Document ID: FERC-2021-0366-0001
Agency: ferc
Document Type: Rule
Title: Order Addressing Arguments Raised on Rehearing, Setting Aside Prior Order in Part, and Clarifying Prior Order in Part
Posted Date: 2021-03-30T04:00Z

[Federal Register Volume 86, Number 59 (Tuesday, March 30, 2021)]
[Rules and Regulations]
[Pages 16511-16530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06089]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM18-9-002; Order No. 2222-A]

Participation of Distributed Energy Resource Aggregations in 
Markets Operated by Regional Transmission Organizations and Independent 
System Operators

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Final rule.

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SUMMARY: In this order, the Federal Energy Regulatory Commission 
(Commission) addresses arguments raised on rehearing, sets aside in 
part, and clarifies in part its final rule amending its regulations to 
remove barriers to the participation of distributed energy resource 
aggregations in the capacity, energy, and ancillary service markets 
operated by Regional Transmission Organizations and Independent System 
Operators (RTOs/ISOs).

DATES: This rule is effective June 1, 2021.

FOR FURTHER INFORMATION CONTACT: 
David Kathan (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6404
Nicole Businelli (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-8253
Karin Herzfeld (Legal Information), Office of General Counsel--Energy 
Markets, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-8459

SUPPLEMENTARY INFORMATION: 

Table of Contents

 
                                                               Paragraph
                                                                 Nos.
 
I. Introduction.............................................           2
II. Discussion..............................................           7
    A. Commission Jurisdiction..............................           7
        1. Exclusive Jurisdiction...........................           7
            a. Request for Clarification or Rehearing.......           9
            b. Commission Determination.....................          11

[[Page 16512]]

 
        2. Order No. 719 Demand Response Opt-Out............          14
            a. Requests for Clarification or Rehearing......          14
            b. Commission Determination.....................          22
        3. Small Utility Opt-In.............................          30
            a. Requests for Clarification or Rehearing......          31
            b. Commission Determination.....................          33
        4. Distributed Energy Resource Interconnection......          38
            a. Requests for Clarification and Clarification           40
             or Rehearing...................................
            b. Commission Determination.....................          42
    B. Eligibility To Participate in RTO/ISO Markets Through          47
     a Distributed Energy Resource Aggregation..............
        1. Participation Model..............................          47
            a. Request for Clarification or Rehearing.......          47
            b. Commission Determination.....................          50
        2. Double Counting..................................          52
            a. Request for Clarification or Rehearing.......          53
            b. Commission Determination.....................          57
    C. Coordination.........................................          59
        1. Distribution Utility Review......................          59
            a. Requests for Clarification or Rehearing......          59
            b. Commission Determination.....................          61
        2. Information Sharing and Procedural Safeguards....          64
            a. Request for Clarification or Rehearing.......          65
            b. Commission Determination.....................          65
        3. Duplication of Interconnection Review............          67
            a. Request for Clarification or Rehearing.......          67
            b. Commission Determination.....................          69
        4. RERRA Involvement................................          70
            a. Request for Clarification or Rehearing.......          70
            b. Commission Determination.....................          71
III. Information Collection Statement.......................          71
IV. Regulatory Flexibility Act..............................          72
V. Document Availability....................................          72
VI. Effective Date and Congressional Notification...........          73
 

I. Introduction

    1. On September 17, 2020, the Federal Energy Regulatory Commission 
(Commission) issued its final rule (final rule or Order No. 2222) 
adopting reforms to remove barriers to the participation of distributed 
energy resource \1\ aggregations in the Regional Transmission 
Organization (RTO) and Independent System Operator (ISO) markets (RTO/
ISO markets).\2\ Specifically, the Commission found that existing RTO/
ISO market rules are unjust and unreasonable in light of barriers that 
they present to the participation of distributed energy resource 
aggregations in RTO/ISO markets, which reduce competition and fail to 
ensure just and reasonable rates.\3\ To help ensure that RTO/ISO 
markets produce just and reasonable rates, pursuant to the Commission's 
legal authority under Federal Power Act (FPA) section 206,\4\ the 
Commission, in Order No. 2222, modified Sec.  35.28 \5\ of the 
Commission's regulations to require each RTO/ISO to revise its tariff 
to ensure that its market rules facilitate the participation of 
distributed energy resource aggregations.\6\
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    \1\ Order No. 2222 amended the Commission's regulations to 
define a distributed energy resource as any resource located on the 
distribution system, any subsystem thereof or behind a customer 
meter. Participation of Distributed Energy Resource Aggregations in 
Markets Operated by Regional Transmission Organizations and 
Independent System Operators, Order No. 2222, 85 FR 67094 (Oct. 1, 
2020), 172 FERC ] 61,247, at P 1 n.1 (2020), corrected, 85 FR 68450 
(Oct. 29, 2020); 18 CFR 35.28(b)(10). These resources may include, 
but are not limited to, resources that are in front of and behind 
the customer meter, electric storage resources, intermittent 
generation, distributed generation, demand response, energy 
efficiency, thermal storage, and electric vehicles and their supply 
equipment. Order No. 2222, 172 FERC ] 61,247 at PP 1 n.1, 114.
    \2\ For purposes of Order No. 2222, the Commission defined RTO/
ISO markets as the capacity, energy, and ancillary services markets 
operated by the RTOs and ISOs. Order No. 2222, 172 FERC ] 61,247 at 
P 1 n.2; see also 18 CFR 35.28(b)(11). In this order, we modify 
Sec.  35.28(g)(12)(i) of the Commission's regulations to revise 
``organized wholesale electric markets'' to instead read 
``independent system operator or regional transmission organization 
markets.''
    \3\ Order No. 2222, 172 FERC ] 61,247 at P 1.
    \4\ 16 U.S.C. 824e.
    \5\ 18 CFR 35.28.
    \6\ Order No. 2222, 172 FERC ] 61,247 at P 1.
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    2. More specifically, Order No. 2222 requires each RTO/ISO to 
revise its tariff to establish distributed energy resource aggregators 
as a type of market participant that can register distributed energy 
resource aggregations under one or more participation models in the 
RTO/ISO tariff that accommodate the physical and operational 
characteristics of each distributed energy resource aggregation.\7\ 
Under Order No. 2222, each RTO/ISO must include tariff provisions 
addressing distributed energy resource aggregations that: (1) Allow 
distributed energy resource aggregations to participate directly in 
RTO/ISO markets and establish distributed energy resource aggregators 
as a type of market participant; (2) allow distributed energy resource 
aggregators to register distributed energy resource aggregations under 
one or more participation models that accommodate the physical and 
operational characteristics of the distributed energy resource 
aggregations; (3) establish a minimum size requirement for distributed 
energy resource aggregations that does not exceed 100 kW; (4) address 
locational requirements for distributed energy resource aggregations; 
(5) address distribution factors and bidding parameters for distributed 
energy resource aggregations; (6) address information and data 
requirements for distributed energy resource aggregations; (7) address 
metering and telemetry requirements for distributed energy resource 
aggregations; (8) address coordination between the RTO/ISO, the

[[Page 16513]]

distributed energy resource aggregator, the distribution utility, and 
the relevant electric retail regulatory authorities (RERRAs); (9) 
address modifications to the list of resources in a distributed energy 
resource aggregation; and (10) address market participation agreements 
for distributed energy resource aggregators.\8\ Additionally, an RTO/
ISO must not accept bids from a distributed energy resource aggregator 
if its aggregation includes distributed energy resources that are 
customers of utilities that distributed 4 million megawatt-hours (MWh) 
or less in the previous fiscal year, unless the RERRA permits such 
customers to be bid into RTO/ISO markets by a distributed energy 
resource aggregator.
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    \7\ Id. P 6.
    \8\ Id. P 8.
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    3. On October 16, 2020, Xcel Energy Services Inc. (Xcel) filed a 
request for clarification of the final rule. On October 19, 2020, 
Advanced Energy Economy and Advanced Energy Management Association 
(together, AEE/AEMA); \9\ the Kansas Corporation Commission (Kansas 
Commission); and Sierra Club, Sustainable FERC Project, and Natural 
Resources Defense Council (Public Interest Organizations) \10\ filed 
timely requests for rehearing and clarification of the final rule. On 
November 3, 2020, American Public Power Association and the National 
Rural Electric Cooperative Association (APPA/NRECA) filed an answer to 
AEE/AEMA's and Public Interest Organizations' requests for rehearing 
and clarification.\11\
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    \9\ On November 12, 2020, AEE/AEMA filed an errata to its 
request for rehearing.
    \10\ On October 20, 2020, Public Interest Organizations filed an 
errata to its request for rehearing.
    \11\ Rule 713(d)(1) of the Commission's Rules of Practice and 
Procedure, 18 CFR 385.713(d)(1), prohibits an answer to a request 
for rehearing. Accordingly, we reject APPA/NRECA's answer.
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    4. Pursuant to Allegheny Defense Project v. FERC,\12\ the rehearing 
requests filed in this proceeding may be deemed denied by operation of 
law. However, as permitted by section 313(a) of the FPA,\13\ we modify 
the discussion in the final rule and set aside the final rule, in part, 
as discussed below.\14\
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    \12\ 964 F.3d 1 (D.C. Cir. 2020) (en banc).
    \13\ 16 U.S.C. 825l(a) (``Until the record in a proceeding shall 
have been filed in a court of appeals, as provided in subsection 
(b), the Commission may at any time, upon reasonable notice and in 
such manner as it shall deem proper, modify or set aside, in whole 
or in part, any finding or order made or issued by it under the 
provisions of this chapter.'').
    \14\ Allegheny Def. Project, 964 F.3d at 16-17.
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    5. We either dismiss or disagree with most arguments raised on 
rehearing. However, we set aside the finding that the participation of 
demand response in distributed energy resource aggregations is subject 
to the opt-out and opt-in requirements of Order Nos. 719 and 719-A and 
provide further clarification on the Commission's interconnection 
policies pertaining to Qualifying Facilities (QFs), restrictions to 
avoid double counting of services, information sharing in the 
distribution utility review process, and distribution utility review 
criterion, as further discussed below. We also modify Sec.  
35.28(g)(12)(i) of the Commission's regulations to make a non-
substantive ministerial correction.\15\
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    \15\ See supra note 2.
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II. Discussion

