In September of 2020, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued Order No. 2222,[1] requiring Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) to adopt rules allowing aggregations of distributed energy resources (“DERs”) to participate in the RTO/ISO-administered wholesale electricity markets.  Now, a year-and-a-half later, the compliance process for each RTO and ISO is ongoing, the proposed implementation timelines for the market rules vary widely, and numerous legal and technical challenges remain to be resolved. Below is an overview of the current status of RTO/ISO efforts to implement Order No. 2222, certain related industry activities, and various implementation challenges that have come to the fore through those market design efforts.

Background

FERC issued Order No. 2222 to “remove barriers” to DER aggregations’ participation in RTO/ISO markets, and to help ensure that the RTO/ISO markets produce just and reasonable rates as required by the Federal Power Act.  Under FERC’s definition, DERs are “any resource located on the distribution system, any subsystem thereof or behind a customer meter,” examples of which include “electric storage resources, distributed generation, demand response, energy efficiency, thermal storage, and electric vehicles and their supply equipment.”[2]

Order No. 2222 required each RTO/ISO—the California ISO (“CAISO”), ISO New England (“ISO-NE”), Midcontinent ISO (“MISO”), New York ISO (“NYISO”), PJM Interconnection (“PJM”), and Southwest Power Pool (“SPP”)—to revise its tariff to establish rules to accommodate the market participation of DER aggregations.  Among other things, FERC required each RTO/ISO to establish DER aggregators as a category of market participant and to set a minimum size requirement for DER aggregations that does not exceed 100 kW. Under the revised tariffs, aggregators will be able to register their resources under one or more participation models that accommodate the physical and operational characteristics of each DER aggregation.  In response to several requests for rehearing, FERC subsequently issued Order Nos. 2222-A and 2222-B, in which it modified aspects of Order No. 2222, as discussed in relevant part below.

Compliance Process

Compliance filings to implement Order No. 2222 were originally due July 19, 2021, but four of the RTOs/ISOs – i.e., ISO-NE, PJM, MISO, SPP – requested deadline extensions, as further discussed below. CAISO and NYISO each timely filed their Order No. 2222 compliance filings on July 19, 2021, as each already had DER aggregation rules in effect that arguably satisfied aspects of Order No. 2222 and, therefore, fewer tariff changes were necessary to put forth their compliance proposals.  Although few protests were filed in response to CAISO and NYISO’s initial compliance filings, FERC issued deficiency letters in response to both filings, posing extensive questions to CAISO and NYISO about how their proposals satisfied various aspects of Order No. 2222.  Both ISOs submitted responses to the deficiency letters, but FERC has not yet acted on those ISOs’ still-pending compliance filings.   PJM and ISO-NE were the next to submit their compliance proposals, in February 2022.  FERC also has not yet acted on those pending compliance filings.  MISO and SPP are slated to submit their compliance proposals next month, in April 2022.

Although all of the RTO/ISOs’ compliance filings will soon be before the agency, the RTOs and ISOs are proposing vastly different implementation timelines (i.e., tariff effective dates) for their DER aggregation market rules.  The current timeline for each RTO/ISO’s compliance and implementation process is as follows:

• CAISO – (Docket No. ER21-2455) CAISO submitted its compliance filing on July 19, 2021. FERC issued a deficiency letter on October 1, 2021, and CAISO filed its response on November 2, 2021. For the proposed tariff sections pertaining to heterogeneous DER aggregations (e., DER aggregations consisting of more than one type of DER technology), CAISO requested an effective date of no later than November 1, 2022, to facilitate related software changes.  For all other proposed tariff changes, CAISO requested an effective date contemporaneous with FERC’s approval of those tariff changes.

• NYISO – (Docket No. ER21-2460) NYISO submitted its compliance filing on July 19, 2021. FERC issued a deficiency letter on October 1, 2021, and NYISO filed its response on November 19, 2021. NYISO did not propose a specific effective date, but instead indicated that it anticipates being able to implement its DER aggregation participation model in the fourth quarter of 2022.

• PJM – (Docket No. ER22-962) PJM submitted its compliance filing on February 1, 2022. The deadline for submitting comments on that filing is April 1, 2022.  Accordingly, FERC has not yet acted on the filing.  PJM requested an effective date of February 2, 2026 for most of its proposed tariff changes.  However, PJM requested an effective date of July 1, 2023, for certain tariff changes necessary to allow DER aggregations to participate in forward capacity auctions starting with the auction for the 2026-2027 capacity delivery year.

• ISO-NE – (Docket No. ER22-983) ISO-NE submitted its compliance filing on February 2, 2022. The deadline for submitting comments on that filing is April 1, 2022.  ISO-NE requested an effective date of November 1, 2026, for most of its proposed tariff changes.  However, ISO-NE requested an effective date of November 1, 2022, for certain tariff changes necessary to allow DER aggregations to participate in forward capacity auctions starting with the auction for the 2026-2027 capacity commitment period.

