Second post on the Order No. 2222 compliance filings issued on June 17, 2022: “CAISO 2222 Order” and the “NYISO 2222 Order.” The post covers the topic Eligibility to Participate in RTO/ISO Markets through a Distributed Energy Resource (DER) Aggregator, which the Commission subdivided into several subtopics.

Topic 5: Eligibility to Participate in RTO/ISO Markets through a Distributed Energy Resource Aggregator

Participation Model

Order No. 2222 requires each RTO/ISO to establish DER Aggregators as a type of market participant and to allow them to register DERs under one or more participation models in the RTO’s/ISO’s tariff that accommodates the physical and operational characteristics of the DER Aggregation.

As to the CAISO, FERC largely accepted the CAISO’s use of its existing participation models, but took issue with its attempt to use its two existing DER Aggregation models for homogeneous demand response, as they were currently drafted. The flaws FERC found with the existing demand response Aggregation models were fairly minor. For example, one model had maintained a 500 kW minimum size threshold rather than the 100 kW threshold required by Order No. 2222. The other flaw was in the Distribution Utility (DU) review process, which was not Order No. 2222-compliant in the existing model. FERC indicated that it would allow the CAISO to tweak its existing demand response models to comply with Order No. 2222. The issues appear easily fixable. Because the CAISO does not run a capacity market and resource adequacy is controlled by the state, FERC rejected requests to enable DER Aggregations to provide resource adequacy as outside the scope of Order No. 2222.

NYISO proposed using its existing participation models, which FERC largely accepted. A point of contention was that NYISO’s proposal limited the ancillary services (i.e., regulation service and operating reserves) that a heterogeneous Aggregation can provide in scenarios where one or more DERs within that Aggregation is not capable of providing an ancillary service. FERC that held so long as some of the DERs in an Aggregation can satisfy the relevant requirements to provide certain ancillary services, the Aggregation as a whole should be able to provide the service. FERC afforded NYISO time to develop such a proposal to address NYISO’s reliability and visibility concerns. FERC also found protesters’ argument that DERs with the capability to inject energy should not be subject to buyer-side market power mitigation outside the scope of the proceeding.

In sum, FERC applied practical solutions to rather minor deficiencies in the existing DER Aggregation models already in use.

Types of Technologies

Order No. 2222 requires that each RTO’s/ISO’s rules not prohibit any particular type of DER technology from participating in an Aggregation and allow different types of DER technologies to participate in a single Aggregation (i.e., heterogeneous Aggregations).

The CAISO proposal on technologies was found fully satisfactory, despite concerns as to how the net benefits test would be applied to heterogenous Aggregations that include demand response. The CAISO had found a satisfactory solution according to FERC.

FERC approved a NYISO requirement that DERs which are eligible for multiple participation models to choose only one model. FERC supported NYISO’s decision to not change its capacity market qualification requirements to enable energy efficiency resources to participate in NYISO’s capacity market and rejected as out of scope the argument that energy efficiency should be modeled as supply or demand side participation. Much like CAISO, NYISO had found a way to apply the net benefits test for demand response in a heterogeneous Aggregation.

One message we have seen repeated in these orders is that changes to existing market rules, unrelated to Order No. 2222, do not need to change as a result of Order No. 2222

Double Counting of Services

Order No. 2222 allowed RTOs/ISOs to limit the participation of DERs in Aggregations that are receiving compensation for the same services as part of another wholesale program and required them to not prohibit DER participation in both wholesale and retail programs. That said, a retail regulator (RERRA) may prohibit a DER in an Aggregation from participating in a program. Order No. 2222 creates a tension as to whether the RTO/ISO should have any role relating to identifying RERRA programs that might result in a DER Aggregation being ineligible for RERRA-program participation or in preventing double compensation with regards to wholesale and retail programs.

The CAISO was permitted to prohibit DER Aggregation participation in CAISO’s markets if the Aggregation was providing the same service in a retail program and encouraged the CAISO to develop guidance as it gains experience with Aggregations to provide market participants with additional clarity. FERC found that the CAISO lacks jurisdiction to resolve any disputes related to compensation in retail programs.