A. Commission Jurisdiction

1. Exclusive Jurisdiction
    6. In Order No. 2222, the Commission stated that it has exclusive 
jurisdiction over the wholesale markets and the criteria for 
participation in those markets, including the wholesale market rules 
for participation of resources connected at or below distribution-level 
voltages.\16\ The Commission reiterated its previous finding that 
establishing the criteria for participation in RTO/ISO markets, 
including with respect to resources located on the distribution system 
or behind the meter, is essential to the Commission's ability to 
fulfill its statutory responsibility to ensure that wholesale rates are 
just and reasonable.\17\ The Commission further found that, like the 
Commission's rules governing demand response and electric storage 
resource participation in RTO/ISO markets, Order No. 2222 ``addresses--
and addresses only--transactions occurring on the wholesale market.'' 
\18\ The Commission thus found that the FPA and relevant precedent does 
not legally compel the Commission to adopt an opt-out with respect to 
participation in RTO/ISO markets by all resources interconnected on a 
distribution system or located behind a retail meter.\19\ Rather, the 
Commission found that it has jurisdiction to decide which entities may 
participate in wholesale markets, which means that a RERRA cannot 
broadly prohibit the participation in RTO/ISO markets of all 
distributed energy resources or of all distributed energy resource 
aggregators, as doing so would intrude upon the Commission's statutory 
authority to ensure that wholesale electricity markets produce just and 
reasonable rates.\20\ The Commission also noted that it was not 
obligated to provide an opt-out in Order No. 719, but rather did so as 
an exercise of its discretion.\21\
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    \16\ Order No. 2222, 172 FERC ] 61,247 at P 57 (citing Elec. 
Storage Participation in Mkts. Operated by Reg'l Transmission Orgs. 
and Indep. Sys. Operators, Order No. 841, 83 FR 9580 (Mar. 6, 2018), 
162 FERC ] 61,127, at P 35 (2018) (citing FERC v. Elec. Power Supply 
Ass'n, 136 S. Ct. 760 (2016) (EPSA)), order on reh'g and 
clarification, Order No. 841-A, 84 FR 23902 (May 23, 2019), 167 FERC 
] 61,154, at P 38 (2019), aff'd sub nom. Nat'l Ass'n of Regul. Util. 
Comm'rs v. FERC, 964 F.3d 1177, 1187 (D.C. Cir. 2020) (NARUC) 
(``FERC has the exclusive authority to determine who may participate 
in the wholesale markets.''); Advanced Energy Econ., 161 FERC ] 
61,245, at PP 59-60 (2017) (AEE Declaratory Order), reh'g denied, 
163 FERC ] 61,030 (2018) (AEE Rehearing Order); Nat'l Ass'n of 
Regul. Util. Comm'rs v. FERC, 475 F.3d 1277, 1280-82 (D.C. Cir. 
2007); Transmission Access Pol'y Study Grp. v. FERC, 225 F.3d 667, 
696 (D.C. Cir. 2000)).
    \17\ Order No. 2222, 172 FERC ] 61,247 at P 57 (citing Order No. 
841-A, 167 FERC ] 61,154 at PP 31, 38; AEE Rehearing Order, 163 FERC 
] 61,030 at P 36). The Commission noted that the Supreme Court also 
has recognized that the Commission extensively regulates the 
structure and rules of wholesale auctions, in order to ensure that 
they produce just and reasonable results. Id. P 57 n.138 (citing 
Hughes v. Talen Energy Mktg., LLC, 136 S.Ct. 1288, 1293-94 (2016) 
(Hughes); EPSA, 136 S.Ct. at 769).
    \18\ Order No. 2222, 172 FERC ] 61,247 at P 58 (quoting EPSA, 
136 S.Ct. at 776) (citing NARUC, 964 F.3d at 1186, 1189 (finding 
that ``Order No. 841 solely targets the manner in which an [electric 
storage resource] may participate in wholesale markets'' and that 
Order Nos. 841 and 841-A ``do nothing more than regulate matters 
concerning federal transactions''); Order No. 841-A, 167 FERC ] 
61,154 at P 44).
    \19\ Id. P 58 (citing Order No. 841-A, 167 FERC ] 61,154 at P 
32; AEE Declaratory Order, 161 FERC ] 61,245 at P 62 (citing EPSA, 
136 S.Ct. at 776)).
    \20\ Id. (citing NARUC, 964 F.3d at 1187; Hughes, 136 S.Ct. at 
1298; Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 386 (2015)) 
(internal citations omitted).
    \21\ Id. P 59 (citing Wholesale Competition in Regions with 
Organized Elec. Mkts., Order No. 719, 73 FR 64100 (Oct. 28, 2008), 
125 FERC ] 61,071, at PP 154-55 (2008), order on reh'g, Order No. 
719-A, 74 FR 37776 (Jul. 29, 2009), 128 FERC ] 61,059, order on 
reh'g, Order No. 719-B, 129 FERC ] 61,252 (2009); EPSA, 136 S. Ct. 
at 779 (describing the opt-out as a ``notable solicitude toward the 
States,'' in recognition of ``the linkage between wholesale and 
retail markets and the States' role in overseeing retail sales''); 
NARUC, 964 F.3d at 1190 (``Local Utility Petitioners correctly 
acknowledge that EPSA did not condition its holdings on the 
existence of an opt-out.'')).
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a. Request for Clarification or Rehearing
    7. The Kansas Commission requests clarification, or in the 
alternative rehearing, of the Commission's jurisdictional 
determinations in Order No. 2222.\22\ The Kansas Commission asserts 
that the Commission created uncertainty about its view on its exclusive 
jurisdiction over rules and practices that directly affect Commission-
jurisdictional rates, as well as federal court precedent on that issue, 
and should grant clarification to resolve that uncertainty. 
Alternatively, the Kansas Commission asks the Commission to grant 
rehearing to ensure that its jurisdictional determinations do not 
violate the prohibition against

[[Page 16514]]

arbitrary and capricious decision making.
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    \22\ Kansas Commission Request for Rehearing at 1.
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    8. According to the Kansas Commission, the Commission previously 
found that ``no federal court has stated that the Commission has 
exclusive jurisdiction over rules or practices that directly affect a 
jurisdictional rate.'' \23\ The Kansas Commission contends, however, 
that in Order No. 2222, the Commission relied on EPSA and Hughes to 
support its assertion of exclusive jurisdiction over rules governing 
wholesale market participation.\24\ The Kansas Commission states that, 
in the August 2020 Tri-State Rehearing Order,\25\ the Commission 
declined an opportunity to address the impact of NARUC on the findings 
from the March 2020 Tri-State Order, which has created uncertainty 
regarding the Commission's view of its exclusive jurisdiction over 
rules and practices that directly affect Commission-jurisdictional 
rates, as well as its interpretation of EPSA and Hughes on that 
issue.\26\ The Kansas Commission therefore asks the Commission to grant 
clarification to resolve that alleged inconsistency and to clearly 
articulate the Commission's views on the scope of its exclusive 
jurisdiction.
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    \23\ Id. at 2-3 (quoting Tri-State Generation & Transmission 
Ass'n, Inc., 170 FERC ] 61,224, at P 121 (March 2020 Tri-State 
Order), order on reh'g, 172 FERC ] 61,173 (August 2020 Tri-State 
Rehearing Order), order on reh'g, 173 FERC ] 61,097 (2020)).
    \24\ Id. at 3-4 (citing Order No. 2222, 172 FERC ] 61,247 at PP 
57 nn.137-138, 58 nn.139 & 141, 59 n.143).
    \25\ We note that the Kansas Commission states that the August 
2020 Tri-State Rehearing Order was issued 11 days after Order No. 
2222. However, Order No. 2222 was issued on September 17, 2020, 20 
days after the issuance of the August 2020 Tri-State Rehearing 
Order.
    \26\ Kansas Commission Request for Rehearing at 4.
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    9. Alternatively, the Kansas Commission seeks rehearing on the 
basis that the Commission acted in an arbitrary and capricious manner, 
and failed to engage in reasoned decision making, when it held that 
EPSA and Hughes support a finding that the Commission has exclusive 
jurisdiction over rules and practices that directly affect Commission-
jurisdictional rates.\27\ The Kansas Commission argues that Order No. 
2222 does not acknowledge the Commission's findings in the March 2020 
Tri-State Order to the contrary or provide any explanation for the 
Commission's conflicting interpretations of the Commission's exclusive 
authority over rules and practices that directly affect Commission-
jurisdictional rates, and therefore, rehearing is warranted to address 
these material omissions and inconsistencies.\28\
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    \27\ Id. at 5.
    \28\ Id. at 6.
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b. Commission Determination
    10. We disagree with the Kansas Commission that the Commission in 
Order No. 2222 created uncertainty about its view on its jurisdiction 
over rules and practices that directly affect Commission-jurisdictional 
rates.\29\ We also disagree with the Kansas Commission's argument that 
the Commission acted arbitrarily and capriciously by failing to 
acknowledge the Tri-State proceeding in Order No. 2222.
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    \29\ See 16 U.S.C. 824d(a), 824e(a) (providing the Commission 
with authority to ensure that rules or practices ``affecting'' 
Commission-jurisdictional rates are just and reasonable); EPSA, 136 
S.Ct. at 774 (approving a construction of the FPA ``limiting [the 
Commission's] `affecting' jurisdiction to rules or practices that 
directly affect the [wholesale] rate'') (emphasis in original) 
(internal quotation marks omitted).
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    11. In the March 2020 Tri-State Order, the Commission found that 
Tri-State's exit charges are not a rate or charge for a jurisdictional 
service itself but fall within the Commission's jurisdiction as a rule 
or practice directly affecting Tri-State's jurisdictional wholesale 
rates.\30\ The Commission stated that ``neither the Supreme Court nor 
the appellate courts have expressly found that the Commission has 
exclusive jurisdiction over rules or practices that directly affect 
jurisdictional rates.'' \31\ The Commission therefore declined to find 
that it had exclusive jurisdiction over Tri-State's exit charges and, 
as a result, found that the Colorado Public Utility Commission's 
jurisdiction over complaints before it regarding Tri-State's exit 
charges were not currently preempted.\32\
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    \30\ March 2020 Tri-State Order, 170 FERC ] 61,224 at PP 118-
119.
    \31\ Id. P 117 (emphasis in original).
    \32\ Id. P 121.
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    12. However, on rehearing of that order and prior to the issuance 
of Order No. 2222, the Commission modified that discussion in the 
underlying order, set aside the finding that Tri-State's exit charge is 
not a rate or charge for a jurisdictional service, and instead found 
that Tri-State's assessment of an exit charge constitutes a Commission-
jurisdictional rate.\33\ The Commission stated that it therefore need 
not address Tri-State's and Wheat Belt's argument that the Commission 
has exclusive jurisdiction over Tri-State's assessment of exit charges 
as a practice directly affecting wholesale rates.\34\ Therefore, 
contrary to the Kansas Commission's argument, the Commission did not 
make any findings in the Tri-State proceeding regarding its 
jurisdiction with respect to practices that directly affect Commission-
jurisdictional rates that could be inconsistent with Order No. 2222. We 
continue to find, as the Commission did in Order No. 2222, the AEE 
Declaratory Order, and Order No. 841, that the Commission has exclusive 
jurisdiction over wholesale markets and the criteria for participation 
in those markets, including the wholesale market rules for 
participation of resources connected at or below distribution-level 
voltages.\35\ This view is consistent with the D.C. Circuit's holding 
in NARUC that ``Congress gives [the Commission] exclusive authority 
over the regulation of the sale of electric energy at wholesale in 
interstate commerce, including both wholesale electricity rates and any 
rule or practice affecting such rates'' and that the Commission ``has 
the exclusive authority to determine who may participate in the 
wholesale markets.'' \36\
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    \33\ August 2020 Tri-State Rehearing Order, 172 FERC ] 61,173 at 
PP 31-32.
    \34\ Id. P 34 n.75.
    \35\ See Order No. 2222, 172 FERC ] 61,247 at P 57 n.137 
(citing, e.g., Order No. 841, 162 FERC ] 61,127 at P 35 (citing 
EPSA, 136 S.Ct. 760)); Order No. 841-A, 167 FERC ] 61,154 at P 38; 
AEE Declaratory Order, 161 FERC ] 61,245 at PP 59-60.
    \36\ NARUC, 964 F.3d at 1181, 1187 (internal citations omitted) 
(emphasis added). In response to Commissioner Danly's suggestion 
that we are ``obstructing the states from asserting their own 
authority over distributed energy resource aggregations,'' 
Participation of Distributed Energy Resource Aggregations in Markets 
Operated by Regional Transmission Organizations and Independent 
System Operators, Order No. 2222-A, 174 FERC ] 61,198, at P 2 
(Danly, Comm'r, dissenting), we reiterate that Order No. 2222 and 
this order on rehearing address the rules governing wholesale market 
participation, a matter under the Commission's exclusive 
jurisdiction. See NARUC, 964 F.3d at 1187-88. For similar reasons, 
we disagree with Commissioner Christie's suggestion that the 
Commission is undermining the FPA's jurisdictional framework. See 
Order No. 2222-A, 174 FERC ] 61,198 at P 5 (Christie, Comm'r, 
dissenting). Because the terms of wholesale market participation are 
a matter under exclusive Commission jurisdiction, today's order does 
not infringe upon or otherwise diminish state authority. NARUC, 964 
F.3d at 1181, 1187-88; see id. at 1188 (noting that Order No. 841 
``does not usurp state power'' because ``States continue to operate 
and manage their facilities with the same authority they possessed 
prior to Order No. 841'') (internal quotation marks and alterations 
omitted); see also EPSA, 136 S. Ct. at 776-77 (holding that Order 
No. 745 was a valid exercise of Commission jurisdiction because it 
regulated only wholesale market rules and did not aim at matters 
within state jurisdiction). To the contrary, rather than upending 
the FPA's jurisdictional framework, this order fulfills the 
Commission's statutory responsibility to ensure that the matters 
subject to its exclusive jurisdiction are just and reasonable and 
not unduly discriminatory or preferential. See NARUC, 964 F.3d at 
1190.
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2. Order No. 719 Demand Response Opt-Out
    13. In Order No. 2222, the Commission stated that the final rule

