Electricity Markets

DERs coming whether or not markets are ready: experts

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Distributed energy resources are coming, even though the regulatory and legal structures in wholesale power markets are still evolving, experts said at an American Public Power Association conference in Charleston, S.C., earlier this week.

“This is not just a matter of policy; it is a matter of consumer choice,” Jeff Dennis, general counsel for regulatory affairs at Advanced Energy Economy, said on Oct. 8 at the Association’s Legal and Regulatory Conference.

“DERs are coming whether or not wholesale markets provide them the market opportunity, “but we think it is important to provide that market opportunity,” Dennis said.

Access to wholesale markets improves the economics of DERs, not just for project developers, but for consumers overall. Being able to “stack” revenues lowers costs, Dennis said.

Facilitating DER participation in wholesale markets does not have to come at the expense of state and local jurisdiction, though, Dennis argued. Local authorities have to have jurisdictional leeway on reliability, cost and safety issues, because without retail, there will not be DER growth. “Retail programs remain the biggest drivers of DERs today,” Dennis said.

DERs today, however, exist in a jurisdictional gray area. They are “a source o sink of power located on the distribution system” or behind a meter, according to the Federal Energy Regulatory Commission’s definition.

FERC in previous cases has addressed issues of wholesale and retail jurisdiction for distributed resources, but the distinction “has never really been fleshed out,” Dennis said. FERC has taken jurisdiction over interconnections to the distribution system in some circumstances but has never defined exactly what that means. Is it jurisdiction over the sale of power or over the interconnected unit itself? Dennis asked.

Through a series of orders and proceedings over the past decade, FERC has been wrestling with those issues as it gradually attempts to map out the contours of its jurisdiction at the boundaries between wholesale and retail services.

In 2008, FERC issued Order 719, which opened ancillary services in wholesale markets to aggregated demand response resources, but FERC allowed state and local regulatory authorities to opt out of the rule.

In March 2011, FERC extended demand response participation to wholesale energy markets with Order 745 while retaining the opt-out provisions. The order was challenged, but in 2016 the Supreme Court upheld it in FERC v. EPSA, arguing that even though demand response impacts retail rates, FERC still has jurisdiction because demand response is a “practice affecting” wholesale rates.

In 2017, Advanced Energy Economy filed a petition for a declaratory order at FERC requesting clarification on the participation of energy efficiency resources in the PJM Interconnection’s capacity market.

FERC ruled it has jurisdiction over the participation of energy efficiency resources in wholesale market. Further, the Commission said that it had not been obligated to provide an opt-out in either 719 or 745, and that no such opt-out was required for energy efficiency because it has a different impact on distribution operations than demand response does.

Meanwhile, in late 2016, FERC issued a Notice of Proposed Rulemaking on electric storage in regional wholesale markets. The NOPR also addressed DERs, defining these resources to include storage resources, distributed generation, thermal storage, and electric vehicles and their supply equipment.

In February 2018, FERC issued its Order 841, which bifurcated the storage and DER proceeding, issuing a final energy storage order and deferring action on aggregated DERs by creating two new dockets (RM18-9 and AD18-10).

In March, the Association, the National Rural Electric Cooperative Association and American Municipal Power said that FERC should reconsider several key aspects of Order 841.

As much as FERC may have aimed to draw a distinction between the two types of resources, the line is not as clear as might be desired. “While every DER is not necessarily a storage resource, some storage resources are actually distributed energy resources,” William Huang, a partner with Spiegel & McDiarmid, said at the conference.

“There is actually a pretty big overlap” that includes resources such as Tesla Powerwall energy storage devices and electric car batteries and “just about any other technology you can come up with to store energy and connect to your house or a distribution facility,” Huang said. Because of this overlap, the storage rule has implications for “basic jurisdictional issues that public power entities care about,” Huang said.

Although FERC frames the storage rule as eliminating barriers to participation in wholesale markets, to the extent the rule applies to storage resources on the distribution system or behind-the-meter, it can also be seen as bypassing distribution utilities and local regulators by mandating distribution connected and behind-the-meter storage be allowed to transact in the wholesale market, even if the retail utility has not made such arrangements, Huang said.

The storage rule also includes language that allows for simultaneous retail and wholesale market participation. But in the rule FERC also defers to distribution utilities on issues of reliability, cost and safety.

The storage order appears to signal a recognition by FERC that dispatchable resources that can inject into the distribution system are significantly different from resources like demand response and energy efficiency resources, Huang said.

“I think we’ll have to wait and see whether, and to what extent, that continues to be a factor in FERC’s thinking as it moves forward on DER issues and tries to strike a balance between its desire to facilitate wholesale market access for DERs and distribution system reliability, safety and operational concerns.”

Association filed comments in late June on DER issues

In the new docket specifically addressing DERs, the Association said that FERC should defer to retail regulatory authorities on whether or not DERs should participate in wholesale aggregation programs and put aside the idea that successful DER participation in the wholesale markets would be best achieved by dictating a uniform approach for regional transmission organization and independent system operator DER aggregation programs.

The Association filing was made in response to an April 27 Commission notice inviting comments following an April 10-11 technical conference on DER aggregation issues.