules facilitate the participation of distributed energy resource aggregators. Order No. 2222 is a positive development for distributed energy resources that would like to participate in wholesale electric markets but are unable to do so, and should encourage greater renewable energy resource development in the coming years. However, the scope and implementation of each RTO’s/ISO’s participation model remains to be seen: distributed energy resources will need to keep an eye on RTOs’/ISOs’ proposed tariff revisions. Moreover, maximizing the opportunity for distributed energy resources to contribute to markets will be affected by whether the Commission continues to reform Commission-jurisdictional markets to broaden participation of emerging technologies as it did in Order No. 2222, or adopt measures that bolster the viability of fossil and nuclear resources at the expense of emerging technologies as it has done in other proceedings.
Order No. 2222 concluded that barriers to the participation of new technologies, including many types of distributed energy resources, in RTO/ISO markets prevented resources technically capable of participating in organized wholesale markets from doing so. According to the Commission, this reduces competition in, and efficiency of, RTO/ISO markets, thereby resulting in unjust and unreasonable rates. Thus, the Commission required each RTO/ISO to propose revisions to its tariff that permit distributed energy resource aggregators to participate in organized wholesale electric markets. Order No. 2222, 172 FERC ¶ 61,247 at P 6.
Order No. 2222 required that revised RTO/ISO tariffs, among other things, (i) allow distributed energy resource aggregators to participate directly in RTO/ISO markets and establish distributed energy resource aggregators as a type of market participant, and (ii) allow distributed energy resource aggregators to register distributed energy resource aggregations under one or more participation models that accommodate the physical and operational characteristics of the distributed energy resource aggregations. Id. at P 8. The Commission also directed that the new RTO/ISO rules must, among other things, establish (i) a minimum size requirement for distributed energy resource aggregations that does not exceed 100 kW, (ii) locational requirements for distributed energy resource aggregations, (iii) information and data requirements for distributed energy resource aggregations and (iv) the coordination protocol between the RTO/ISO, the distributed energy resource aggregator, the distribution utility and the relevant electric retail regulatory authorities.
The Commission also determined that each RTO/ISO 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.
RTOs/ISOs must file their proposed tariff revisions with the Commission within 270 days of the publication of Order No. 2222 in the Federal Register.
Order No. 2222 is the latest Commission action aimed at encouraging the participation of emerging energy technologies in organized wholesale electricity markets and ensuring that RTO/ISO market rules produce just and reasonable terms of service for such resources. For instance, Order No. 841 removed barriers to the participation of electric storage resources in RTO/ISO markets. When viewed together, Order Nos. 841 and 2222 better accommodate emerging resources’ participation in organized electric markets.
Existing RTO/ISO tariff rules were originally designed when traditional generation resources, like coal and nuclear, predominated in the generation portfolio of each RTO/ISO. In the last several decades, however, state and federal climate change initiatives have spurred the proliferation of new types of generation resources, such as solar and wind, which have challenged traditional generation resources’ dominance in electricity markets. Notwithstanding the rapid advancement of distributed energy and renewable resources in recent decades, RTO and ISO tariff rules have largely failed to keep pace.
Order No. 2222 will undoubtedly be viewed as a positive development for emerging technologies (and aggregators thereof) seeking to participate in Commission-jurisdictional markets. Order No. 2222 (i) will better accommodate new types of generating resources in wholesale electric markets, (ii) should enhance the likelihood of success for distributed energy resources (iii) may result in state renewable goals being achieved sooner than otherwise possible, (iv) will remove barriers to entry affecting emerging technologies in RTO/ISO markets and (v) will allow for increased and efficient integration of emerging technologies in wholesale markets. Additionally, designing wholesale market rules to facilitate energy aggregations from distributed energy resources should assist smaller resources that may not be able to participate in markets absent such aggregations. Thus, on the whole, Order No. 2222 (in addition to Order No. 841) is a welcome development for the burgeoning distributed energy resources industry.
