Overview
More than year ago this blog addressed ago the possible implications of a FERC ruling in the PJM Order No. 2222 compliance docket on the issue of whether net metered retail (NEM) customers compensated through credits at the full retail rate could receive additional compensation for ancillary services provided on top of the payment already received through their bill credit. Although the existence of double compensation is obvious on its face, FERC clarified that there was no actual prohibition on double compensation in Order No. 2222, in its July 25, 2024 PJM Order. Rather, the FERC prohibition is on NEM resources receiving double compensation if the NEM resource is providing the same service at both retail and wholesale. That is, a NEM resource cannot provide the same service at wholesale and at retail and be compensated twice; but a NEM resource can be compensated for: 1) not providing the service, but getting paid through a retail NEM program as if did provide the service; and 2) providing the service at wholesale. FERC explained that Order No. 2222’s discussion of double counting and double compensation restrictions focused on “services provided.” Because state-jurisdictional NEM compensation is never for providing ancillary services (there are no state-jurisdictional retail ancillary services markets just as there are no retail transmission or distribution markets in which a NEM customer can provide service), the July 25, 2024 PJM Order, would be mean that it is up to state commissions or local regulators (a “local regulator” is most typically a municipal or cooperative utility) to prohibit double compensation.
FERC’s decision to leave the double compensation issue to the state/local regulator reflects FERC’s historical position that it will not disturb state/local regulator authority to pay NEM customers for services that such customers cannot provide and do not provide. FERC’s decision in the July 25, 2024 PJM Order is the very same decision FERC made in refusing to “police” full NEM in New England Ratepayers Association (NERA) some five years ago. State/local regulators remain free to pay credits for energy produced by a NEM customer in one time period and deemed consumed by the NEM customer in another time period at any rate that they see fit, no matter if the only service(s) actually provided by the NEM customer is energy or energy and capacity. If a state or local regulator already has made a purposeful decision to pay NEM customers for services that they do not provide, FERC’s policy is that it will respect such decision.
The July 25, 2024 PJM Order has now made it crystal clear, if it had not been clear before, that every state/local regulator with a NEM program, where the NEM compensation is greater than the wholesale price of energy/capacity, will have to make its own decision on whether to allow NEM customers to participate in DER Aggregations under Order No. 2222. The FERC position raises the issue of whether state/local regulators will closely examine current NEM programs in making such decisions, and/or, in the case of state utility commissions be compelled to do so by load-serving entities and ratepayer advocates.
In the two regions with single-state ISOs (CAISO/NYISO) that had DER Aggregation programs pre-dating Order No. 2222, the state regulators have not permitted DERs to participate in both NEM and a DER Aggregation, although the means of ensuring this result vary somewhat.
As to California, FERC accepted CAISO Tariff wording that states “[a] Distributed Energy Resource participating in a Distributed Energy Resource Aggregation may not also participate in a retail net energy metering program that does not expressly permit wholesale market participation.” The pre-Order No. 2222, NEM tariffs that are grandfathered in California, do not mention wholesale markets or DER Aggregations. The recent replacement for the NEM tariff, i.e., the Net Billing Tariff (NBT), adopted after Order No. 2222, also does not mention wholesale markets or DER Aggregations. Thus, as to state-regulated utilities, dual participation is not possible currently. The notion that the California Public Utilities Commission would permit NEM/NBT customers to participate in DER Aggregations in the future remains doubtful in light of the issuance of the Public Advocate Office’s August 22, 2024 Fact Sheet indicating that the annual cost burden of the state’s NEM/NBT programs is approaching $8.5 billion annually. Given that 21-27% of the average non-rooftop solar household’s bill subsidizes NEM/NBT customers, further compensation based on the notion that customers who are already compensated for ancillary services even if though they do not provide the services, merit additional compensation if they do provide the services, seems unlikely.
In New York, under the VDER program, the state-regulated utilities now offer a “wholesale value stack,” meaning that if a DER wants to be part of a DER Aggregation instead of receiving the NYPSC-set value of capacity and energy, it can opt to join a DER Aggregation and earn the NYISO-market set levels of compensation for capacity and energy and also earn the other portions of the value stack. But, customers participating in the NYISO’s wholesale DER participation models are ineligible to participate in Net Energy Metering or Service Classification (SC) No. 6 Buyback service from the state-regulated utilities.
Given the July 25, 2024 PJM Order, it will be interesting to see if other state commissions, particularly those that must abide by full NEM laws, start taking action on this issue of whether to prohibit or permit double compensation. The Pennsylvania PUC (in a full NEM state), which sought FERC relief from double compensation in the PJM docket, already has an open proceeding (Docket L-2023-3044115) that will address this issue. In light of the Pennsylvania PUC’s position in the FERC proceeding, it would appear unlikely that the Pennsylvania PUC would allow a full NEM customer to participate in a DER Aggregation. The potential for state commissions to prohibit dual participation in DER Aggregations and NEM (and similar state programs), was obvious well before the outset of Order No. 2222. Even the reduction in compensation for DERs under the NBT in California seemingly has not yet spurred DER Aggregations in CAISO. As other RTOS/ISOs get closer to implementing Order No. 2222, the trend in decisions by state/local regulators to limit dual participation may well continue, particularly in full NEM or near-full NEM states. When all is said and done, DER Aggregations are more likely to be made up of DERs not associated with on-site retail load and/or DERs too large to be eligible for NEM. Additionally, the one ISO/RTO state that never adopted NEM (South Dakota) might see DERs interested in DER Aggregations.