[[Page 16515]]

does not affect the ability of RERRAs to prohibit retail customers' 
demand response from being bid into RTO/ISO markets by aggregators 
pursuant to Order No. 719.\37\ The Commission also stated that, because 
demand response falls under the definition of distributed energy 
resource, an aggregator of demand response could participate as a 
distributed energy resource aggregator, but that the final rule does 
not affect existing demand response rules.\38\ The Commission further 
found that the participation of demand response in distributed energy 
resource aggregations is subject to the opt-out and opt-in requirements 
of Order Nos. 719 and 719-A.\39\ The Commission therefore clarified 
that if the RERRA for a demand response resource has either chosen to 
opt out or has not opted in, then the demand response resource may not 
participate in a distributed energy resource aggregation.
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    \37\ Order No. 2222, 172 FERC ] 61,247 at P 59 (citing 18 CFR 
35.28(g)(1)(iii)).
    \38\ Id. P 118.
    \39\ Id. P 145.
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a. Requests for Clarification or Rehearing
    14. Public Interest Organizations argue that the Commission erred 
by including an opt-out for distributed energy resource aggregations 
that contain demand response resources.\40\ Public Interest 
Organizations claim that the Commission's decision in Order No. 2222 to 
allow RERRAs to opt out with respect to demand response is functionally 
separate from the opt-out provided in Order No. 719.\41\ They state 
that there may be demand response resources that, for reasons specific 
to their business models, choose to continue to be classified as demand 
response resources participating in wholesale markets pursuant to Order 
Nos. 719 and 719-A.\42\ They argue, however, that demand response 
resources that participate in distributed energy resource aggregations 
under Order No. 2222 are a categorically different class of resource 
than those not participating as distributed energy resources.\43\ They 
assert that the Commission therefore has the discretion to treat these 
two resource classes differently but explicitly chose to expand the 
Order No. 719 opt-out to apply to demand response resources acting as 
distributed energy resources.\44\
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    \40\ Public Interest Organizations Request for Rehearing at 5.
    \41\ Id. at 6.
    \42\ Id. at 6-7.
    \43\ Id. at 7.
    \44\ Id. at 7-8.
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    15. Public Interest Organizations argue that the opt-out is 
unlawful because legal developments have clarified that the Commission 
has the exclusive authority to set the eligibility and other terms of 
wholesale market participation of resources that are composed of retail 
customer actions or that connect at the distribution system.\45\ They 
contend that, in upholding Order No. 841, the United States Court of 
Appeals for the District of Columbia Circuit (D.C. Circuit) did not 
conclude that withholding the opt-out was merely a reasonable choice 
within the Commission's discretion but rather ``simply a restatement of 
the well-established principles of federal preemption.'' \46\ Public 
Interest Organizations therefore argue that a state cannot determine 
which resources may participate in RTO/ISO markets because such state 
actions directly ``aim at'' wholesale transactions and are field 
preempted.
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    \45\ Id. at 8 (citing EPSA, 136 S.Ct. at 771; Hughes, 136 S. Ct. 
at 1288).
    \46\ Id. (quoting NARUC, 964 F.3d at 1187).
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    16. Public Interest Organizations contend that, even assuming that 
the Commission had discretion to allow states to prohibit resources 
from accessing the wholesale market, there is no legally relevant basis 
to distinguish between categorical state bans on the participation of 
demand response resources in distributed energy resource aggregations 
and bans on the participation of electric storage and all other 
distributed energy resources.\47\ Public Interest Organizations assert 
that the Commission wrongly suggested that the fact that demand 
response falls under its jurisdiction over practices that directly 
affect Commission-jurisdictional rates, whereas distribution-connected 
generators are engaged in wholesale sales of energy and may qualify as 
public utilities under the FPA, is a relevant distinction with regard 
to the application of an opt-out.\48\ They argue that the Commission 
did not fully explain why such a distinction should affect its decision 
to extend the opt-out to demand response contained within a distributed 
energy resource aggregation. Public Interest Organizations assert that 
other types of technologies also do not necessarily engage in wholesale 
sales yet are not subject to an opt-out under Order No. 2222, citing 
the example of a behind-the-meter generator whose function is to reduce 
the net demand of its host and may never deliver power to the grid, 
although it has the potential to do so.\49\ Public Interest 
Organizations state that the Commission has concluded that such 
technologies, whether or not they actually deliver power to the grid, 
are not subject to the opt-out.\50\ They argue that an opt-out 
impermissibly targets the wholesale markets and is inconsistent with 
the FPA, regardless of whether it targets an aggregator that engages in 
wholesale sales or an aggregator that directly affects wholesale rates 
and regardless of any legitimate state objectives that may motivate the 
state's action.\51\
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    \47\ Id. at 9-10.
    \48\ Id. at 12 (citing Order No. 2222, 172 FERC ] 61,247 at P 
60).
    \49\ Id. at 12-13.
    \50\ Id. at 13.
    \51\ Id. at 12-14 (citing Hughes, 136 S.Ct. at 1290-91).
---------------------------------------------------------------------------

    17. Public Interest Organizations further allege that the demand 
response opt-out adopted in Order No. 2222 is ultra vires because it is 
an impermissible relinquishment of the Commission's duty under FPA 
section 206 to ensure just and reasonable rates.\52\ They assert that 
the Commission identified the changes necessary to address certain 
market flaws but failed to ensure that these reforms shall be 
``thereafter observed and in force.'' \53\ Public Interest 
Organizations elaborate that allowing states to obstruct the expansion 
of demand response resources frustrates the Commission's responsibility 
to ``establish[] the criteria for participation in RTO/ISO markets,'' 
which ``is essential to the Commission's ability to fulfill its 
statutory responsibility to ensure that wholesale rates are just and 
reasonable.'' \54\
---------------------------------------------------------------------------

    \52\ Id. at 14.
    \53\ Id. at 15 (quoting 16 U.S.C. 824e(a)).
    \54\ Id. at 16 (quoting Order No. 2222, 172 FERC ] 61,247 at P 
57).
---------------------------------------------------------------------------

    18. Public Interest Organizations maintain that the opt-out unduly 
discriminates against distributed energy resource aggregations 
containing demand response resources by treating them differently from 
aggregations that do not contain demand response even though they 
provide the same grid services.\55\ Public Interest Organizations argue 
that, where different technologies appear operationally equivalent from 
the perspective of the system operator, there is no basis for 
differentiating eligibility to participate in the market. They claim 
that the Commission has previously found that the source of a load 
reduction, whether it comes from behind-the-meter generation or 
operational shutdown, is irrelevant to a resource's eligibility to 
participate as

[[Page 16516]]

demand response.\56\ They argue however that, under Order No. 2222, 
distributed energy resource aggregations that have the same ability to 
meet the qualification and performance requirements are treated 
differently depending on whether they contain demand response resources 
or not, which means the ability to compete turns not on the services 
provided or their cost, but instead on the equipment by which the 
service is produced. They state that, for example, energy storage 
resources can be deployed to shape load profiles, shift demand, or 
modulate demand within a distributed energy resource aggregation in the 
same manner as most demand response technologies, but air conditioning 
load control would not be allowed to provide the same service within a 
distributed energy resource aggregation.\57\ They assert that there is 
no justification for such discriminatory treatment based solely on the 
type of equipment by which the service is delivered.\58\
---------------------------------------------------------------------------

    \55\ Id. at 18.
    \56\ Id. at 19-20 (citing Demand Response Supporters v. N.Y. 
Indep. Sys. Operator, Inc., 145 FERC ] 61,162, at P 32 (2013)).
    \57\ Id. at 20.
    \58\ Id. at 20-21.
---------------------------------------------------------------------------

    19. Finally, Public Interest Organizations argue that the opt-out 
is a barrier to competition and the full potential benefits of Order 
No. 2222 cannot be realized as long as the opt-out remains in 
place.\59\ They assert that adopting an opt-out applicable to 
distributed energy resource aggregations that incorporate demand 
response directly contradicts the Commission's goal to enable 
heterogeneous aggregations that allow different technologies to provide 
complementary capabilities at lowest cost, and to unleash competition 
that spurs innovation and the next generation of technologies and 
business models.\60\ Specifically, they assert that distributed energy 
resource aggregations will not be able to incorporate the complementary 
capabilities of existing and enhanced demand response technologies that 
would support the integration of large shares of variable renewable 
resources and create significant economic and reliability benefits.\61\
---------------------------------------------------------------------------

    \59\ Id. at 21-24.
    \60\ Id. at 22.
    \61\ Id. at 23-24.
---------------------------------------------------------------------------

    20. AEE/AEMA request that the Commission clarify that the opt-out 
and opt-in requirements of Order No. 719 will apply only to the non-
injection portion of an individual distributed energy resource and not 
to the injection portion of an individual distributed energy 
resource.\62\ According to AEE/AEMA, the Commission's discussion of how 
its prior rules regarding demand response resources interact with Order 
No. 2222 may inadvertently limit the participation of individual 
distributed energy resources that are configured to engage in both non-
injection demand response and injection of energy onto the grid to make 
wholesale sales.\63\ AEE/AEMA state that it is increasingly common for 
a single customer load site to include installed energy storage and/or 
distributed generation resources that have the technical capability to 
both facilitate demand reduction at the customer's location, and inject 
energy to provide a broader set of wholesale services, depending on the 
customer's or the grid's needs and market signals at any given time. 
They assert that, while such a distributed energy resource's reduction 
of consumption of electric energy from expected consumption fits the 
Commission's definition of ``demand response,'' it also has the 
technical capability to inject energy onto the grid and engage in a 
broader set of wholesale market activities as part of a distributed 
energy resource aggregation.\64\ AEE/AEMA contend that interpreting 
Order No. 2222 as requiring the application of the opt-out and opt-in 
requirements of Order No. 719 to the entire resource would 
inappropriately expand the scope of Order No. 719 and work against the 
overall objective of Order No. 2222 to enhance market competition and 
ensure just and reasonable rates.\65\
---------------------------------------------------------------------------

    \62\ AEE/AEMA Request for Rehearing at 4.
    \63\ Id. at 5.
    \64\ Id. at 6 (citing 18 CFR 35.28(b)(4)).
    \65\ Id. at 6.
---------------------------------------------------------------------------

    21. According to AEE/AEMA, their requested clarification is 
technology neutral and would ensure that technologies other than the 
demand response resources that were the sole focus of Order No. 719 are 
not inadvertently excluded from distributed energy resource 
aggregations.\66\ AEE/AEMA state that, under their requested 
clarification, aggregations consisting solely of demand response or 
utilizing the non-injection portion of other distributed energy 
technologies would continue to be subject to Order No. 719 and could 
not use Order No. 2222 to circumvent the opt-out and opt-in 
requirements. They further state that the clarification is consistent 
with the Commission's stated view of its FPA authority because it would 
apply the Order No. 719 opt-out and opt-in requirements only to 
instances in which distributed energy resources engage in ``practices 
affecting wholesale rates'' and not to those in which they inject 
energy or otherwise engage in wholesale sales.\67\
---------------------------------------------------------------------------

