On November 17, 2016, the Federal Energy Regulatory Commission (“FERC”) issued a Notice of Proposed Rulemaking seeking comments on its proposal to remove barriers to the participation of electric storage resources and distributed energy resource aggregators in the organized wholesale electric markets. If successful, these new rules could unlock huge new market opportunities for distributed energy resources (e.g., rooftop solar, batteries, and smart energy-management software), which could rapidly increase their deployment throughout much of the country.  While the California Independent System Operator already has specific tariff rules allowing for participation of distributed energy resources, other organized wholesale electric markets currently have rules that impede the entrance of these resources into their respective market.

FERC seeks to require each Independent System Operator (“ISO”) and Regional Transmission Organization (“RTO”) to revise its tariff to: (1) establish market rules, i.e. “participation models”, that recognize the operational characteristics of storage devices but accommodate their participation in the wholesale electric markets; and (2) define distributed energy resource “aggregators” as a type of market participant that can participate in wholesale markets by grouping together individual distributed energy devices.

FERC acknowledges that existing tariffs were developed at a time when traditional generation resources (e.g., large coal and natural gas powered facilities) were the predominant market participants.  As a result, traditional generator “participation models” found in the various ISO/RTOs were not designed with the unique characteristics of energy storage resources in mind.

The new ruling seeks to remove barriers in current ISO/RTO market rules (e.g., minimum size requirements and operational performance requirements) that prevent small distributed energy resources from participating in wholesale markets.  In particular, each ISO/RTO would need to develop new participation models to achieve the following:

  • ensure that electric storage resources are eligible to provide all capacity, energy and ancillary services that they are technically capable of providing in the organized wholesale electric markets.
  • incorporate bidding parameters that reflect and account for the physical and operational characteristics of electric storage resources.
  • ensure that electric storage resources can be dispatched and can set the wholesale market clearing price as both wholesale sellers and buyers.
  • establish a minimum size requirement for participation in the organized wholesale electric markets that does not exceed 100 kilowatts.
  • specify that the sale of energy from the organized wholesale electric markets to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price.

FERC also proposes to require each ISO/RTO to revise its tariff to allow distributed energy resource aggregators to sell capacity, energy, and ancillary services in organized markets. In other words, each ISO/RTO will need to modify its market rules to define distributed energy resource aggregators as eligible market participants under the participation model that best fits the physical and operational characteristics of such distributed resources.

FERC is focusing on aggregators because individual distributed energy resources could, even with new market rules, face physical and/or financial barriers to entry. For example, even with new market rules, a home with rooftop solar may be too small to participate individually or could face significant transactional costs that would outweigh the benefits of participating in wholesale electric markets.

The new ISO/RTO market rules allowing energy resource aggregators to participate directly in the organized wholesale electric markets must include the following:

  • eligibility to participate in the organized wholesale electric markets through a distributed energy resource aggregator;
  • locational requirements for distributed energy resource aggregations;
  • distribution factors and bidding parameters for distributed energy resource aggregations;
  • information and data requirements for distributed energy resource aggregations;
  • modifications to the list of resources in a distributed energy resource aggregation;
  • metering and telemetry system requirements for distributed energy resource aggregations;
  • coordination between the ISO/RTO, the distributed energy resource aggregator, and the distribution utility; and
  • market participation agreements for distributed energy resource aggregators.

FERC has proposed significant limitations on aggregators by authorizing ISO/RTOs to limit the participation of aggregators that are already receiving compensation for the same services as part of another program. In other words, ISO/RTOs will have the ability to prevent aggregators from “double dipping” by receiving compensation for other services such as net metering or demand response in addition to participating in electric wholesale markets.  Lastly, FERC seeks comment on its proposal to require distributed energy resource aggregations to meet the minimum size requirements of the participation model that they use to participate in the organized wholesale electric markets.

Comments on FERC ruling will be due in late-January 2017, 60 days after publication of the NOPR in the Federal Register.  It will be particularly interesting to track the outcome of this FERC ruling given its timing with the Presidential inauguration.  Two of the five FERC commissioner seats are currently open, and it is not clear whether President-elect Trump will nominate individuals who share FERC’s current desire to accelerate the adoption of distributed energy resources throughout the country.