FERC opt-out rule has created deadlock for distributed energy resources and demand response programs


The following is an article written by Kenneth Schisler, vice president of regulatory affairs at CPower Energy Management.

Last month, the Federal Energy Regulatory Commission (FERC) announced it would reconsider the Demand Response (DR) opt-out rule, a 2008 order that gave the last word on whether the aggregators of retail customers can participate in the regional transport organization. Demand Response (RTO) / Independent System Operator (ISO) programs. The rule has been misunderstood and misapplied since its inception, and should be repealed. Nonetheless, it is vital that state commissions and FERC work together to encourage demand response, each respecting its own regulatory jurisdiction.

The opt-out of DR is a curious rule: to explicitly give each state a right of veto over the application of federal regulations in that state. This is not normally how our federal system works, which is why it is important to understand the context in which it was adopted.

When the opt-out rule was approved in 2008, the transition to retail competition had recently taken place in a number of states. At the same time, competitive RTO / ISO wholesale markets were expanding and maturing. By extension, FERC was expanding its influence, notably with the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) markets, which were, as they are now, dominated by traditionally regulated state-level markets. Meanwhile, today’s version of DR’s dispatchable participation in wholesale markets had been successfully launched in RTO / ISOs in the eastern United States and California, regions where restructuring policies of retail had flourished.

The FERC adopted the opt-out rule as a means of demonstrating in good faith that it was not seeking to usurp state jurisdiction and as a means of suppressing any perception that the FERC was pushing states towards competition policies. by retail. It was assumed that states would support wholesale R&D if they had the right to refuse participation due to interference with their state’s retail policies. FERC assumed that states would see the benefits of the wholesale DR market and use the qualifying tool, where appropriate. It was a major miscalculation.

Despite FERC’s inclination towards cooperative federalism, the non-restructured states viewed the exercise of the opt-out rule as a bulwark against retail deregulation. Virtually all of the states that had not passed deregulation laws withdrew. Withdrawal states that felt compelled to reject aggregation of demand responses to preserve their retail jurisdiction feared that if they allowed it, the FERC would not allow a subsequent withdrawal. It is important to note that participation in the wholesale R&D market in virtually all of the withdrawing states was virtually non-existent prior to the ordinance. FERC has not asked states to identify retail policy conflicts to draw specific conclusions in order to opt out. They have just retired.

Notable exceptions to the withdrawal scramble were West Virginia and Vermont, states that never deregulated but had dynamic DR wholesale market participation in PJM and ISO-New England, respectively. As these states have demonstrated, there is nothing about DR’s participation in RTO / ISO markets that is inconsistent or interferes with traditional utility retail regulation. The difference for West Virginia and Vermont was that wholesale R&D was active before Order 719, and state regulators understood that wholesale R&D had not created a problem or encroached on their sales jurisdiction. by retail. More than a decade after the Order was approved, almost nothing has changed. With the exception of a very limited change in Michigan, no state that withdrew later has since opted again, or vice versa.

Opt-out states have missed the opportunity to develop retail disaster recovery programs that work in harmony with wholesale disaster recovery to create value from both approaches. In the meantime, many states that allow disaster recovery aggregation have developed retail programs that not only take advantage of wholesale programs, but work in tandem with them to deliver more value than could possibly be. created if wholesale or only retail trade-in programs were available.

States have an important regulatory responsibility and a vital role in our federal-state regulatory system. States have regulatory jurisdiction over resource adequacy in their States and, in this regard, have full authority to ensure that the resource mix meets the resource needs to guide their energy future. In this regard, eliminating the opt-out will allow States to integrate disaster recovery opportunities into resource planning, which will undoubtedly be of benefit to customers.

States also have responsibility for consumer protection and authority over access to utility meter data and policies that ensure cooperation between aggregators and regulated utilities serving retail customers. In fact, to be successful, aggregators need the cooperation of state boards to effectively deliver disaster recovery and energy management services to customers. State commissions have full jurisdictional authority over retail demand response programs. This means that they can determine whether aggregators can participate in these programs and use their regulators to ensure that aggregators treat customers fairly and demonstrate good utility practice.

The opt-out rule has been misunderstood as a way to preserve the retail regulator, when in fact there is nothing about wholesale disaster recovery programs that is shrinking. the role and authority of state commissions. FERC should eliminate the opt-out rule because it is a market barrier that has been ineffective for over a decade.

States continue to have extensive retail regulatory jurisdiction and protections to ensure safe, reliable and affordable electricity service for customers. As FERC moves forward to improve the regulation of R&D and distributed energy resources under its jurisdiction, states may seize the opportunity to develop retail policies that unleash the potential on the demand side in the markets of retail and wholesale to increase reliability and efficiency, reduce service costs and foster innovation.