    \66\ Id. at 7.
    \67\ Id. at 8 (citing Order No. 2222, 172 FERC ] 61,247 at PP 
40-42, 60).
---------------------------------------------------------------------------

b. Commission Determination
    22. We set aside in part the Commission's conclusion that the 
participation of demand response in distributed energy resource 
aggregations is subject to the opt-out and opt-in requirements of Order 
Nos. 719 and 719-A. Pursuant to those orders, the Commission's 
regulations provide a RERRA the ability to prevent ``an aggregator of 
retail customers that aggregates the demand response of the customers 
of utilities'' within its borders from participating in RTO/ISO 
markets.\68\ As discussed further below, we decline to extend this opt-
out to demand response resources that participate in heterogeneous 
distributed energy resource aggregations--i.e., those that are made up 
of different types of resources including demand response as opposed to 
those made up solely of demand response. The opt-out will continue to 
apply to aggregations made up solely of resources that participate as 
demand response resources, consistent with our regulations.
---------------------------------------------------------------------------

    \68\ 18 CFR 35.28(g)(1)(iii); see Order No. 719, 125 FERC ] 
61,071 at P 3 n.3 (``We will use the phrase `aggregator of retail 
customers,' or ARC, to refer to an entity that aggregates demand 
response bids (which are mostly from retail loads).''). The 
Commission's regulations define demand response as ``a reduction in 
the consumption of electric energy by customers from their expected 
consumption in response to an increase in the price of electric 
energy or to incentive payments designed to induce lower consumption 
of electric energy.'' 18 CFR 35.28(b)(4).
---------------------------------------------------------------------------

    23. In Order No. 719, the Commission defined an ``aggregator of 
retail customers'' as ``an entity that aggregates demand response bids 
(which are mostly from retail loads).'' \69\ Since that time, the 
Commission's regulations have precluded aggregations of retail 
customers from participating in RTO/ISO markets where the RERRA 
prohibits such participation. Prior to this rulemaking, the Commission 
has never addressed how the opt-out adopted in Order No. 719 applies to 
demand response resources that participate in RTO/ISO markets through 
an aggregation that is not solely made up of demand response resources. 
Upon reconsideration, we decline to extend the opt-out adopted in Order 
No. 719 to demand response resources that participate in heterogeneous 
distributed energy resource aggregations. We find that heterogeneous 
distributed energy resource aggregations that include demand response 
resources do not fall

[[Page 16517]]

squarely within the Order No. 719 opt-out, as set forth in our 
regulations, because they are not solely aggregations of retail 
customers.\70\ In addition, for the reasons that follow, we find that 
extending the Order No. 719 opt-out to demand response resources in 
heterogeneous distributed energy resource aggregations would undermine 
the potential of Order No. 2222 to break down barriers to competition, 
interfering with our responsibility to ensure that wholesale rates are 
just and reasonable.\71\ Accordingly, we clarify that the Order No. 719 
opt-out does not apply to demand response resources that participate in 
a heterogeneous distributed energy resource aggregation.
---------------------------------------------------------------------------

    \69\ Order No. 719, 125 FERC ] 61,071 at P 3 n.3.
    \70\ Compare 18 CFR 35.28(g)(1)(iii) (expressly limiting the 
application of the Order No. 719 opt-out to ``an aggregator of 
retail customers that aggregates the demand response of the 
customers of utilities''), with 18 CFR 35.28(b)(10), (g)(12) 
(requiring RTOs/ISOs to establish market rules applicable to 
entities that aggregate one or more resources located on the 
distribution system, any subsystem thereof or behind a customer 
meter); see also Order No. 2222, 172 FERC ] 61,247 at P 114 (finding 
that distributed energy resources may include, but are not limited 
to, resources that are in front of and behind the customer meter, 
electric storage resources, intermittent generation, distributed 
generation, demand response, energy efficiency, thermal storage, and 
electric vehicles and their supply equipment).
    \71\ See Order No. 2222, 172 FERC ] 61,247 at P 142 (finding 
that the requirement for RTOs/ISOs to allow heterogeneous 
aggregations will enhance competition in RTO/ISO markets by ensuring 
that complementary resources, including those with different 
physical and operational characteristics, can meet qualification and 
performance requirements); see also id. P 1 (finding that existing 
RTO/ISO market rules are unjust and unreasonable in light of 
barriers that they present to the participation of distributed 
energy resource aggregations in RTO/ISO markets, which reduce 
competition and fail to ensure just and reasonable rates), P 3 
(finding that restrictions on competition can reduce the efficiency 
of RTO/ISO markets, potentially leading an RTO/ISO to dispatch more 
expensive resources to meet its system needs and that, by removing 
barriers to the participation of distributed energy resource 
aggregations in RTO/ISO markets, the final rule will enhance 
competition and help to ensure that RTO/ISO markets produce just and 
reasonable rates); see NARUC, 964 F.3d at 1189 (finding that the 
Commission's decision not to include an opt-out in Order No. 841 was 
not arbitrary or capricious when the Commission considered the 
benefits of enabling broad electric storage resource participation 
to promoting just and reasonable wholesale rates, including the 
effect of increased competition and the promotion of diversity in 
technology types).
---------------------------------------------------------------------------

    24. One of the principal advantages of distributed energy resource 
aggregations is their ability to take advantage of the different 
resources' operational attributes and complementary capabilities.\72\ 
As the Commission explained in Order No. 2222, ``[p]ermitting 
distributed energy resource aggregations to participate in the RTO/ISO 
markets may allow these resources, in the aggregate, to meet certain 
qualification and performance requirements, particularly if the 
operational characteristics of different distributed energy resources 
in a distributed energy resource aggregation complement each other.'' 
\73\ We agree with Public Interest Organizations that diverse 
aggregations that include demand response can provide capabilities that 
are valuable to the efficiency and reliability of the grid.\74\ For 
instance, the inclusion of demand response resources in a heterogeneous 
distributed energy resource aggregation can allow the aggregation to 
collectively deliver ancillary services that those resources would not 
otherwise be able to provide.\75\ The aggregation of demand response 
resources with other types of resources may also enable a distributed 
energy resource aggregation to collectively satisfy reliability needs 
in order to meet certain performance requirements.\76\ Accordingly, we 
conclude that extending the Order No. 719 opt-out to demand response 
resources that seek to participate in heterogeneous distributed energy 
resource aggregations would undermine one of the advantages of Order 
No. 2222.
---------------------------------------------------------------------------

    \72\ See, e.g., Public Interest Organizations Request for 
Rehearing at 23-24.
    \73\ Order No. 2222, 172 FERC ] 61,247 at P 26.
    \74\ See Public Interest Organizations Request for Rehearing at 
23-24.
    \75\ See Direct Energy Comments (RM18-9) at 3-4 (describing how 
the aggregation of a battery storage project with flexible load from 
industrial customer sites enables the REstore virtual power plant to 
provide frequency response services by efficiently managing between 
the two resources and dispatching on a second-by-second basis to 
respond to system needs).
    \76\ See Exelon Comments (RM16-23) at 6 (explaining that pairing 
a summer-only demand response resource, such as air conditioning 
load, with wind that blows more in the winter months can create an 
aggregated product that satisfies the reliability needs of PJM's 
Capacity Performance product) (citing PJM Interconnection, L.L.C., 
162 FERC ] 61,159 (2018)); Icetec Comments (RM18-9) at 5-6 
(explaining that allowing sites that mix load reductions and other 
types of distributed energy resources to offer their combined 
capability enables the delivery of full-year capacity to qualify as 
a Capacity Performance resource and allows rational energy and 
ancillary services offer stacks that combine relatively inexpensive 
resources with relatively expensive load curtailments).
---------------------------------------------------------------------------

    25. Similarly, we find that interpreting the Commission's 
regulations to preclude certain demand response resources from 
participating in heterogeneous distributed energy resource aggregations 
would significantly undermine our goal of removing barriers to the 
participation of distributed energy resource aggregations in the 
wholesale markets.\77\ Distributed energy resource aggregations can be 
composed of a diverse range of different resource types--including 
energy-efficient lightbulbs, distributed generation (such as roof top 
solar), electric vehicles, and smart appliances.\78\ Ensuring that 
demand response resources can combine with other forms of distributed 
energy resources has the potential to increase both the number and the 
variety of distributed energy resource aggregations, thereby enhancing 
competition and furthering our mandate to ensure that Commission-
jurisdictional rates are just and reasonable.\79\
---------------------------------------------------------------------------

    \77\ See Order No. 2222, 172 FERC ] 61,247 at P 60 (``[W]e find 
that the benefits of allowing distributed energy resource 
aggregators broader access to the wholesale market outweigh the 
policy considerations in favor of an opt-out.'').
    \78\ See id. P 114.
    \79\ See 16 U.S.C. 824e.
---------------------------------------------------------------------------

    26. In addition to enhancing competition, this diversity also 
facilitates these non-traditional resources' ability to provide a wide 
range of services in RTO/ISO markets, as discussed above.\80\ We agree 
with Public Interest Organizations that applying the Order No. 719 opt-
out to aggregations that contain a combination of demand response and 
other types of distributed energy resources could prevent distributed 
energy resource aggregators from incorporating the complementary 
capabilities of existing and future demand response technologies.\81\ 
Ensuring that demand response resources can participate in 
heterogeneous distributed energy resource aggregations throughout the 
country has the potential to enable significantly more such 
complementary aggregations, which will also help to break down barriers 
to the entry of emerging and future technologies, thus enhancing 
competition and contributing to ensuring just and reasonable rates.
---------------------------------------------------------------------------

    \80\ See Order No. 2222, 172 FERC ] 61,247 at P 141 (finding 
that limiting the types of technologies that are allowed to 
participate in RTO/ISO markets through a distributed energy resource 
aggregator would create a barrier to entry for emerging or future 
technologies, potentially precluding them from being eligible to 
provide all of the capacity, energy, and ancillary services that 
they are technically capable of providing).
    \81\ See Public Interest Organizations Request for Rehearing at 
23-24.
---------------------------------------------------------------------------

    27. Lastly, we also find that precluding demand response from 
participating in heterogeneous distributed energy resource aggregations 
would undermine the Commission's goal of ``ensur[ing] a technology-
neutral approach to distributed energy resource aggregations, which 
will ensure that more resources are able to participate in such 
aggregations, thereby helping to enhance competition and ensure just 
and reasonable rates.'' \82\ Because we find that the Order No. 719 
opt-out does not apply to heterogeneous distributed

[[Page 16518]]

energy resource aggregations, we conclude that the goal of resource 
neutrality supports requiring RTOs/ISOs to allow demand response 
resources to participate in such aggregations on a level playing field 
as other distributed energy resources.\83\
---------------------------------------------------------------------------

    \82\ Order No. 2222, 172 FERC ] 61,247 at P 26.
    \83\ We note that the Order No. 719 opt-out is arguably 
inconsistent with that goal. The Commission has not proposed to 
modify the relevant regulations in this proceeding and it would be 
inappropriate to do so on rehearing. Nevertheless, we note that the 
Commission is contemporaneously issuing a notice of inquiry to 
examine the Order No. 719 opt-out and whether it remains just and 
reasonable. (cross-referenced at 174 FERC ] 61,198).
---------------------------------------------------------------------------

