Demand Response Provider Asks Feds to Open States to Energy Market Competition
Over the past half-decade, the Federal Energy Regulatory Commission has consistently won court battles upholding its authority over states to set the rules for how distributed energy resources can play in wholesale energy markets.
Now FERC is being asked to put that authority to a new use: ending a decade-old provision allowing individual states to opt out of letting demand response companies enlist customers to turn down their energy use to support the power grid.
The request comes from nonprofit environmental law organization Earthjustice on behalf of demand response aggregator Voltus. It asks FERC to declare that the demand response regime overseen by the Midcontinent Independent System Operator has created “unduly discriminatory and preferential” rates for customers in the 15 states served by the transmission system MISO manages.
That’s because MISO has seen 12 of those states opt out of allowing “aggregators of retail customers,” including third-party demand response providers Voltus, Enel X, CPower and others, to compete against utility demand response programs, said Kim Smaczniak, managing attorney of Earthjustice’s clean energy program. That, in turn, has left much of MISO with a utility-controlled demand response regime that’s proven to be both more expensive and less reliable than those run by grid operators in states that have let third parties compete, she said.
Tuesday’s complaint filed with FERC also asks the regulator to reverse the state opt-out rule, created by Order 719 a decade ago, for the country’s other independent system operators and regional transmission organizations that oversee electricity markets for about two-thirds of the country.
That’s important, because not getting rid of it could undermine the much broader distributed energy market opportunities envisioned by FERC, Smaczniak said. Last month’s Order 2222 orders grid operators to create rules for distributed energy resources (DERs) to be aggregated in wholesale energy markets, without an option for states to opt out.
“But if the aggregations do include demand response, the opt-out can apply,” she said. States that have lost court challenges to FERC’s authority may use that avenue to bar DER aggregations that contain even a slight amount of load reduction or flexibility, she warned. “There’s no reason to expect it not to happen.”
Why demand-side resources are gaining grid power
FERC Order 719 was issued in 2010, back when the line between state and federal authority over behind-the-meter and distributed energy assets was far less clear, Smaczniak said. But a string of court cases has since cemented that authority, including the 2016 U.S. Supreme Court decision upholding FERC’s authority to order that demand response be compensated equivalently to generators and other energy market participants.
FERC’s authority was strengthened by this summer’s decision by a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit to reject a challenge from utility groups and state utility regulators against FERC Order 841, which opens up wholesale markets to batteries and other energy storage assets.
Order 2222 expands this authority to DERs including multiple technologies, once again with no state opt-out. It does call for cooperation with state regulators and distribution utilities, however, to ensure that wholesale market actions don’t disrupt distribution grids or interfere with retail electricity rates.