DER Aggregation Comments – Five Takeaways from State Commissions

The takeaways from the individual state commissions and commissioner who commented must be viewed in light of the fact that four of the five sets of comments from individual states (NJBPU; CPUC; NYPSC; PA PUC Comm’r Place) are from states that have supported the integration of DERs, already have fairly high DER penetrations levels, and are located in the three ISOs that are arguably the furthest along in adopting DER aggregation policies (CAISO, PJM, and NYISO). Most of the state comments were more focused on DERs generally and not the aggregation of DERs.

• State Commissions Should Be Participation Gatekeepers. Although the majority of state commissions that filed comments fully support DER participation in wholesale markets, when the totality of comments are considered (Indiana URC; NARUC; MISO States), the states, as a whole, generally do support an opt-in, opt-out approach to both DER aggregation and in some cases the participation of DERs directly in wholesale markets. Even some of those states that support full DER participation caveat such support: for example, the NJBPU proposes that distribution owners (DOs) review and determine participation eligibility as to reliability issues and does not support an RTO/ISO being able to override such decision. A majority of the states insist that they retain a coordination role in any DERs participation in an aggregation. As to those supporting a complete opt-out option (MISO States; NARUC; Indiana RUC), they cite to legal precedent that they believe leaves the participation decision to the states and also express concern as to entities seeking compensation from both retail and wholesale programs.

 

• States with Significant DERs Experience Support Participation in Both State and Federal Programs, if Appropriate. The states with DER experience are all supportive of FERC permitting participation in sate and federal programs (i.e., “value stacking”) (CPUC; NJBPU; NYPSC; PA PUC Comm’r Place)). They do recognize the need to avoid double compensation but generally believe that task is manageable whether left to them, the DOs, and/or the RTO/ISO. The majority of state commenters indicate that they should have the lead role in policing double compensation. Other states with less DER experience have very serious concerns about double compensation (MISO States; NARUC). NARUC notes that no state can be forced by FERC to allow a DER participating in a wholesale program to also participate in a retail program.

 

• States with Less DERs Experience Have Greater Concerns About Accounting for DERs in the Integrated Resource Planning Process (IRP Process). Notably, the states favoring DERs are largely states that lack vertically-integrated utilities and/or have retail choice. Those states that retain the vertical-integration model have concerns as to how DERs participating in the wholesale market will be accounted for and considered in state-jurisdictional IRP Processes (MISO States; Indiana URC). The interrelationship between the NOPR and IRP processes generally was not addressed at FERC’s Technical Conference.

 

• Many State Commissions (Perhaps Unintentionally) Seek Changes to FERC’s Interconnection-Jurisdiction Policy. Virtually all the comments, but for the CPUC’s and NYPSC’s, assume that all DER interconnections are state-jurisdictional (PA PUC Comm’r Place; MISO States; NJBPU; Indiana RUC). Given nearly three decades of FERC asserting jurisdiction over all QF interconnections where sales are not to the host DO (as well as the adoption of the “first use test” of Order No. 2003), it is unclear whether these states are seeking a change in FERC policy or have just assumed they would have such jurisdiction. This desire to have authority over all DERs interconnections appears to stem from a desire by the states to be able to ensure distribution system reliability and maintain full authority over the distribution system.

 

• Cost Allocation Should Be Left to the States. As a corollary to the jurisdictional issue, the states view that costs caused by DERs participating in (directly or through an aggregator) in markets should be subject to state regulation. Some states argue that the states may either directly assign or socialize such costs, or do both, as the situation merits (PA PUC Comm’r Place; NYPSC). Others argue that DERs largely should pay any participation-caused costs. (MISO States). Generally there seems to be agreement that costs caused by DERs interconnections should be borne by the DERs, including any metering or telemetry required. Oher costs identified by the states include monitoring, grid modernization, and coordination.

Commentary: The strong interest shown by the states in maintaining exclusive or near-exclusive authority over the distribution systems of DOs is noteworthy in that the states played only a small role in the decisions and proceedings in the last three decades that provided FERC substantial authority over delivery and interconnection services involving the distribution system. As already noted, although FERC has long claimed jurisdiction over QF interconnections where the QF is not selling to the host DO, this issue was re-litigated several times in the last decade or so, but no state has appealed FERC’s assertion of jurisdiction. In contrast, the states did (unsuccessfully) appeal the “first use” test adopted in Order 2003, which only applies to non-QFs selling at wholesale. In the early 2000s, FERC tried to assert exclusive jurisdiction over any distribution facility used by a customer for wholesale purposes, yet no state even participated in the appeal. The renewed interest in jurisdiction may be due to increased DERs penetration and its impacts on the distribution system. Given that many DERs that participate in the wholesale market through aggregations are likely to be QFs (storage devices can pair with renewables to achieve this status subject to certain limitations), so that they can avoid wholesale rate regulation, this FERC assertion of jurisdiction will mean states may have little say in many DERs interconnections. One of the more interesting state proposals is the Indiana RUC’s position that DERs sales to aggregators be subject to state jurisdiction. The state’s implicit view – that such sales are not occurring in interstate commerce – runs directly counter to fairly recent FERC precedent. Were the Commission to adopt such a significant policy change, it could have far-reaching ramifications, particularly as many DERs are QFs and thus exempt from state regulation under existing PURPA regulations. Missing from the legal discussion of jurisdiction of those states supporting an opt-out is the fact that the demand response programs involve a product that FERC has found not to be subject to its jurisdiction in EnergyConnect, Inc. In contrast, wholesale energy sales, are clearly FERC-jurisdictional, subject to limits on regulation adopted by FERC under PURPA.