    28. In summary, we conclude that if a distributed energy resource 
aggregator aggregates only demand response resources, it is materially 
indistinct from the aggregations of retail customers subject to the 
Order No. 719 opt-out. The Commission has not proposed to overturn the 
Order No. 719 opt-out in this rulemaking and, to the extent parties ask 
that we do so on rehearing, we find that such requests are out of 
scope. However, we also conclude that heterogeneous distributed energy 
resource aggregations that include demand response do not fall squarely 
within the Order No. 719 opt-out. For the reasons discussed above, we 
find that allowing a RERRA to preclude demand response from 
participating in heterogeneous distributed energy resource aggregations 
would sufficiently undermine the goals of Order No. 2222. As a result, 
on rehearing, we conclude that demand response resources may 
participate in heterogeneous aggregations, even when located in states 
that have exercised the Order No. 719 opt-out. We also clarify that the 
small utility opt-in adopted in Order No. 2222 still applies to all 
distributed energy resource aggregations, including those containing 
demand response resources.\84\
---------------------------------------------------------------------------

    \84\ Order No. 2222, 172 FERC ] 61,247 at P 64.
---------------------------------------------------------------------------

    29. Finally, AEE/AEMA request that the Commission clarify that the 
opt-out and opt-in requirements of Order No. 719 will apply only to the 
non-injection portion of an individual distributed energy resource and 
not to the injection portion of an individual distributed energy 
resource. We clarify that, if an individual distributed energy resource 
can be configured to engage in either demand response or injection of 
energy onto the grid to make wholesale sales (e.g., a behind-the-meter 
generator), it may choose to participate in the wholesale markets by 
reducing a customer's metered load on the grid from the customer's 
expected consumption (i.e., as a demand response resource subject to 
Order No. 719) or it may choose to participate by injecting energy onto 
the grid to make wholesale sales (i.e., as a different type of 
distributed energy resource). If a distributed energy resource 
aggregation is composed solely of resources that participate as demand 
response resources, then the Order No. 719 opt-out would apply to that 
aggregation. If a distributed energy resource aggregation contains any 
resources that participate as another type of distributed energy 
resource, then the Order No. 719 opt-out would not apply to that 
aggregation.\85\
---------------------------------------------------------------------------

    \85\ See, e.g., Order No. 841-A, 167 FERC ] 61,154 at P 53 
(``Therefore, when an electric storage device chooses to participate 
in the RTO/ISO markets as demand response, it is not participating 
as an `electric storage resource' or injecting electricity onto the 
grid and should not be subject to the market rules applicable to 
electric storage resources. Accordingly, because demand response and 
electric storage resources have differing ways of interacting with 
RTO/ISO markets and are subject to different market rules, it is not 
arbitrary or inconsistent for the Commission to take different 
policy approaches when integrating those resources into the RTO/ISO 
markets.'').
---------------------------------------------------------------------------

3. Small Utility Opt-In
    30. In Order No. 2222, the Commission acknowledged that, 
notwithstanding its finding that the benefits of the final rule 
outweigh the policy considerations in favor of a broad opt-out, the 
final rule may place a potentially greater burden on smaller utility 
systems.\86\ The Commission stated that, recognizing this potentially 
greater burden on small utility systems, the Commission would exercise 
its discretion to include in the final rule an opt-in mechanism for 
small utilities similar to that provided in Order No. 719-A.\87\ 
Specifically, the Commission determined that an RTO/ISO must not accept 
bids from a distributed energy resource aggregator if its aggregation 
includes distributed energy resources that are customers of utilities 
that distributed 4 million MWh or less in the previous fiscal year, 
unless the RERRA affirmatively allows such customers to participate in 
distributed energy resource aggregations. The Commission found that 
this opt-in mechanism appropriately balances the benefits that 
distributed energy resource aggregation can provide to RTO/ISO markets 
with a recognition of the burdens that such aggregation may create for 
small utilities in particular.\88\
---------------------------------------------------------------------------

    \86\ Order No. 2222, 172 FERC ] 61,247 at P 64 (citing APPA 
Comments (2018 RM18-9) at 7, 9-10; APPA/NRECA Comments (RM16-23) at 
39; NRECA Comments (2018 RM18-9) at 14, 26-28; TAPS Comments (RM16-
23) at 15-16).
    \87\ Id. P 64.
    \88\ Id. P 65.
---------------------------------------------------------------------------

a. Requests for Clarification or Rehearing
    31. Public Interest Organizations argue that the Commission erred 
by providing RERRAs the power to prevent distributed energy resource 
aggregations for utilities that provide 4 million MWh or less annually 
from participating in wholesale markets.\89\ First, Public Interest 
Organizations assert that, pursuant to the FPA, state authorities lack 
jurisdiction to directly determine whether resources are permitted to 
participate in RTO/ISO markets because such state actions directly 
``aim at'' wholesale transactions and are therefore field 
preempted.\90\
---------------------------------------------------------------------------

    \89\ Public Interest Organizations Request for Rehearing at 5.
    \90\ Id. at 26 (quoting Hughes, 136 S.Ct. at 1298).
---------------------------------------------------------------------------

    32. Second, Public Interest Organizations assert that the 4 million 
MWh threshold for the opt-in is not supported by substantial evidence 
and should be removed, clarified, or otherwise revisited.\91\ According 
to Public Interest Organizations, the Commission acknowledged that the 
Small Business Size Standards system no longer uses a numerical MWh 
metric to determine the appropriate classification for utilities, and 
therefore it is not reasonable for the Commission to presume that this 
threshold reflects a meaningful point at which the substantial benefits 
of Order No. 2222 are outweighed by its burdens.\92\ They argue that 
the Commission did not identify record evidence to demonstrate that 
this scale of utility operation has meaningful relation to any harm 
such entities may face due to the implementation of Order No. 2222. 
They assert that the Commission's justification that it has used this 
standard in prior orders is arbitrary because those orders involved 
different industries unrelated to the burdens faced by utilities with 
respect to distributed energy resources.\93\ Public Interest 
Organizations further contend that Order No. 719-A is inapposite, 
positing that the Commission failed to show in what way the technical 
or cost-based challenges faced by utilities 11 years ago with respect 
to demand response resources relate to the challenges faced by 
utilities now with respect to distributed energy resources.\94\ They 
assert that the Commission must provide a rational connection between 
the numerical threshold chosen and the purported

[[Page 16519]]

burdens it proposes to ease.\95\ Public Interest Organizations also 
contend that the record contains only generic allegations of costs 
distribution utilities may face but no basis for the Commission to 
conclude that such costs are likely to occur.\96\
---------------------------------------------------------------------------

    \91\ Id. at 27, 32.
    \92\ Id. at 28 (citing Order No. 2222, 172 FERC ] 61,247 at PP 
67, 63 n.152).
    \93\ Id. at 28-29.
    \94\ Id. at 29.
    \95\ Id. at 30.
    \96\ Id. at 30-31.
---------------------------------------------------------------------------

    33. AEE/AEMA argue that the small utility opt-in should not apply 
to energy efficiency resources. AEE/AEMA state that the Commission 
established the small utility opt-in due to concerns that the 
participation of distributed energy resources in wholesale markets 
``may place a potentially greater burden on smaller utility systems.'' 
\97\ However, AEE/AEMA contend that energy efficiency resources do not 
negatively impact the distribution system's cost, operation, or 
reliability because they passively reduce demand, do not require a 
dispatch signal to operate, and do not inject electricity onto the 
distribution grid. According to AEE/AEMA, the Commission has already 
recognized that energy efficiency resources are unlikely to present 
operational or planning complexities that might otherwise interfere 
with day-to-day operations of utility systems.\98\ AEE/AEMA further 
argue that, although the Commission based the small utility opt-in on 
that provided in Order No. 719, the Commission has expressly found that 
Order No. 719 does not apply to energy efficiency resources.\99\ AEE/
AEMA thus conclude that the opt-in as applied to energy efficiency 
resources is arbitrary, unreasonable and unduly discriminatory under 
the FPA and the Administrative Procedure Act.\100\
---------------------------------------------------------------------------

    \97\ AEE/AEMA Request for Rehearing at 19-20 (quoting Order No. 
2222, 172 FERC ] 61,247 at P 64).
    \98\ Id. at 20 (citing AEE Declaratory Order, 161 FERC ] 61,245 
at PP 60, 63).
    \99\ Id. at 21 (citing AEE Declaratory Order, 161 FERC ] 
61,245).
    \100\ Id. at 22 (citing 5 U.S.C. 706(2)(A); 16 U.S.C. 824d(b), 
824e(a)).
---------------------------------------------------------------------------

b. Commission Determination
    34. We disagree with Public Interest Organizations' arguments on 
rehearing. As discussed above, in Order No. 719-A, the Commission 
required RTOs/ISOs to accept bids from an aggregator of retail 
customers that aggregates the demand response of the customers of 
utilities that distributed more than 4 million MWh in the previous 
fiscal year, unless the RERRA prohibits such customers' demand response 
to be bid into RTO/ISO markets (i.e., unless the RERRA opts out).\101\ 
However, the Commission exercised its discretion to take a different 
approach with small utilities by requiring that RTOs/ISOs accept bids 
from an aggregator of retail customers that aggregates the demand 
response of the customers of utilities that distributed 4 million MWh 
or less in the previous fiscal year, only where the RERRA affirmatively 
permits such customers' demand response to be bid into RTO/ISO markets 
(i.e., only where the RERRA opts in).\102\ In Order No. 2222, the 
Commission appropriately exercised its discretion to adopt an opt-in 
similar to that provided in Order No. 719-A. A RERRA that elects not to 
opt in under either Order No. 719 or Order No. 2222 does not intrude on 
the Commission's exclusive authority over practices that directly 
affect wholesale rates because the Commission chose to provide such an 
opt-in and expressly codified this opt-in in the Commission's 
regulations.\103\
---------------------------------------------------------------------------

    \101\ Order No. 719-A, 128 FERC ] 61,059 at P 51.
    \102\ Id.
    \103\ See 18 CFR 35.28(g)(1)(iii), 35.28(g)(12)(iv).
---------------------------------------------------------------------------

    35. We also disagree that the 4 million MWh threshold for the opt-
in is not supported by substantial evidence or that it is outdated due 
to the Small Business Administration no longer using the same measure 
for its purposes. As the Commission explained in Order No. 2222, the 
Commission has used the 4 million MWh threshold in multiple contexts, 
including, as noted, the analogous situation in Order No. 719-A.\104\ 
Importantly, Public Interest Organizations overlook the fact that this 
threshold is also consistent with similar, currently effective 
thresholds in the FPA.\105\ Further, while certain entities requested 
in their comments that the Commission use the 4 million MWh 
threshold,\106\ no commenters suggested that a different standard would 
be appropriate. In fact, Public Interest Organizations also do not 
suggest a more appropriate standard in their request for rehearing. 
Finally, we disagree with Public Interest Organizations that the record 
contains only generalized allegations that smaller distribution 
utilities will incur costs as a result of the final rule; the record 
contains numerous specific comments regarding these costs. For example, 
commenters identify costs and burdens associated with the Commission's 
proposed action that relate to studying and processing a higher volume 
of interconnection requests, as well as increasing the flexibility 
requirements of the supervisory control and data acquisition system, 
the robustness of the communications system, and the capacity of 
information systems.\107\
---------------------------------------------------------------------------

