Overview
Events of the past several months should be a cause for considerable concern as Order No. 2222 effective dates inch closer in the many RTOs in which the order is not yet in effect (i.e., PJM, ISO-NE, SPP, and MISO). As evidenced by several recent FERC orders, it may takes years for RTOs and/or the Commission to detect fraud committed by entities claiming that they have enrolled DERs in DER Aggregations under Order No. 2222 when they have no relationship with the DER owner. A review of recent FERC Enforcement orders illustrates the danger of creating FERC-jurisdictional programs under which aggregators can claim, without hard evidence, to be providing wholesale services, using retail customers' DERs or other resources.
In the Ketchup Caddy Order Assessing Civil Penalties, it was noted that in 2019, Ketchup Caddy cleared 211.1 MW in MISO’s 2019 Planning Reserve Auction (PRA), but that all the enrolled customers were unwitting in that no potential demand response customers were even contacted, let alone had signed up with Ketchup Caddy to be their aggregator. To register a customer resource as a Load Modifying Resource (LMR) (i.e., demand response provider) in MISO, a Market Participant had to submit a variety of information to MISO, including information about the resource’s capacity, monthly availability, address, and meter number. To obtain this data, Ketchup Caddy scraped data from an Ameren website and then created mock test data. Despite the fact that as early as 2019, MISO rejected certain Ketchup Caddy resource registrations because they "were already enrolled through another market participant," MISO ignored this red flag. In the April 2020 PRA auction, Ketchup Caddy cleared 303.2 MW of customer capacity and 372.3 MW in the 2021 PRA. It was not until October 2021 that any action was taken to stop Ketchup Caddy.
In the Voltus Stipulation and Consent Order, FERC described Voltus' participation in the MISO PRA and its similar use of scraped data from an Ameren website (which tactic apparently made its way into the hands of Ketchup Caddy personnel). Voltus also cleared multiple 100s of MW of LMR in the MISO PRA for several years largely by registering LMRs with which it lacked contracts with the resources’ owners. A MISO employee even confirmed that as part of the LMR registration process, Voltus would not be required to provide evidence of a contractual relationship with the entities underlying the LMRs it was registering. Another red flag missed.
Finally, in the American Efficient Show Cause Order, it was alleged that American Efficient received hundreds of millions of dollars in capacity payments from PJM and MISO from 2014 through the early 2020s from energy efficiency capacity programs in both RTOs. American Efficient is alleged to have made false claims that it had the legal authority to claim the reduction associated with the installations that constituted the relevant Energy Efficiency Resources (EERs), among many other transgressions. The order explains that PJM relied on the honesty of EER providers in self-certifying that they had the required contract rights. American Efficient's reports to PJM were alleged to be misleading in their implication that American Efficient had obtained contractual rights to the relevant capacity rights from end-use customers. PJM's own template explains that PJM would not require proof of such end-use customer agreements absent a reason to doubt the resource's legal authority. As early as December 2018, ISO-NE began voicing concerns to American Efficient and its affiliate about its business model. But it took considerable time before MISO and PJM detected the largely identical issue. Eventually, MISO audited American Efficient and found inadequate documentation of contractual rights. The independent market monitors (IMMs) of MISO and PJM referred the company to FERC Enforcement 2021, but American Efficient continued to do business in PJM for another two years. RTOs must switch to a “trust, but verify” mode of operating.
These FERC Enforcement orders all have in common allegations or concessions that when there are RTO programs under which entities can aggregate third-parties and claim such third-parties are providing a grid benefit, there are bad actors who will falsely claim that third parties have given them permission to sell such benefits to the RTO. Order No. 2222 requires RTOs to set up programs and allow DER Aggregators to enroll “customers” that purport to have distributed energy resources (DERs) that can provide services to an RTO. But does Order No. 2222 have any requirement that the DER Aggregators prove that they have contracted with any DER to provide services? No. It is another, “take my word for it program.” As long as a DER Aggregator has procured a DER owner's name, address, and utility account number, it can claim it has the right to sell services using that DER. Voltus, Ketchup Caddy, and American Efficient all found ways to collect needed information.
In Order No. 2222, FERC only required each RTO to have a DER Aggregator provide a list of the individual DERs in an aggregation and allowed the RTOs to establish “any necessary information” that must be submitted for the individual DER. We are not aware of any RTO imposing a requirement in its Order No. 2222 compliance filing that DER Aggregators provide proof of a contractual relationship between the DER and DER Aggregator in identifying DERs it claims to control, despite the fact that during the compliance period, MISO, PJM, and ISO-NE were all aware that, in other programs, aggregators were not actually contracting with resources. Effectively, a state-regulated electric distribution company (EDC) is expected to determine if the DER Aggregator and DER have a real relationship, at the expense of all retail ratepayers, unless an EDC can 1) convince FERC to amend Order No. 2222; or 2) convince a state regulator to mandate and verify a contractual relationship.
Since these alleged or admitted actions, MISO did take action with regard to demand response resources participation in its PRA, by changing its means of implementing "real power tests" for resources and the proof necessary to show that the tariff's "contractual rights" requirement is met. Voltus filed a Complaint, largely on filed rate doctrine grounds. Voltus also raised discrimination claims, implying that a retail customer signing up under a retail tariff to participate in a utility program somehow was not akin to a contract. EDCs should be subject to the same participation requirements as third-party DER Aggregators, but an RTO must recognize the blackletter law that tariffs effectively result in contractual rights.
EDCs should seek reformation of Order No. 2222 to require that each DER Aggregator prove that it has an executed contract (or a tariff right) to aggregate all DERs it claims to be aggregating. The existing FERC Enforcement cases have amply demonstrated that aggregators’ words or attestations may be meaningless.
If FERC will not remedy this flaw, it may be possible for state regulators to fix it on the grounds that because FERC is not regulating the contract between the DER and the DER Aggregator, such contract is not FERC-jurisdictional, and thus can be required to be provided to a state regulator as a guard against the fraud described/alleged in the FERC Enforcement cases above. Such an approach would relieve EDCs ratepayers from having to pay for fraud detection. Unless FERC finds the DER-DER Aggregator contract to be FERC-jurisdictional, a state requirement to show the relevant EDC the DER-DER Aggregator contract or tariff before the DER Aggregator can include the DER in a DER Aggregation appears to be permitted by Order No. 2222.