FERC struck CAISO proposals that provided that DERs participating in an Aggregation may not also participate in a retail net energy metering (NEM) program that does not expressly permit wholesale market participation. The basis for this decision was that Order No. 2222 does not allow RTOs/ISOs to include in their tariffs broad prohibitions on wholesale market participation for an entire class of DERs and that DERs in NEM programs arguably can also provide distinctly different services (e.g., ancillary services) without creating a double counting concern. Although true that a NEM program could, in theory, not compensate a DER for ancillary services, that is not true under the current CPUC-approved NEM programs. It is clear that the CPUC will have to be the prohibiting entity, i.e., limiting NEM participants from DER Aggregations. What is most surprising about the ruling is that FERC (much like PJM) appears not to recognize that most NEM program participants do receive compensation for ancillary services; indeed, most NEM credits are at the full retail rate which rate plainly includes ancillary services as well as other services that the NEM participant cannot and does not provide. As a rule most NEM participants are non-dispatchable and cannot technically provide ancillary services, just as they cannot provide transmission service, but they receive credits, as if they could. California allows quite large NEM participants that may be technically capable of providing ancillary services, but as noted, under current rules, they already are compensated through credits for such services.

The CAISO 2222 Order discussion of “sales” by NEM customers and the Sun Edison order was difficult to comprehend. The discussion was odd in that Sun Edison stands for the proposition that NEM customers never make sales, if they only receive credits. Sun Edison recognized that only when NEM participants receive compensation in the form of money, not credits, that they make wholesale sale in interstate commerce. (Sun Edison alternatively could be read to mean any rollover credits (outside the billing period) are sales, but that is not how the states have read the case and FERC has not regulated rollover credits as sales.) FERC further confused the matter by discussing an Aggregator of NEM participants making sales, when those NEM programs that do provide cash compensation, such as the CPUC’s NEM-SC program, often only determine whether a sale was made over the course of a year. There is no explanation from FERC as to how a DER Aggregator in the CAISO, transacting in a market that settles in five minute intervals, for example, could possibly sell energy produced by a NEM participant, when it take an entire year to determine if an NEM participant had any energy available to sell at all. And, FERC ignores the fact that such sale, if it occurs, must be to the host utility at avoided cost under the CPUC’s current program, leaving no energy for the Aggregator to sell at all.

FERC rejected arguments that the requirement that Aggregation-participating storage DERs be settled at wholesale prices for charging and discharging every hour, 24 hours a day, seven days per week, as CAISO requires, because it might prevent such DERs from participating in one or more retail programs. Such issue was declared beyond the scope of the case.

In NYISO, FERC agreed that a DER could participate in only one Aggregation or as an individual resource. But a prohibition on Aggregators enrolling new DERs that would provide “the same or substantially similar service” in NYISO-administered markets as they already provided in retail services or programs must be revised because it was is not narrowly designed and it was ambiguous as to which retail programs would overlap with wholesale markets. FERC ordered NYISO to require an Aggregator to attest that each DER enrolled in an Aggregation is not providing the same service in a retail service or program as they are in the NYISO-administered market. FERC found that Order No. 2222 required RTOs/ISOs to place appropriate restrictions on participation in RTO/ISO markets to avoid counting more than once the services provided by DERs in RTO/ISO markets. NYISO is developing a matrix to identify retail services and programs that overlap with NYISO-administered markets and will post the matrix on its public website, but the matrix will only assist Aggregators in identifying incompatible services and programs.

Although difficult to balance all jurisdictional interests, it is clear both the RTO/ISO and RERRA will have their own roles to play in double-counting or what constitutes excess compensation. But, in order to protect retail customers from over-compensating DERs, RERRAs will have to step up and do most of the protecting. Some RERRA NEM programs demonstrate that RERRAs’ track record of preventing the over-compensation of DERs at the expense of non-DER owners is not the best, such that DUs themselves or ratepayer advocates ultimately may need to try and protect retail customers.

Minimum and Maximum Size of Aggregation

In Order No. 2222, FERC imposed a cap on the minimum size requirement not to exceed 100 kW for all DERs in Aggregations but was not persuaded by commenters to adopt a maximum size.

CAISO had left in place a 500 kW minimum size requirements for resources other than electric storage resources to provide Regulation, Spinning Reserve, and Non-Spinning Reserve and FERC rejected this limitation as non-compliant.

NYISO’s filing presented no issues on this topic.

Minimum and Maximum Capacity Requirements for Distributed Energy Resources Participating in an Aggregation

FERC declined to establish a specific maximum capacity requirement for individual DER in an aggregation.

CAISO imposes a 1 MW threshold for each DER because large DERs pose greater challenges to the DUs. FERC had already approved this maximum size in the pre-Order No. 2222 program and did so again.

NYISO’s filing presented no issues on this topic.

It will be interesting to see if other RTOs/ISOs eventually lower their maximum size of individual DERs in light of the single DER policy, as qualifying facility (QF) DERs seek to avoid FERC interconnection jurisdiction.