September 21, 2020

Federal Energy Regulatory Commission Order Opens Competitive Markets for Distributed Resources

Holland & Knight Energy and Natural Resources Blog
Saqib Z. Hossain
wind turbine and solar panel

On Sept. 17, 2020, the Federal Energy Regulatory Commission (FERC) approved Order No. 2222 and forged a new path forward for the nation's wholesale energy markets, which will soon welcome participation from distributed energy resource (DER) aggregators that can bundle a wide array of technologies, from rooftop solar to electric vehicles.

Under this landmark ruling, regional transmission organizations (RTOs) and independent system operators (ISOs) are required to revise their tariffs and market rules to help facilitate the entry of DERs into the regional capacity, energy and ancillary service markets. FERC is requiring that each RTO/ISO recognize DER aggregators as a type of market participant and also accommodate the physical and operational characteristics of DER aggregation.

Building upon the U.S. Court of Appeals for the District of Columbia Circuit's affirmation of FERC Order No. 841, which carved out a similar position for energy storage, FERC's current action demonstrates a commitment to address the market barriers encountered by emerging technologies. The new order has understandably enjoyed widespread support from the renewable energy sector, but the DER revolution may not be immediately unleased.  

State regulator and utility groups previously argued that Order 841 preempted the right of states and local authorities to manage their own distribution grids. Although these arguments were rejected by the D.C. Circuit, given that Order 2222 has amplified the value of DERs and created additional wholesale revenue opportunities, renewed legal challenges may be on the horizon.  

Successful implementation in each market will require efficient coordination between the RTO/ISO, the DER aggregator, the distribution utility and the relevant state regulatory authorities. FERC has been careful to note that the goal of preventing undue barriers to entry for DER aggregations must be considered in the context of ensuring the safety and reliability of the distribution system. But for now, FERC has also emphatically recognized the value of working through these jurisdictional complexities to unlock the benefits that DERs can provide the consumer, the grid and the electric power industry.

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