    \104\ See Order No. 719-A, 128 FERC ] 61,059 at PP 59-60; 
Wolverine Power Supply Coop. Inc., 127 FERC ] 61,159, at P 15 
(2009); San Diego Gas & Elec. Co. v. Sellers of Energy & Ancillary 
Servs. in Mkts. Operated by the CAISO, 125 FERC ] 61,297, at P 24 
(2008).
    \105\ See 16 U.S.C. 824(f); 16 U.S.C. 824j-l(c)(1); Order No. 
719-A, 128 FERC ] 61,059 at P 51 (explaining same).
    \106\ NRECA Comments (2019 RM18-9) at 4-5; TAPS Comments (RM16-
23) at 16-17; TAPS Comments (2018 RM18-9) at 19 & n.27.
    \107\ NRECA Comments (2018 RM18-9) at attach. B ]] 8, 10 
(Statement of Kenneth M. Raming on behalf of Ozark Elec. Coop., 
Inc.); id. attach. B ] 9 (Statement of Brian Callnan on behalf of 
New Hampshire Elec. Coop., Inc.); id. attach. B ]] 8-9 (Statement of 
Gerry Schmitz on behalf of Adams-Columbia Elec. Coop.); see also id. 
at 14 (citing Triplett Aff. ] 38) (discussing how systems and 
processes that do not exist today will need to be created and 
maintained to meet RTO/ISO requirements); id. attach. B ] 13 
(Statement of Kevin Short on behalf of Anza Elec. Coop., Inc.) 
(maintaining that the electric cooperative lacks the funding and 
technical capabilities to increase the adoption of distributed 
energy resources); id. attach. B ] 7 (Statement of Craig C. Turner 
on behalf of Dakota Elec. Ass'n) (explaining that the electric 
cooperative would no longer be able to rely on non-wired solutions 
to reduce its members' costs and would need to construct expensive 
additional substation and distribution system capacity).
---------------------------------------------------------------------------

    36. We also deny AEE/AEMA's requested clarification. As a general 
matter, we agree with AEE/AEMA that energy efficiency resources do not 
typically pose the same planning and operational challenges on the 
distribution system as other distributed energy resources.\108\ 
However, the Commission granted the small utility opt-in in Order No. 
2222 not based on the effect of any particular type of distributed 
energy resource on the distribution system, but rather on the overall 
indirect burden borne by small utilities due to the participation of 
distributed energy resource aggregators in the RTO/ISO markets.\109\ 
For instance, commenters raised such concerns as smaller distribution 
utilities lacking the necessary staff or resources to coordinate with 
distributed energy resource aggregators and RTOs/ISOs.\110\ Thus, we 
find that the specific effects that any particular type of distributed 
energy resource may or may not have on the distribution system are not 
determinative. Finally, we disagree that the opt-in as applied to 
energy efficiency resources is arbitrary in light

[[Page 16520]]

of the AEE Declaratory Order. There the Commission found that ``RERRAs 
may not bar, restrict, or otherwise condition the participation of 
[energy efficiency resources] in wholesale electricity markets unless 
the Commission expressly gives RERRAs such authority.'' \111\ Order No. 
2222 expressly gives RERRAs such authority with respect to distributed 
energy resource aggregators that fall under the 4 million MWh 
threshold.\112\ Accordingly, if a RERRA affirmatively allows customers 
of utilities that distributed 4 million MWh or less in the previous 
fiscal year to participate in distributed energy resource aggregations, 
an RTO/ISO can accept bids from a distributed energy resource 
aggregator if its aggregation includes such customers. However, an RTO/
ISO cannot accept bids from a distributed energy resource aggregator if 
its aggregation includes distributed energy resources that are 
customers of utilities that distributed 4 million MWh or less in the 
previous fiscal year if the RERRA does not affirmatively allow such 
customers to participate in distributed energy resource aggregations.
---------------------------------------------------------------------------

    \108\ See AEE Declaratory Order, 161 FERC ] 61,245 at P 63 
(``Unlike demand response resources, [energy efficiency resources] 
are not likely to present the same operational and day-to-day 
planning complexity that might otherwise interfere with [a load 
serving entity's] day-to-day operations.'').
    \109\ Order No. 2222, 172 FERC ] 61,247 at P 64 (exercising 
discretion to include in the final rule an opt-in mechanism for 
small utilities due to the potential for a greater burden on small 
utility systems).
    \110\ Id. n.157 (citing APPA Comments (2018 RM18-9) at 7, 9-10; 
APPA/NRECA Comments (RM16-23) at 39; NRECA Comments (2018 RM18-9) at 
14, 26-28; TAPS Comments (RM16-23) at 15-16).
    \111\ AEE Declaratory Order, 161 FERC ] 61,245 at P 57.
    \112\ Order No. 2222, 172 FERC ] 61,247 at P 64.
---------------------------------------------------------------------------

4. Distributed Energy Resource Interconnection
    37. In Order No. 2222, the Commission found that a large influx of 
distribution-level interconnections could create uncertainty as to 
whether certain interconnections are subject to Commission jurisdiction 
or state/local jurisdiction, and whether they would require the use of 
an RTO's/ISO's standard interconnection procedures and agreement.\113\ 
The Commission further found that such an influx could burden RTOs/ISOs 
with an overwhelming volume of interconnection requests. The Commission 
stated that, given those concerns and the confluence of local, state, 
and federal authorities over distributed energy resource 
interconnections, the Commission declined to exercise its jurisdiction 
over the interconnections of distributed energy resources to 
distribution facilities for the purpose of participating in RTO/ISO 
markets exclusively as part of a distributed energy resource 
aggregation.\114\
---------------------------------------------------------------------------

    \113\ Id. P 95. The Commission explained in detail its 
historical jurisdictional approach to resources interconnecting to a 
distribution facility. Specifically, interconnections are governed 
by the applicable state or local law in the case of the first 
interconnection to a distribution utility for the purpose of making 
wholesale sales. Moreover, the Commission has jurisdiction in the 
case of subsequent interconnections of resources to the same 
distribution facility for the purpose of engaging in wholesale sales 
or transmission in interstate commerce. The Commission further noted 
that it adopted this approach--labeled the ``first use'' test in 
practice by some RTOs/ISOs--to avoid crossing a jurisdictional line 
established by Congress. Id. PP 92-94.
    \114\ Id. PP 96-97.
---------------------------------------------------------------------------

    38. The Commission found that requiring use of the RTOs'/ISOs' 
standard interconnection procedures and agreement terms for these 
interconnections was unnecessary to advance the objectives of Order 
Nos. 2003, 2006, and 845, which established standard interconnection 
procedures and agreements in order to prevent undue discrimination, 
preserve reliability, increase energy supply, lower wholesale prices 
for customers by increasing the number and types of new generation that 
would compete in the wholesale electricity market, reduce 
interconnection time and costs, and facilitate development of non-
polluting alternative energy sources.\115\ Rather, the Commission 
agreed with commenters that state and local authorities, which have 
traditionally regulated distributed energy resource interconnections, 
have the requisite experience, interest, and capacity to oversee these 
distribution-level interconnections.
---------------------------------------------------------------------------

    \115\ Id. P 96 (citing Standardization of Generator 
Interconnection Agreements & Procedures, Order No. 2003, 68 FR 49846 
(Aug. 19, 2003), 104 FERC ] 61,103, at P 1 (2003), order on reh'g, 
Order No. 2003-A, 69 FR 15932 (Mar. 26, 2004), 106 FERC ] 61,220, 
order on reh'g, Order No. 2003-B, 70 FR 265 (Jan. 4, 2005), 109 FERC 
] 61,287 (2004), order on reh'g, Order No. 2003-C, 70 FR 37661 (June 
30, 2005), 111 FERC ] 61,401 (2005), aff'd sub nom. Nat'l Ass'n of 
Regul. Util. Comm'rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007), cert. 
denied, 552 U.S. 1230 (2008); Standardization of Small Generator 
Interconnection Agreements and Procedures, Order No. 2006, 70 FR 
34190 (June 13, 2005), 111 FERC ] 61,220, at P 1, order on reh'g, 
Order No. 2006-A, 70 FR 71760 (Nov. 30, 2005), 113 FERC ] 61,195 
(2005), order granting clarification, Order No. 2006-B, 71 FR 42587 
(July 27, 2006), 116 FERC ] 61,046 (2006), corrected, 71 FR 53,965 
(Sept. 13, 2006); Reform of Generator Interconnection Procedures and 
Agreements, Order No. 845, 83 FR 21342 (May 9, 2018), 163 FERC ] 
61,043 (2018), errata notice, 167 FERC ] 61,123, order on reh'g and 
clarification, Order No. 845-A, 84 FR 8156 (Mar. 6, 2019), 166 FERC 
] 61,137, errata notice, 167 FERC ] 61,124, order on reh'g, Order 
No. 845-B, 168 FERC ] 61,092 (2019)).
---------------------------------------------------------------------------

    39. The Commission found that the interconnection of distributed 
energy resources for the purpose of participating in a distributed 
energy resource aggregation would not constitute a first 
interconnection for the purpose of making wholesale sales under the 
``first use'' test.\116\ The Commission further clarified that only a 
distributed energy resource requesting interconnection to the 
distribution facility for the purpose of directly engaging in wholesale 
transactions (i.e., not through a distributed energy resource 
aggregation) would create a ``first use'' and any subsequent 
distributed energy resource interconnecting to that distribution 
facility for the purpose of directly engaging in wholesale transactions 
would be considered a Commission-jurisdictional interconnection. The 
Commission thus stated that it believes that this approach will 
minimize any increase in the number of distribution-level 
interconnections subject to the Commission's jurisdiction that the 
final rule may cause. The Commission further stated that Order No. 2222 
does not revise the Commission's jurisdictional approach to the 
interconnections of QFs that participate in distributed energy resource 
aggregations.\117\
---------------------------------------------------------------------------

    \116\ Id. P 97.
    \117\ Id. P 98.
---------------------------------------------------------------------------

a. Requests for Clarification and Clarification or Rehearing
    40. AEE/AEMA request clarification, or in the alternative 
rehearing, of the Commission's findings with respect to the 
interconnection of distributed energy resources. AEE/AEMA request that 
the Commission clarify what it means by ``directly engaging in 
wholesale transactions,'' particularly in light of potential single-
resource aggregations.\118\ AEE/AEMA also suggest that the Commission 
may need to clarify what happens after the triggering of ``first use'' 
if a distributed energy resource in an aggregation seeks to 
interconnect to a distribution facility for the purpose of 
participating in a distributed energy resource aggregation.\119\ 
According to AEE/AEMA, the Commission is clear what happens if that 
resource is interconnecting for the purpose of directly engaging in 
wholesale transactions, but it is not clear what happens if the 
resource is interconnecting for the purpose of participating in a 
distributed energy resource aggregation.
---------------------------------------------------------------------------

    \118\ AEE/AEMA Request for Rehearing at 24-25.
    \119\ Id. at 25.
---------------------------------------------------------------------------

    41. Xcel requests clarification regarding the statement that the 
Commission is not revising its jurisdictional approach to QF 
interconnection, which it asserts could be interpreted to mean either 
that: (1) The Commission is not changing its existing policy, and 
therefore any distributed energy resource which is part of an 
aggregation that will sell to an RTO/ISO market, and is also a QF, is 
subject to the Commission's jurisdiction for purposes of 
interconnection; or (2)

[[Page 16521]]

the Commission believes its prior approach to the interconnections of 
QFs that participate in distributed energy resource aggregations was 
already consistent with Order No. 2222's holding that the Commission 
will not assert jurisdiction over distributed energy resources in 
distributed energy resource aggregations.\120\ Xcel asks the Commission 
to clarify whether the interconnection of QFs seeking to participate in 
distributed energy resource aggregations will be subject to the 
Commission's jurisdiction.\121\ Xcel also asks the Commission to hold a 
technical conference and to consider a rulemaking to simplify its 
interconnection rules, which Xcel states could provide additional 
guidance for following the existing rules that both utilities and 
resource developers could rely upon.\122\
---------------------------------------------------------------------------