• MISO – On April 9, 2021, FERC granted MISO’s request to extend its compliance deadline from July 19, 2021 to April 18, 2022. At present, based on information MISO provided in its stakeholder process, it appears that MISO intends to propose an effective date, or dates, that would permit DER aggregations to participate in the MISO market starting in 2030.[3]

• SPP – On April 9, 2021, FERC granted SPP’s request to extend its compliance deadline from July 19, 2021 to April 28, 2022. At this time, it is not clear what implementation timeline SPP intends to propose for its Order No. 2222 market rule changes.

Intervening Developments Pertaining to Order No. 2222 Implementation

As the extended compliance process has progressed at different speeds across the various RTOs/ISOs, several issues have risen to the surface—through FERC orders, the RTO/ISO stakeholder processes on Order No. 2222, and within the industry—that could impact the degree to which Order No. 2222 will succeed in reducing barriers to wholesale market participation by DER aggregations.

1. Ongoing Deliberations Concerning Retail Authorities’ Ability to Prevent Certain DER Aggregations from Participating in the RTO/ISO Markets

The stakeholder discussions and RTO/ISO market design efforts have taken place under a cloud of uncertainty concerning the jurisdictional implications of including demand response resources in a DER aggregation—which, in turn, renders the market participation rights of such an aggregation uncertain.

Almost fifteen years ago, in Order Nos. 719 and 719-A, FERC sought to eliminate barriers to demand response resources’ participation in organized wholesale markets by requiring RTOs/ISOs to permit demand response resources and aggregations thereof to bid into such markets.  However, FERC recognized state and other retail regulatory authorities’ (collectively, relevant electric retail regulatory authorities or “RERRAs”) authority to prohibit or permit the wholesale market participation of demand response resources within their retail jurisdiction.  Accordingly, FERC specifically found that (1) customers of utilities that distribute more than 4 million MWh of electricity per year can offer their demand response capability into the RTO/ISO markets unless a RERRA prohibits them from doing so, which has become known as the RERRAs’ “opt-out” right; and (2) customers of utilities that distribute 4 million MWh or less per year can offer their demand response capability into the RTO/ISO markets only if the RERRA permits them to, which has become known as the RERRAs’ “opt-in” right.

In Order No. 2222, FERC chose to grant RERRAs the same opt-in right for DERs as for demand response resources (i.e., customers of utilities below the 4 million MWh threshold cannot participate in the wholesale market through a DER aggregation unless the RERRA permits them to do so), but FERC declined to grant RERRAs the opt-out right for DERs that FERC recognized for demand response resources.  The latter determination created uncertainty as to whether RERRAs’ demand response opt-out right under Order No. 719 applies to a DER aggregation that includes demand response resources.  Certain parties requested rehearing or clarification of Order No. 2222 on that issue.

On March 18, 2021, FERC concluded, in Order No. 2222-A, that RERRAs could exercise their opt-out right under Order No. 719 to prohibit the market participation of DER aggregations composed only of demand response resources, but FERC declined to apply the opt-out to heterogeneous DER aggregations that are composed of demand response resources and one or more other type(s) of DERs. The Commission explained that extending the Order No. 719 opt-out to demand response resources that seek to participate in heterogeneous DER aggregations would undermine the ability of such aggregations to take advantage of different resources’ operational attributes and complementary capabilities.  FERC’s determination concerning heterogeneous DER aggregations containing demand response resources was viewed as a boon to demand response providers; however, that determination was short-lived.

In Order No. 2222-B, issued June 17, 2021, FERC set aside its decision in Order No. 2222-A as it concerned RERRAs’ ability to exercise opt-out rights with respect to heterogeneous DER aggregations containing demand response resources. FERC found that it would be more appropriate to address that issue in the context of a separate, but related, generic proceeding which FERC opened through a Notice of Inquiry (issued concurrently with Order No. 2222-A) intended to explore whether to eliminate the demand response opt-out right FERC granted to RERRAs in Order No. 719.  Numerous entities filed comments in response to that Notice of Inquiry, but FERC action has not yet taken further action in response to those comments.

The net result of the above regulatory shifts is that RERRAs currently have a FERC-recognized right to prohibit customers from offering their demand response capabilities in the wholesale market through a DER aggregation (or otherwise), but FERC potentially could seek to eliminate that right through its pending NOI proceeding on the issue of whether to remove RERRAs’ Order No. 719 opt-out right.

2. RTO/ISO Stakeholder Discussions Reveal Implementation Challenges

The RTO/ISO stakeholder discussions, and the resulting RTO/ISO compliance filings that have been submitted to date, have highlighted many technical and legal complications associated with Order No. 2222 implementation.  At a high level of generality, many of those issues fit within three categories:  (1) what are the limits on the constitution of any particular DER aggregation; (2) how is the performance and value of each DER in an aggregation measured; and (3) how is control over a DER’s wholesale market participation apportioned among the DER aggregator, RTO/ISO, RERRA, and the interconnected distribution utility?  A granular inventory of the many issues in each of those categories is beyond the scope of this post.  However, viewed from 50,000 feet, it is clear that the volume and complexity of those issues—paired with the broad range of approaches the various RTOs/ISOs are taking on each of the issues—will produce significantly different market opportunities for DER aggregations in different regions of the country.