However, Order No. 2222 should not be viewed as a panacea for emerging technologies, or an indication that the Commission will treat distributed energy resources favorably, in all future instances. For example, as we discussed here and here, the Commission recently subjected resources receiving so-called “State Subsidies” to minimum offer price floors in the New York System Operator, Inc.’s and PJM Interconnection, L.L.C.’s capacity markets, with certain limited exceptions.
Additionally, Commissioner Danly’s dissent of Order No. 2222 shows debate over renewable and distributed energy resources’ participation in Commission-jurisdictional markets is far from over. For example, Commissioner Danly stated that the Commission went “too far in declaring the extent of its own jurisdiction . . . .”, Order No. 2222, 162 FERC ¶ 61,127 at P 1 (Danly, J., dissent), asserting that “[r]espect for the States’ role in our federal system and under the [Federal Power Act] would counsel against even modest, non-essential declarations of our authority . . . .” Id. at P 3. “[T]he Commission should not encourage resource development by fiat”; instead RTOs/ISOs (or the states or the utilities) should be free to develop their own distributed energy resource programs in the first instance, according to the dissent. Id. at PP 1, 4. The dissent (i) provides potential opponents of Order No. 2222 (e.g., states or utilities desiring to develop their own distributed energy resource program) a suggested line of attack that can be pursued in subsequent judicial appeals, and (ii) suggests that the Commission is far from unified on its stance towards renewable and distributed energy resources, which may become even truer as the composition of the Commission changes.
Also, the Commission’s opt-in provision for small utilities (i.e., utilities distributing less than 4 million megawatt-hours in the previous fiscal year) still subjects distributed energy resource aggregators to a potential veto by the relevant retail regulatory authority. Leaving it up to the relevant retail regulatory authority to determine whether distributed energy resources on a particular utility system are authorized to participate in organized wholesale electric markets ostensibly provides small utilities with the flexibility they desire to manage resources on their systems, but nonetheless imposes a potential barrier to entry on distributed energy resources located on smaller utility systems to which resources on larger utility systems are not subject.
Implementation of the new rules may present challenges, as well. Each RTO/ISO may propose a unique participation model that includes minimum requirements provided in Order No. 2222. Therefore, each RTO’s/ISO’s proposed participation model for distributed energy resource aggregations will undoubtedly vary, which could be particularly challenging for aggregators participating in more than one RTO/ISO. For example, an aggregator participating in two or more RTOs/ISOs would potentially be subject to entirely different participation models, with which compliance could be particularly onerous. Moreover, a distributed energy resource aggregator conceivably could participate in one RTO/ISO market but be precluded from participating in another, such as where the minimum aggregation size requirement differs between the two RTOs/ISOs. Thus, distributed energy resources vying for RTO/ISO markets must participate in or, at the very least monitor, each RTO’s/ISO’s Order No. 2222 compliance filing proceeding.
In sum, Order No. 2222 is a positive development for the renewables industry, but the full benefits of Order No. 2222 for distributed energy resources and aggregators thereof, and whether or not the Commission will continue to implement reforms that facilitate such resources’ participation in wholesale electric markets, must be fleshed out.
 Participation of Distributed Energy Resource Aggregations in Mkts. Operated by Regional Transmission Orgs. and Indep. Sys. Operators, 172 FERC ¶ 61,247 (2020) (“Order No. 2222”).
 See 18 C.F.R. § 35.28 (2020).
 Electric Storage Participation in Mkts. Operated by Reg’l Transmission Orgs. and Indep. Sys. Operators, 162 FERC ¶ 61,127 (2018) (“Order No. 841”), order on reh’g, Order No. 841-A, 167 FERC ¶ 61,154, aff’d sub nom. Nat’l Ass’n of Regulatory Util. Comm’rs v. FERC, 964 F.3d 1177 (D.C. Cir. 2020).