On June 17, 2021, FERC set aside its previous decision in Order No. 2222-A that allowed state regulatory authorities to prohibit demand response resources from participating in distributed energy resource (“DER”) aggregations in wholesale energy markets when the DER aggregation contains only demand response resources. As a result, upon the effective date of Order No. 2222-B, state regulatory authorities will be able to prohibit demand response resources from participating in all wholesale DER aggregations. However, FERC also stated that it will further consider the issue in the Notice of Inquiry (“NOI”) proceeding established in Order No. 2222-A to consider whether to revise its regulations to remove the demand response opt-out established in Order Nos. 719 and 719-A. FERC also extended the comment period in the NOI proceeding to ensure an adequate opportunity for interested parties to comment on these issues. Finally, Order No. 2222-B clarified the appropriate restrictions to avoid double counting of services and the compensation of demand response resources that participate in DER aggregations. Commissioners Neil Chatterjee and James Danly wrote separate concurring opinions; Commissioner Mark Christie concurred in part and dissented in part.
In Order No. 2222, issued in September 2020, FERC required regional transmission organizations and independent system operators (“RTOs/ISOs”) to amend their tariffs to include DER aggregations as a type of market participant, and to revise market rules that FERC determined were unjust and unreasonable barriers to DER participation in wholesale markets (see September 22, 2020 edition of the WER). However, FERC made clear that Order No. 2222 would not impact state regulatory authorities’ ability to prohibit DER aggregators from bidding retail customers’ demand response resources into RTO/ISO markets—in other words, to opt-out—per the requirements of Order Nos. 719 and 719-A. Order No. 2222-A set aside this aspect of Order No. 2222, holding that state regulatory authorities’ opt-out ability would apply only to DER aggregations that contained solely demand response resources (i.e., the aggregation is solely made up of retail customers’ resources), but not where the DER aggregation includes a mix of demand response and other DERs. See March 24, 2021 edition of the WER. Rather, at that time FERC held that DER aggregations made up of both demand response and other types of resources—termed “heterogenous DER aggregations”—did not fall within the opt-out requirements of Order No. 719, and applying the opt-out to these types of resources would inhibit innovation by preventing DER aggregators from taking advantage of different DER resources’ operational attributes and capabilities.
In Order No. 2222-B, FERC set aside its decision in Order No. 2222-A and restored state regulatory authorities’ opt-out capability for all demand response resources, including those that participate in “heterogenous” DER aggregations. However, FERC rejected arguments that it was legally required to grant the opt-out, pointing to the Supreme Court’s ruling in FERC v. Electric Power Supply Association that FERC’s regulation of demand response participation in wholesale markets does not violate the FPA because it directly affects wholesale rates. FERC acknowledged that many states broadly prohibited demand response participation in wholesale markets when implementing the Order No. 719 opt-out, and those states may not have anticipated the Order No. 2222 proceedings would call into question those broad prohibitions. FERC stated that, “Given the importance of these issues, which affect both federal and state regulatory interests, we believe the better course is to provide them full consideration through the Notice of Inquiry issued contemporaneously with Order No. 2222-A.”
Order No. 2222-B also clarified that a behind-the-meter resource that is used solely to facilitate demand response, i.e., deployed solely to reduce customer load from expected consumption, will itself be considered a demand response resource for purposes of determining whether the opt-out applies. Finally, Order No. 2222-B clarified under what circumstances behind-the-meter DERs participating as distributed energy resources in DER aggregations may be paid the full locational marginal price.
Commissioners Chatterjee, Danly, and Christie each wrote separate statements. Commissioner Chatterjee stated that he concurred with the Commission’s order because it continues to find that FERC is under no legal obligation to provide the Order No. 719 opt-out, which he characterized as “outdated” and irreconcilable with “the competitive principles underpinning Order No. 2222.” Commissioner Danly’s concurrence stated his position that Order No. 2222-B properly returns authority over demand response resources to states by permitting states to choose to prohibit demand response resources from participating in wholesale DER programs. Commissioner Christie concurred in the provisions of Order No. 2222-B that preserved the Order No. 719 opt-out provisions, but dissented from the remainder of the order.
Order No. 2222-B is available here.