Federal Energy Regulatory Commission Chairman Neil Chatterjee and Commissioner Richard Glick reached a rare agreement on Thursday, passing an order 2-1 that would lower the barriers to distributed energy resources' (DER) participation in wholesale markets.
The vote came just two weeks after the departure of Commissioner Bernard McNamee. Commissioner James Danly was the sole dissent on the vote. The rule requires grid operators to revise their tariffs to ensure DER aggregations can participate in the markets. It automatically exempts utilities with a load of 4 million MWh or less from the rule, while providing those entities an option to opt-in if they'd like.
Former commissioners and other stakeholders praised the rule. "FERC voted to approve the most significant order the Commission has ever issued!" former Chair Jon Wellinghoff said in a Tweet. Order 2222 and Order 841 combined "have the potential to be truly landmark orders as the energy transition accelerates," said former Chairman Norman Bay in an email. Chatterjee and Glick both credited Bay with starting the conversation on DER integration at FERC.
Efforts to lower the barriers to DER participation in wholesale power markets began in 2016, with a notice of proposed rulemaking that would have addressed the issue with energy storage and DERs such as rooftop solar, electric vehicles and other behind the meter resources. In its 2018 Order 841, the commission limited its scope to storage, however, and elected to instead hold a technical conference on the issue of DER integration.
Storage integration was further along at the time than DERs, Chatterjee told reporters, prompting him to "sever the two proceedings and move forward."
"Commissioner Glick was frustrated at the time, but understood," he said. "And I made a commitment to him that while we could move forward with storage because it was more ready, that I would not allow the DER rulemaking to languish."
"Although I believe we should have issued this rule a couple of years ago, around the time the commission finalised a similar proposal for energy storage facilities, as the adage goes 'Better late than never,'" Glick said during the meeting.
Chatterjee told reporters the timing was unrelated to McNamee's departure.
"I honestly didn't get to the point where we had a substantive conversation about how [McNamee] felt about the rule," said Chatterjee. He acknowledged McNamee's previous dissent on the Order 841 rehearing, where he voted against the order on legal and policy grounds.
"Clearly, he dissented on jurisdictional grounds on 841. And I'm sure people will make inferences into that … [but] we really do vote the orders when they're ready. This was a big complicated order," he said.
The draft final rule finds that existing market rules in regional wholesale markets are unjust and unreasonable when it comes to the integration of DER aggregations.
"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," according to staff's presentation on the final rule. Tariff revisions must establish a minimum size requirement for DER aggregations that does not exceed 100 kW, and must address technical and operational issues, the presentation said.
Smaller utilities had indicated in public comments their worry that management of DERs was more difficult for them than larger utilities, and that aspect of the rule was likely developed to assuage those concerns, said Jeff Dennis, managing director and general counsel for Advanced Energy Economy.
Critics of the mechanism, said it would leave limit some participation. "That may be an appropriate mechanism to placate the cooperatives, but at the same time, those customers cannot avail themselves of the benefits that their participation [in] the wholesale market would provide," said Chris Villarreal, an associate fellow on the policy team at free market think-tank R Street Institute.
Electric cooperatives were "glad to see that FERC recognized the need for flexibility by including an opt-in provision for small utilities," Louis Finkel, senior vice president of government relations for the National Rural Electric Cooperative Association said in a statement.
"It is important that the Commission has recognized the challenges that this order could pose for small utilities, including virtually all distribution co-ops. We look forward to carefully reviewing FERC's decision in the coming days with the hope that it does indeed preserve state and local regulatory authority over retail electricity sales and local distribution service," Finkel said.
Investor-owned utilities trade group Edison Electric Institute also said it "appreciates the Commission's recognition of the central role played by states and electric companies in maintaining the reliability of the distribution system, and the need for increased coordination and transparency among stakeholders."
"Distributed energy resources will play an important role in the future of the energy grid and energy markets," said EEI Executive Vice President of Business Operations Group and Regulatory Affairs Philip Moeller in an emailed statement.
Analysts called the rule a "gamechanger."
"Policy is leading technology for the first time, at least as it pertains to emerging DERs like vehicle to grid," Ravi Manghani, Wood Mackenzie head of solar research said in a statement.
Solar, storage and other clean energy interests also largely praised the rule.
"This rule embraces the trend of increasing use of distributed resources and provides much-needed clarity to grid operators on how to harness the energy and ancillary services they provide," said Katherine Gensler, vice president of regulatory affairs for the Solar Energy Industries Association in a statement.
Other supporters of the rule included Sen. Cory Booker, D-N.J., who called the order "a big win for clean energy as well as for American consumers" and Sens. Sheldon Whitehouse, D-R.I, Edward J. Markey, D-Mass., and Martin Heinrich, D-N.M., who pressed FERC on the issue in 2019.
This new rule will bring more renewable energy onto the grid, reducing carbon pollution and saving Americans on energy costs," the senators said in a joint statement. "Now, it's time to build on this progress. The more FERC can do to level the playing field for renewables, the faster we can help consumers and address the climate crisis."
But American Council on Renewable Energy criticized the commission for seemingly recognizing the benefits of DERs in a vacuum, in particular calling out the commission's recent rulings in the PJM Interconnection and New York ISO markets that it and others argue hinders the ability of renewable energy, including DERs, to participate in wholesale markets.
"We're glad today's order appears to recognize the principle that any resource able to provide a defined service should be able to compete in the market, and we look forward to reviewing it in further detail. Unfortunately, FERC is working against this principle in the nation's capacity markets by continuing to erect barriers to the entry of new technologies in PJM and NYISO through the use of minimum offer price rules," said Gregory Wetstone, president and CEO of ACORE in a statement.