Back in March of 2023, FERC issued a seemingly logical compliance order regarding one aspect of PJM’s Order No. 2222 compliance filing. This blog noted that “FERC acknowledged that DER owners in full retail NEM programs actually are compensated for ancillary services that they do not even provide and that paying them for ancillary services, assuming they could provide them, would be double counting. … Although further clarity will result on compliance, the decision reflects a breakthrough of sorts …. The fact that the Pennsylvania PUC expressed concern over double counting as to ancillary services in particular perhaps swayed FERC into recognizing the level of compensation offered by some NEM programs.” Perhaps this reading, that FERC might prohibit double compensation for the same service, was too optimistic.

That March 1, 2023 order also stated that: 

PJM’s proposed tariff requires an assessment of whether the “same product is not also credited” rather than whether, as the Commission discussed in Order No. 2222, the same service is being provided by the Component DER.  Being credited for a product may not be the same as providing a service.  This difference may be relevant because a Component DER participating in a net energy metering retail program, for example, may be credited for a product or service that it does not actually provide.

FERC thus ordered PJM to explain when DERs can be precluded by either PJM or an electric distribution company (EDC) from providing ancillary services in PJM markets based on double-compensation and/or double-provision. PJM decided that only double-providing would be prohibited. In its September 1, 2023 compliance filing PJM clarified that only DERs providing ancillary services under NEM programs are prohibited from participating in its markets. A DER monetarily compensated for providing the service in a NEM program, but that did not actually provide such service, could participate in the PJM ancillary services market. PJM explained

[w]ith regard to ancillary services specifically, the Electric Distribution Company may recommend that PJM deny participation of a Component DER in PJM’s regulation or reserve markets if that Component DER is also “providing” that service to a retail program. PJM notes that the revisions described above resolve any inconsistency between PJM’s original proposal that Component DER that participate in a net energy metering retail program may also participate with grid injections in PJM’s ancillary services markets, and the fact that certain state net metering tariffs include “credit” for ancillary services. Under PJM’s original proposal, the participation of a Component DER in PJM’s ancillary services markets while also being credited for ancillary services through a retail program would result in double counting.  However, pursuant to the proposed revisions in Tariff, Attachment K-Appendix, section 1.4B(h) and Operating Agreement, Schedule 1, section 1.4B(h), described above, the Electric Distribution Company will assess double counting based on whether the same service is being “provided” by the Component DER.

In response, a group of PJM utilities, the Pennsylvania PUC, and the Independent Market Monitor opposed this approach. (The delighted DER Aggregation industry, in contrast, was focused on the complex requirements regarding NEM participation in markets.) As this blog has discussed previously, currently, full NEM is too rich to cause DERs to choose to participate in DER Aggregations at all. But, PJM’s new stance would allow NEM participants to earn some share of what the DER Aggregator would obtain for selling the same ancillary services for which the NEM participant already is compensated.

Without a doubt, full NEM customers obtain credits that reflect compensation for services that they do not provide, such as such transmission and distribution service. But, if FERC were to adopt the “provided” rather than “compensated” standard, it could trigger a fascinating debate over whether ancillary services are or are not provided by NEM resources.

The opponents of the “provided” standard, argued for the “compensated” standard rather than trying to demonstrate that ancillary services were in fact provided by NEM resources. For example, the PJM utilities described that NEM programs vary and noted that “under some state fully bundled retail rate programs, an entity may be compensated for not providing the PJM service in question, i.e., payment is received for foregoing service.” But, the example they provided involved smart thermostats and a residential customer receiving a payment or a rebate to purchase the device. This example had nothing to do with NEM. According to the Pennsylvania PUC, when a net metering DER injects energy, it is not selling energy but is being reimbursed for the costs the customer would be causing to the load serving utility, if the customer had not been injecting. It explained “[b]y crediting net metering customers for all costs at the retail level, they are being compensated for the savings they are providing to the EDC on a variety of different services.” That is, the Pennsylvania PUC argued that the compensation is for savings rather the provision of service. The IMM argued that if the NEM rate explicitly stated that it includes compensation for wholesale ancillary the NEM participant should be precluded from participating in the wholesale ancillary services markets. The trouble with this approach is that a NEM program is unlikely to explicitly state that the compensation a NEM customer receives is for a wholesale service over which FERC has exclusive jurisdiction.

To win the debate over whether NEM participants are providing ancillary services, a sharper argument may be necessary. One argument comes to mind. Load connected to the distribution grid behind a retail meter with NEM is still load. If the NEM resource serving that load fails, the balancing authority (BA) is responsible that the load is served. In order for such load to be served, the BA has to procure sufficient ancillary services to keep the grid at the correct frequency, have reserves available, reactive support, keep the system in balance, etc. If the regional reliability organization does not require the BA to procure ancillary services based on gross load, but only on net load (load net of the load served by NEM), then any load deemed served by a NEM resource must be self-providing ancillary services. If the NEM load is not self-providing ancillary services, there is no basis for a regional reliability organization to ignore such load in determining ancillary service, capacity, and similar requirements. In short, an EDC may be able to prove that NEM participants are self-providing ancillary services by demonstrating that grid-connected load served by NEM is not counted as requiring such services from the BA, when such services are in fact being used, and thus must be self-providing the services. And, if NEM resources are self-providing such services to their own load, they cannot provide the services twice.

That said, there is no such need for a debate over whether to further reward full-NEM participants, who are already are cross-subsidized by non-participants. States can simply say “No.” NEM participants can be prohibited by states commissions or local regulators from joining DER aggregations. For those states where political headwinds prevent the elimination of full NEM (or its close relatives), this approach is the easiest and most obvious for keeping retail rates affordable. States need not twist themselves in knots trying to explain that ancillary services are “provided,” not merely “compensated.” Given the level of compensation under full NEM, this solution may be the best one.