    \120\ Xcel Request for Clarification at 3.
    \121\ Id. at 1, 3.
    \122\ Id. at 1-2, 6. AEE/AEMA support Xcel's request for a 
technical conference. AEE/AEMA Request for Rehearing at 3, 26.
---------------------------------------------------------------------------

b. Commission Determination
    42. We deny AEE/AEMA's request to clarify what is meant by 
``directly engaging in wholesale transactions.'' With regard to single-
resource aggregations, the Commission already explained in Order No. 
2222 that the Commission will not exercise jurisdiction over the 
interconnection to a distribution facility of a distributed energy 
resource for the purpose of participating in RTO/ISO markets 
exclusively through a single-resource distributed energy resource 
aggregation.\123\ As to AEE/AEMA's suggestion to clarify what happens 
after the triggering of ``first use,'' we reiterate that the Commission 
will not exercise jurisdiction over the interconnection to a 
distribution facility of a distributed energy resource for the purpose 
of participating in RTO/ISO markets exclusively through a distributed 
energy resource aggregation, even after first-use has been triggered.
---------------------------------------------------------------------------

    \123\ Order No. 2222, 172 FERC ] 61,247 at P 186.
---------------------------------------------------------------------------

    43. We grant Xcel's request to clarify the Commission's 
jurisdictional approach to the interconnections of QFs that participate 
in distributed energy resource aggregations. Specifically, as discussed 
further below, we clarify that we decline to exercise our jurisdiction 
over the interconnections of distributed energy resources, including 
the interconnections of QFs, to distribution facilities for the purpose 
of participating in RTO/ISO markets exclusively as part of a 
distributed energy resource aggregation.
    44. As explained in Order No. 2222, the Commission in Order Nos. 
2003 and 2006 established the ``first use'' test for distribution 
system interconnections.\124\ With respect to QFs, the Commission found 
that when an electric utility interconnecting with a QF does not 
purchase all the QF's output and instead transmits the QF's power in 
interstate commerce, the Commission exercises jurisdiction over that 
interconnection.\125\ Thus, for purposes of Order Nos. 2003 and 2006, 
the Commission concluded that it exercises jurisdiction over a QF's 
interconnection to a Commission-jurisdictional transmission system if 
the QF's owner sells any of the QF's output to an entity other than the 
electric utility directly interconnected with the QF.\126\ The 
Commission later clarified that, where a QF seeks interconnection to a 
distribution facility not subject to an OATT to make jurisdictional 
wholesale sales, the Commission has jurisdiction over this 
interconnection, even though Order No. 2003 does not apply.\127\ Thus, 
the Commission has interpreted its authority over QFs to include all 
interconnections of QFs that intend to make wholesale sales, not just 
interconnections of QFs to distribution facilities that are already 
subject to an OATT.
---------------------------------------------------------------------------

    \124\ See id. P 72 (citing Order No. 2003, 104 FERC ] 61,103 at 
P 804).
    \125\ Order No. 2003, 104 FERC ] 61,103 at P 813; Order No. 
2006, 111 FERC ] 61,220 at P 516.
    \126\ Order No. 2003, 104 FERC ] 61,103 at PP 813-814; Order No. 
2006, 111 FERC ] 61,220 at PP 516-517. Order No. 2003 describes the 
term ``Transmission System'' to include distribution facilities 
already being used for transmission in interstate commerce. Order 
No. 2003, 104 FERC ] 61,103 at P 804.
    \127\ PJM Interconnection, L.L.C., 123 FERC ] 61,087, at P 7 
(2008).
---------------------------------------------------------------------------

    45. The Commission has also clarified that its jurisdiction applies 
to a new QF that plans to sell its output to a third party, and to an 
existing QF interconnected to a Commission-jurisdictional transmission 
system that historically sold its total output to an interconnected 
utility or on-site customer and now plans to sell output to a third 
party.\128\ However, the Commission stated in Order No. 2003 that a 
former QF that plans to sell to a third party need not submit a new 
interconnection request if it represents that the output of the 
generating facility will be substantially the same as before.\129\
---------------------------------------------------------------------------

    \128\ Order No. 2003, 104 FERC ] 61,103 at P 814. The Commission 
has explained that it will exercise jurisdiction or require the 
filing of an interconnection agreement only if there is some 
manifestation of a QF's ``plan to sell'' output to third parties. 
Fla. Power & Light Co., 133 FERC ] 61,121, at P 21 (2010).
    \129\ Order No. 2003, 104 FERC ] 61,103 at P 815.
---------------------------------------------------------------------------

    46. We agree with Xcel that it would be helpful to provide 
clarification regarding the Commission's jurisdictional approach to the 
interconnections of QFs participating in distributed energy resource 
aggregations. We clarify that, in finding that the final rule does not 
revise the Commission's jurisdictional approach to the interconnections 
of QFs, the Commission was not modifying how it has applied any of its 
existing QF interconnection policies. As described above, the 
Commission has generally exercised jurisdiction over a QF's 
interconnection if the QF sells any of its output to an entity other 
than the electric utility directly interconnected with the QF.\130\ 
However, the presence of distributed energy resource aggregations 
represents a new circumstance not previously considered in the 
Commission's QF interconnection precedent. Order No. 2222 addresses 
only distributed energy resource aggregators' participation in RTO/ISO 
markets, which, as the final rule itself makes clear, is meaningfully 
different from a distributed energy resource's direct participation in 
those markets.\131\ The Commission has not previously addressed how an 
aggregated participation model affects the Commission's QF 
interconnection policies.
---------------------------------------------------------------------------

    \130\ Order No. 2003, 104 FERC ] 61,103 at PP 813-814; Order No. 
2006, 111 FERC ] 61,220 at PP 516-517.
    \131\ See Order No. 2222, 172 FERC ] 61,247 at P 97 (``As such, 
only a distributed energy resource requesting interconnection to the 
distribution facility for the purpose of directly engaging in 
wholesale transactions (i.e., not through a distributed energy 
resource aggregation) would create a ``first use'' and any 
subsequent distributed energy resource interconnecting for the 
purpose of directly engaging in wholesale transactions would be 
considered a Commission-jurisdictional interconnection.'').
---------------------------------------------------------------------------

    47. Here we clarify that the interconnections of QFs that 
participate in RTO/ISO markets exclusively through distributed energy 
resource aggregations will be treated the same under the final rule as 
the interconnections of non-QF distributed energy resources that 
participate in distributed energy resource aggregations. This approach 
helps to avoid a significant increase in the number of distribution-
level QF interconnections subject to the Commission's jurisdiction, 
which, as the Commission observed in Order No. 2222, could create 
uncertainty and potentially impose an overwhelming

[[Page 16522]]

burden on RTOs/ISOs.\132\ Thus, due to these concerns and in 
recognition of the confluence of local, state, and federal authorities 
over QF distributed energy resource interconnections, we clarify that 
we decline to exercise our jurisdiction over the interconnections of 
distributed energy resources, including the interconnections of QFs, to 
distribution facilities for the purpose of participating in RTO/ISO 
markets exclusively as part of a distributed energy resource 
aggregation. We note that, if a QF distributed energy resource 
participates in RTO/ISO markets directly, rather than exclusively 
through a distributed energy resource aggregation, then the 
Commission's long-standing QF interconnection policies, as described 
earlier, would continue to apply.
---------------------------------------------------------------------------

    \132\ See id. P 95.
---------------------------------------------------------------------------

    48. Though Xcel and AEE/AEMA request that the Commission hold a 
technical conference to consider a rulemaking to simplify the 
Commission's existing interconnection rules, we decline to do so here. 
Our clarification here that the interconnections of QFs participating 
in RTO/ISO markets exclusively through a distributed energy resource 
aggregation will be treated the same as other distributed energy 
resources participating in aggregations addresses the specific QF 
interconnection-related issues raised by Order No. 2222. The broader 
inquiry into interconnection issues requested by Xcel is outside the 
scope of this rulemaking.

B. Eligibility To Participate in RTO/ISO Markets Through a Distributed 
Energy Resource Aggregation

1. Participation Model
    49. In Order No. 2222, the Commission required each RTO/ISO to 
establish distributed energy resource aggregators as a type of market 
participant and to allow distributed energy resource aggregators to 
register distributed energy resource aggregations under one or more 
participation models in the RTO's/ISO's tariff that accommodate the 
physical and operational characteristics of the distributed energy 
resource aggregation.\133\ The Commission stated that each RTO/ISO can 
comply with this requirement by modifying its existing participation 
models to facilitate the participation of distributed energy resource 
aggregations, by establishing one or more new participation models for 
distributed energy resource aggregations, or by adopting a combination 
of those two approaches.\134\
---------------------------------------------------------------------------

    \133\ Id. P 130.
    \134\ Id.
---------------------------------------------------------------------------

a. Request for Clarification or Rehearing
    50. AEE/AEMA request clarification, or in the alternative 
rehearing, of the Commission's findings with respect to participation 
models. AEE/AEMA request that the Commission clarify the criteria by 
which new and existing participation models will be evaluated to ensure 
that they allow distributed energy resource aggregations to provide all 
the services they are technically capable of providing.\135\ AEE/AEMA 
explain that a single customer site could have several technologies 
capable of providing market services aggregated at a single point of 
interconnection, such as distributed generation paired with demand 
response, or energy storage paired with distributed solar.\136\ AEE/
AEMA state that these types of configurations may appear as demand 
response resources, reducing the customer's peak load during peak load 
periods, while having excess generation available other times of the 
year. Moreover, AEE/AEMA state, many distributed energy resources 
located behind a customer meter are sought, in part, for some 
resiliency benefit, which assumes a design close to the host facility's 
peak. AEE/AEMA argue that the tendency for RTOs/ISOs to devise two 
mutually exclusive participation models around generation and demand 
response is one of the parts of existing participation models that 
limits distributed energy resources from providing and commercializing 
their full capability in RTO/ISO markets. Thus, AEE/AEMA request that 
the Commission confirm that Order No. 2222 requires that RTOs/ISOs 
accommodate facilities that include both generation and curtailment in 
a single resource in a manner that allows for participation in all 
markets commensurate with the resource's technical capabilities.
---------------------------------------------------------------------------

    \135\ AEE/AEMA Request for Rehearing at 3, 15-18.
    \136\ Id. at 17.
---------------------------------------------------------------------------

    51. AEE/AEMA assert that there is no question as to whether this 
can be accomplished utilizing RTOs'/ISOs' existing ``generation'' and 
``demand response'' market constructs.\137\ AEE/AEMA note that in ISO-
NE's Active Demand Capacity Resource participation model, distributed 
generation resources can be co-located with load reducing resources, 
and the aggregate dispatch capability of the facility, up to and 
including net injections, is eligible for energy, capacity and reserve 
market obligations.\138\ Instead, AEE/AEMA state that they are 
requesting that the Commission confirm that RTOs/ISOs must demonstrate 
that existing constructs and participation models or new participation 
models created for distributed energy resource aggregations will 
accommodate distributed energy resources in these various but common 
configurations as a single resource.\139\
---------------------------------------------------------------------------

    \137\ Id.
    \138\ Id. at 17-18.
    \139\ Id. at 18.
---------------------------------------------------------------------------

    52. AEE/AEMA assert that their requested clarification is necessary 
to ensure that compliance with Order No. 2222 is not achieved through a 
disparate collection of participation models, with separate 
registration, metering, and interconnection processes and market 
participation parameters.\140\ AEE/AEMA claim that, while technically 
feasible on paper, applying these separate models to individual 
technologies configured as a single resource would be practically 
impossible. AEE/AEMA further contend that requiring separate 
participation models for individual technologies configured as a single 
resource would not satisfy the Commission's directive to revise 
existing participation models or create new participation models, but 
instead would lead to several isolated paths that each impose tradeoffs 
on distributed energy resource aggregators. AEE/AEMA assert that these 
isolated paths would not only result in reduced or sub-optimal market 
participation of single distributed energy resource sites with multiple 
technologies, but also pose substantial administrative barriers for 
heterogeneous aggregations.
---------------------------------------------------------------------------