Recognizing that many of the issues that have arisen during the stakeholder processes would benefit from further agency guidance, on December 22, 2021, Voltus, Inc. filed a petition requesting that FERC hold a technical conference regarding Order No. 2222 and then, based on the record evidence compiled through that conference, provide direction to stakeholders informally or via issuance of a policy statement.  Several entities, including the Edison Electric Institute, filed comments in response to Voltus’s petition, generally agreeing that a technical conference would be helpful.  FERC has not yet acted on that petition.

Regardless of how the above issues are resolved, the absence of certain issues from the Order No. 2222 compliance process illustrates that numerous legal and technical cruxes—and potentially barriers to market participation—likely will persist within the regulatory landscape for DER aggregations even after FERC accepts the RTOs/ISOs’ compliance filings.  As just one example, albeit a critical one, Order No. 2222 and the resulting RTO/ISO market design changes are either silent on, or do not meaningfully resolve, numerous technical and jurisdictional issues concerning the data associated with DERs and DER aggregations.  Although Order No. 2222 set forth certain requirements regarding metering and telemetry, it did not address that topic comprehensively, nor did it expressly address the use of device-level data (as opposed to utility-metered data), consumers’ rights to access and share their energy data, data privacy, data integrity, and similar data-related DER issues that are often regulated at the state level.  These issues go to the very foundation of the DER aggregation market because, as virtual power plants, DER aggregations’ lifeblood is the data associated with their constituent DERs.

3. Development of Formal Industry Standards Independent of FERC

As noted above, FERC gave the various RTOs/ISOs leeway to establish participation models that vary from region to region in significant ways; FERC established relatively few standards that are mandatory across all of the RTOs/ISOs.  That lack of standardization could complicate DER aggregations’ market participation, particularly for entities seeking to participate in multiple RTOs/ISOs.  Recognizing the potential benefits of more broadly standardizing certain information and industry activity, the North American Energy Standards Board (“NAESB”), which develops and promotes standards within the wholesale and retail electricity and natural gas industries, has been working on developing standards pertaining to the wholesale market participation of energy storage resources and DER aggregations.

NAESB currently is focusing those efforts on developing a common set of information requirements—including locational information and operational characteristics—to support the registration of DERs and DER aggregations with the RTOs/ISOs, but NAESB is contemplating whether to expand the scope of that undertaking.  Although the standards developed through this NAESB process are voluntary and RTOs/ISOs do not need to adopt them to comply with FERC’s regulatory requirements—unless FERC eventually chooses to require their adoption, which it has done at times in other contexts—NAESB’s standards might nonetheless help facilitate transactions involving DER aggregations and streamline regulatory compliance.

Looking Ahead

With four of the six RTO/ISOs having now submitted their Order No. 2222 compliance filings to FERC, and the remaining two on track for submission in April 2022, wholesale market opportunities for aggregated DERs are poised to expand over the next several years.  However, as those opportunities and corresponding regulatory requirements are beginning to come into sharper focus, so too are the various issues that may persist as barriers to market participation by DER aggregations.  It is likely that FERC will take action on the Order No. 2222 compliance proposals in 2022, although the nature of that action is uncertain.  As seen from the CAISO and NYISO compliance proceedings, it is possible that FERC could issue deficiency letters and/or require additional, iterative compliance proposals for any or all of the RTOs/ISOs.  On a macro level, FERC ultimately might face a trade-off between, on one hand, putting market rules in place sooner by largely accepting the RTOs/ISOs’ proposed market designs despite their significant variation, versus, on the other hand, seeking to establish a higher degree of parity across the RTOs/ISOs’ market participation models through additional rounds of compliance filings.  Whether FERC grants the pending petition for a technical conference on the Order No. 2222 compliance process could provide insight into how FERC intends to balance those competing interests.

[1] Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators, 172 FERC ¶ 61,247 (2020) (“Order No. 2222”); Order Addressing, Arguments Raised on Rehearing, Setting Aside Prior Order in Part, and Clarifying Prior Order in Part on Rehearing, 174 FERC ¶ 61,197 (2021) (“Order No. 2222-A”); Order Addressing Arguments Raised on Rehearing Setting Aside in part and Clarifying in Part Prior Order, 175 FERC ¶ 61,227 (2021) (“Order No. 2222- B”).

[2] Order No. 2222 at n.1.

[3] See Presentation, MISO DER Task Force, Software Enhancements and Future Processes (Feb. 10, 2022), available at https://cdn.misoenergy.org/20220210%20DERTF%20Item%2004%20Software%20Enhancements%20and%20Implementation%20Timeline622791.pdf.