Electricity Markets

APPA, NRECA Urge FERC Not To Revoke Demand Response Opt-Out Mechanism

The Federal Energy Regulatory Commission (FERC) should not revoke a demand response opt-out mechanism because such a move would intensify concerns of state and local regulators that the Commission does not sufficiently accommodate their policy decisions, the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA) said in response to a notice of inquiry (NOI) issued by FERC earlier this year.

In their July 23, comments, APPA and NRECA urged the Commission not to rescind its regulations that require a regional transmission organization (RTO) or independent system operator (ISO) not to accept bids from an aggregator of retail customers (ARC) that aggregates the demand response of the customers of utilities that distributed more than four million megawatt-hours (MWh) in the previous fiscal year, in instances where the relevant retail regulatory authority (RERRA) prohibits such customers’ demand response to be bid into organized markets by an ARC (Docket No. RM21-14). RERRAs include public power regulators.

APPA and NRECA said that the regulation, referred to as the Demand Response Opt-Out, remains valid and necessary for all of the reasons that it was initially adopted. “Moreover, elimination of the Demand Response Opt-Out at this time will likely cause adverse consequences and impose undue burdens on individual states and other RERRAs, as well as exacerbate the concerns of state and local regulators that the Commission does not sufficiently accommodate their policy decisions,” the trade groups argued.

Therefore, the Demand Response Opt-Out should continue to apply as adopted in FERC’s Order No. 719, issued in 2008.  APPA and NRECA also argued that the Demand Response Opt-Out should apply to demand response resources included in “heterogenous” aggregations, i.e., distributed energy resource (DER) aggregations that are made up of different types of resources including demand response.

FERC Issued Order No. 2222-A, NOI in March

At its monthly open meeting in March 2021, FERC issued an order (Order No. 2222-A) that responded to requests for rehearing and clarification of FERC Order No. 2222, which addresses the participation of DER aggregations in markets administered by RTOs and ISOs. FERC approved Order 2222 in September 2020. Among the important features of Order No. 2222, FERC provided an “opt-in” mechanism for small distribution utilities -- including most public power utilities.   This opt-in mechanism is not at issue in the NOI on the Demand Response Opt-Out.

At the meeting, FERC also issued the notice of inquiry on the potential impacts of eliminating the ability of states to choose whether demand response resources should participate in RTO/ISO wholesale markets.

FERC asked whether the circumstances relevant to this demand response opt-out have changed since the opt-out was established in Order Nos. 719 and 719-A, and what are the potential benefits or burdens of removing it.

The NOI sought comment on the following three general areas:

  • Whether and how circumstances have changed since the Commission established the Demand Response Opt-Out in Order Nos. 719 and 719-A;
  • Potential benefits of removing the Demand Response Opt-Out and “reasons why the balance between the Commission’s goal of removing barriers to the development of demand response resources in RTO/ISO markets and the interests and concerns of state and local regulatory authorities may have shifted such that the market rules reflecting the Demand Response Opt-Out may no longer be just and reasonable;” and
  • Potential burdens from removing the Demand Response Opt-Out

In Order No. 2222-A, FERC also found that demand response resources included in heterogenous aggregations would not be subject to the Demand Response Opt-Out.  FERC later retreated from this finding, saying it would consider the comments in the NOI proceeding before deciding the issue. 

As a number of parties pointed out in response to Order No. 2222-A, failing to apply the opt-out any time demand response resources are included in an aggregation with even one other type of DER would effectively negate the Demand Response Opt-Out and result in adverse consequences, NRECA and APPA told FERC in their NOI comments.

APPA, NRECA Warn of Adverse Consequences

In their comments, APPA and NRECA said that revoking the Demand Response Opt-Out will lead to the adverse consequences that Order No. 719 sought to avoid.

The trade groups said that the rationales for the Demand Response Opt-Out remain applicable today and should continue to be recognized by the Commission.

In Order No. 719, the Commission adopted the Demand Response Opt-Out in order to avoid interference with successful retail demand response programs, APPA and NRECA pointed out.

“The removal of the Demand Response Opt-Out at this time would likely threaten or upend existing demand response programs, in violation of the Commission’s assurance in Order No. 719 that its intent ‘was not to interfere with the operation of successful demand response programs,’” they went on to say.

“Notably, in the years since Order No. 719 was adopted, there has been growth in retail demand response programs, and participation in those programs,” APPA and NRECA said.

According to the Commission’s annual Assessments of Demand Response and Advanced Metering, retail demand response programs and/or customer enrollment in retail demand response programs has increased in the years since Order No. 719 was issued.

“These programs stand to be adversely impacted if the Commission removes the Demand Response Opt-Out at this time. This is a particular concern if demand response ARCs can ‘cherry-pick’ the loads or customers that will best advance their aggregation goals, such as industrial customers. Successful retail programs that are providing benefits to all end-use customers might be relegated to residual programs, with larger loads opting for the wholesale demand response programs through an ARC. Such an outcome would be an unjustified departure from the Commission’s stated intent not to interfere with successful demand response programs,” the trade groups told FERC.

APPA and NRECA said that these existing programs should be accommodated and respected in the Commission’s policies.

Impact On RERRAs

APPA and NRECA said that FERC’s rationale for the Demand Response Opt-Out, to avoid placing an undue burden upon state and local regulatory entities, also remains a valid concern. “The removal of the Demand Response Opt-Out at this time would reintroduce the concerns over displacing state and local authority and imposing undue burdens on retail regulators. With demand response as the most prevalent form of distributed energy resource, managing the impact of demand response aggregators could impose a significant burden on state and local regulatory authorities, after the Commission expressly stated it would not do so.”

If the Demand Response Opt-Out is abandoned now, the burden will be placed on state and local authorities and other RERRAs to take affirmative action to address the myriad regulatory issues that may be raised by ARCs, the groups said.

FERC has previously determined that RERRAs should have the authority if they so choose, to decide whether existing retail aggregation programs provide benefits and whether retail customer participation in wholesale demand response programs, individually or through an ARC, would adversely affect those programs and, if so, whether and how to permit such participation. “APPA and NRECA submit that there are no changed circumstances that justify depriving state and local regulators of this authority by eliminating the Demand Response Opt-Out.”

Costs For End-Use Consumers

APPA and NRECA said that as they “have often reminded the Commission, the focus in all of these efforts must remain reasonable costs to end-use consumers.”

FERC determined in Order No. 719 that RERRAs are in the best position to make determinations whether retail versus wholesale demand response programs are effective, and the role aggregation should play.

“APPA and NRECA submit that the RERRAs remain in that position. The fact that the Commission has in the interim determined in other instances not to abide by this policy of cooperative federalism does not render it inapplicable or not useful in ensuring just and reasonable rates for end-use customers.”

The Commission “should not yet again seize from RERRAs their authority to balance new technologies, maintain grid reliability, and protect consumers from unaffordable costs, particularly since the Commission specifically preserved that authority with the Demand Response Opt-Out.”