Electricity Markets
Distributed Energy Resources

Groups say PSC DER proposal intrudes on state, local jurisdiction

A proposal by Arkansas utility regulators that would give distributed energy resources (DERs) the right to participate in wholesale markets without the consent of retail regulators would intrude on state and local jurisdiction to establish the terms of retail service and distribution system interconnections, the American Public Power Association and the National Rural Electric Cooperative Association said.

The Association and NRECA jointly filed supplemental comments on April 17 in FERC’s pending rulemaking proceeding addressing the participation of DER aggregations in regional transmission organization (RTO) and independent system operator (ISO) markets (Docket No. RM18-9-000).

The primary purpose of the filing was to respond to a set of supplemental comments submitted by the Arkansas Public Service Commission. 

NRECA and the Association said that among the most important issues FERC must address in its rulemaking is the role that state and local regulators will play in determining whether retail and other distribution-connected customers can participate in DER aggregations in RTO and ISO wholesale markets. 

Along with the Arkansas PSC, FERC over the past month has also received supplemental comments from the Missouri Public Service Commission. The Arkansas and Missouri regulators offer “different preferred proposals to resolve that question,” the Association and NRECA noted.

Arkansas PSC comments

The Arkansas PSC comments argued that FERC could appropriately balance federal and state/local jurisdiction over DERs by adopting rules under which “DER owners would decide whether to sell through RTO/ISO markets,” and states, “acting pursuant to their exclusive retail authority over retail rates, could limit a resource’s participation in retail programs when that resource contracts with an aggregator selling to an RTO/ISO.”

Comments supporting this position were filed by Advanced Energy Economy (AEE) and Advanced Energy Management Alliance (AEMA).

The Association and NRECA said that the Arkansas PSC’s proposal starts from the premise that technically-capable DERs necessarily must have the option to exit state or local DER programs and participate in the wholesale market.

But that assumption “glosses over the complex jurisdictional issues raised by retail customers on the distribution system seeking to make wholesale sales into the organized RTO/ISO markets,” the Association and NRECA argued.

The two associations noted that Section 201(b) of the Federal Power Act reserves regulation of retail service and local distribution facilities to the states. FERC may not specify terms of sale at retail – which is a job for the states alone.

“Overriding state laws or retail tariff requirements that limit or prevent DER participation in wholesale markets would be an unsupported federal intrusion into the authority of states to regulate retail electric service,” the Association and NRECA said.

Moreover, DERs that might participate in a wholesale aggregation will interconnect with state-jurisdictional distribution facilities, with the terms of the interconnections governed by state law.

“State and local authority over the terms and conditions of interconnection to the distribution system would encompass authority to limit the manner in which a DER uses the distribution system,” the Association and NRECA said.

“While AEE suggests that retail regulators could not exercise their jurisdiction over distribution interconnections to preclude wholesale market participation by DERs, AEE cites no authority for this limitation on state and local interconnection jurisdiction,” the Association and NRECA said.

“The mere fact that the owner of a DER asset may intend to make a wholesale sale over distribution facilities does not give the Commission jurisdiction to override state and local interconnection authority,” they told FERC.

The Association and NRECA reiterated their position that the Commission should adopt a final rule that recognizes that the relevant electric retail regulatory authority (RERRA) has authority to determine if a DER should be permitted to participate in a DER aggregation in RTO/ISO wholesale markets, similar to the FERC’s Order Nos. 719 and 719-A optout/opt-in framework applicable to demand response aggregation.  The FERC Order Nos. 719/719-A opt-out/opt-in framework “provides an administratively workable, proven approach to addressing these complex jurisdictional issues in ‘a program of cooperative federalism,’” the associations said. In contrast, the Arkansas PSC proposal “does not represent a reasonable ‘cooperative federalism approach.’”

Comments in 2018

In comments filed in 2018 in the proceeding, the Association made several recommendations in order to help ensure that the operational, reliability, and regulatory challenges associated with aggregated DER participation in the RTO/ISO markets are adequately addressed.

Like the April 17 filing, the Association’s 2018 comments  argued that the Commission should recognize the authority of RERRAs to determine if DERs located behind the meter or on the distribution system may participate in RTO/ISO DER aggregation programs, similar to the Commission’s Order Nos. 719 and 719-A opt-out/opt-in framework.

If FERC does not adopt a RERRA opt-out/opt-in framework applicable to all aggregated DER participation in RTO/ISO markets, the Commission should, at a minimum, adopt an opt-out mechanism for small distribution utilities, the Association said last year.

Arkansas PSC proposal cedes “unilateral right” to DERs

The Arkansas proposal cedes to DERs the unilateral right to decide whether to participate in wholesale market aggregation, while merely acknowledging the right of RERRAs to prevent resources that contract with an aggregator from participating in retail programs, such as net energy metering, the Association and NRECA said in their April 17 comments.

“Because RERRAs clearly possess the jurisdiction to restrict participation in their own retail DER programs, however, there is no benefit in having the Commission acknowledge that a RERRA may limit such participation when a DER asset opts to participate in the RTO/ISO markets,” they said.

Even setting aside the jurisdictional complexities, an approach under which the DER owner unilaterally gets to decide whether to sell through RTO/ISO markets “would effectively leave distribution utilities and retail regulators no choice but to confront the operational challenges and cost exposure that DERs’ wholesale market participation could impose.”

The Association and NRECA said that the willingness and ability of states to promote DER – including demand response and energy efficiency – is highlighted by the examples of state programs cited in the filings by AEE and AEMA.

“These examples show how much states and utilities are doing even in the absence of a Commission rule requiring that DER owners be permitted to participate in the wholesale markets without the consent of the RERRA.”