    \140\ Id.
---------------------------------------------------------------------------

b. Commission Determination
    53. We deny AEE/AEMA's request to clarify the criteria by which new 
and existing participation models will be evaluated to ensure that they 
allow distributed energy resource aggregations to provide all the 
services that they are technically capable of providing. With regard to 
AEE/AEMA's concern that RTOs/ISOs may propose to achieve compliance 
through a collection of participation models, we reiterate that the 
Commission provided each RTO/ISO with flexibility to facilitate the 
participation of distributed energy resource aggregations in its 
markets in a way that is efficient and cost-effective as well as fits 
its market design, including the ability to establish one or more new 
participation models that accommodate the physical and operational 
characteristics of each distributed energy resource aggregation.\141\

[[Page 16523]]

Regardless of the approach, as explained in Order No. 2222, the 
Commission will evaluate each RTO's/ISO's compliance proposal to 
determine whether it meets the goals of Order No. 2222 to allow 
distributed energy resources to provide all services that they are 
technically capable of providing through aggregation.\142\
---------------------------------------------------------------------------

    \141\ Order No. 2222, 172 FERC ] 61,247 at P 130.
    \142\ Id.
---------------------------------------------------------------------------

    54. To the extent that AEE/AEMA are concerned that RTOs/ISOs will 
exclude demand response from participating in distributed energy 
resource aggregations, we note that, in Order No. 2222, the Commission 
clarified that ``customer sites capable of demand reduction'' may meet 
the definition of a distributed energy resource.\143\ In addition, in 
Order No. 2222, the Commission required each RTO/ISO to revise its 
tariff to allow different types of distributed energy resource 
technologies to participate in a single distributed energy resource 
aggregation (i.e., allow heterogeneous distributed energy resource 
aggregations).\144\ The Commission found that, while ISO-NE would 
prefer to exclude demand response resources from distributed energy 
resource aggregations to simplify settlement and the allocation of 
charges and credits to load, the benefits of requiring that RTOs/ISOs 
allow heterogeneous aggregations outweigh ISO-NE's preference to limit 
the types of resources that can participate in aggregations.\145\
---------------------------------------------------------------------------

    \143\ Id. P 115 (citing AEE Comments (RM16-23) at 21).
    \144\ Id. P 142.
    \145\ Id. PP 142-43, 145.
---------------------------------------------------------------------------

2. Double Counting
    55. In Order No. 2222, the Commission required each RTO/ISO to 
revise its tariff to: (1) Allow distributed energy resources that 
participate in one or more retail programs to participate in its 
wholesale markets; (2) allow distributed energy resources to provide 
multiple wholesale services; and (3) include any appropriate 
restrictions on the distributed energy resources' participation in RTO/
ISO markets through distributed energy resource aggregations, if 
narrowly designed to avoid counting more than once the services 
provided by distributed energy resources in RTO/ISO markets.\146\
---------------------------------------------------------------------------

    \146\ Id. P 160.
---------------------------------------------------------------------------

    56. The Commission stated that it is appropriate for RTOs/ISOs to 
place narrowly designed restrictions on the RTO/ISO market 
participation of distributed energy resources through aggregations, if 
necessary to prevent double counting of services.\147\ The Commission 
stated that, for instance, if a distributed energy resource is offered 
into an RTO/ISO market and is not added back to a utility's or other 
load serving entity's load profile, then that resource will be double 
counted as both load reduction and a supply resource. The Commission 
further stated that, if a distributed energy resource is registered to 
provide the same service twice in an RTO/ISO market (e.g., as part of 
multiple distributed energy resource aggregations, as part of a 
distributed energy resource aggregation and a standalone demand 
response resource, and/or a standalone distributed energy resource), 
then that resource would also be double counted and double compensated 
if it clears the market as part of both market participants. The 
Commission therefore found that it is appropriate for RTOs/ISOs to 
place restrictions on the RTO/ISO market participation of distributed 
energy resources through aggregations after determining whether a 
distributed energy resource that is proposing to participate in a 
distributed energy resource aggregation is: (1) Registered to provide 
the same services either individually or as part of another RTO/ISO 
market participant; or (2) included in a retail program to reduce a 
utility's or other load serving entity's obligations to purchase 
services from the RTO/ISO market.
---------------------------------------------------------------------------

    \147\ Id. P 161.
---------------------------------------------------------------------------

a. Request for Clarification or Rehearing
    57. AEE/AEMA request clarification, or in the alternative 
rehearing, of the Commission's findings regarding allowing RTOs/ISOs to 
limit the participation of resources in RTO/ISO markets through a 
distributed energy resource aggregator that are receiving compensation 
for the same services as part of another program.\148\
---------------------------------------------------------------------------

    \148\ AEE/AEMA Request for Rehearing at 2-4.
---------------------------------------------------------------------------

    58. AEE/AEMA request clarification that RTOs/ISOs do not need to 
place restrictions on wholesale market participation by a distributed 
energy resource participating in a retail program if the RTO/ISO has 
mechanisms in place to prohibit the same distributed energy resource 
from both reducing the amount of a service the RTO/ISO procures on a 
forward basis and acting as a provider of that service in the same 
delivery period.\149\ AEE/AEMA argue that placing broad restrictions on 
distributed energy resources that are ``included in a retail program to 
reduce a utility's or other load serving entity's obligations to 
purchase services from the RTO/ISO market,'' could undermine the 
Commission's directive to allow dual participation.\150\
---------------------------------------------------------------------------

    \149\ Id. at 2-3, 8-9, 12 (quoting Order No. 2222, 172 FERC ] 
61,247 at P 161).
    \150\ Id. at 10.
---------------------------------------------------------------------------

    59. AEE/AEMA explain that, for reliability and system planning 
purposes, the same distributed energy resource should not reduce the 
amount of a service that an RTO/ISO procures on a forward-looking basis 
in a certain time period, while also acting as a provider of that same 
service in that delivery period.\151\ AEE/AEMA state that the 
Commission appeared to be concerned with that possibility when it 
stated that ``if a distributed energy resource is offered into an RTO/
ISO market and is not added back to a utility's or other load serving 
entity's load profile, then that resource will be double counted as 
both load reduction and a supply resource.'' \152\ According to AEE/
AEMA, some RTOs/ISOs, such as New York Independent System Operator, 
Inc. (NYISO) and ISO New England Inc. (ISO-NE), already have 
instructive mechanisms in place to avoid the Commission's concern of 
double counting a distributed energy resource as both load reduction 
and a supply resource, and others could easily create mechanisms on 
compliance.\153\ AEE/AEMA state that NYISO adds back any load 
reductions from Special Case Resources \154\ that occur during retail-
level demand response program dispatches to NYISO's future load 
forecast, and also applies this mechanism to its Distributed Energy 
Resource Participation Framework. Importantly, AEE/AEMA maintain, NYISO 
places no restrictions on a distributed energy resource participating 
in a wholesale aggregation and a retail program.\155\ AEE/AEMA state 
that ISO-NE adds back all supply-side demand response to future load 
forecasts; therefore, participation in a retail-level demand response 
program will not reduce ISO-NE's Installed Capacity Requirement.\156\
---------------------------------------------------------------------------

    \151\ Id.
    \152\ Id. (quoting Order No. 2222, 172 FERC ] 61,247 at P 161).
    \153\ Id. at 10-11.
    \154\ NYISO defines Special Case Resources as ``Demand Side 
Resources whose Load is capable of being interrupted upon demand at 
the direction of the ISO, and/or Demand Side Resources that have a 
Local Generator . . . .'' NYISO, NYISO Tariffs, NYISO MST, 2.19 MST 
Definitions--S (25.0.0).
    \155\ AEE/AEMA Request for Rehearing at 10-11.
    \156\ Id. at 11.
---------------------------------------------------------------------------

    60. AEE/AEMA express concern that the Commission's language broadly 
referring to retail programs could be interpreted to restrict wholesale 
participation from any distributed energy resource that participates in 
a retail program where the program has

[[Page 16524]]

the potential to reduce a utility's or other load serving entity's 
obligations to purchase services from the RTO/ISO market.\157\ AEE/AEMA 
contend that, without clarification, the Commission's language could 
prohibit many, if not most, distributed energy resources from 
participating in both retail programs and the wholesale market, and 
that such restrictions are unnecessary to address the Commission's 
concerns over double counting.\158\ AEE/AEMA recommend clarification 
because the Commission's reference to retail programs that ``reduce a 
utility's or other load serving entity's obligations to purchase from 
the RTO/ISO market'' risks sweeping in a broad swath of distributed 
energy resources participating in long-standing retail distributed 
energy resource policies and programs aimed at providing benefits to 
customers that do not broadly implicate the Commission's double 
counting concerns and could result in restrictions that prevent the 
dual participation the Commission intended.\159\
---------------------------------------------------------------------------

    \157\ Id.
    \158\ Id. at 12.
    \159\ Id. at 12-13.
---------------------------------------------------------------------------

    61. AEE/AEMA argue that clarification is also warranted because the 
Commission's generic language would be unwieldy to implement in that it 
would force each RTO/ISO to become familiar with the specifics of every 
retail program in its territory.\160\ Furthermore, AEE/AEMA contend, 
this would risk further exacerbating state and RTO/ISO tensions because 
the RTO/ISO would have to judge these programs regardless of the 
state's intent. AEE/AEMA suggest that the RTOs/ISOs instead focus on 
their own system planning and demand forecasting practices.\161\
---------------------------------------------------------------------------

    \160\ Id. at 10.
    \161\ Id. at 13.
---------------------------------------------------------------------------

    62. AEE/AEMA contend that, to the extent the Commission or RTOs/
ISOs are concerned about the potential for conflicting dispatches of 
the same distributed energy resource in a retail program and the 
wholesale markets, there is significant infrastructure in place to 
allow for better coordination between RTOs/ISOs and distribution system 
operators.\162\ AEE/AEMA point out that there are also tools RTOs/ISOs 
currently use to ensure that wholesale market participation by 
distributed energy resources is well-coordinated with retail 
distributed systems. AEE/AEMA lastly argue that providing this 
clarification and focusing the RTOs/ISOs on determining whether a 
distributed energy resource is able to reduce the amount of a service 
procured on a forward basis and act as a provider of that service in 
the same delivery period would make sense as a legal and jurisdictional 
matter, given the FPA's separation of the wholesale and retail 
markets.\163\
---------------------------------------------------------------------------

    \162\ Id. at 14.
    \163\ Id. at 15.
---------------------------------------------------------------------------

b. Commission Determination
    63. In Order No. 2222, the Commission required each RTO/ISO to 
revise its tariff to include any appropriate restrictions on 
distributed energy resources' participation in RTO/ISO markets through 
distributed energy resource aggregations, if narrowly designed to avoid 
counting more than once the services provided by distributed energy 
resources in RTO/ISO markets.\164\ We clarify that AEE/AEMA is correct 
that, when the Commission stated that ``if a distributed energy 
resource is offered into an RTO/ISO market and is not added back to a 
utility's or other load serving entity's load profile, then that 
resource will be double counted as both load reduction and a supply 
resource,'' \165\ the Commission was indicating that, for planning 
purposes, double counting of services would occur if the same 
distributed energy resource reduces the amount of a service that an 
RTO/ISO procures on a forward-looking basis in a certain time period 
while also acting as a provider of that same service in that same 
delivery period.
---------------------------------------------------------------------------

    \164\ Order No. 2222, 172 FERC ] 61,247 at P 160.
    \165\ Id. P 161.
---------------------------------------------------------------------------

    64. We also clarify that, to the extent an RTO/ISO already has 
restrictions in place to avoid double counting of services, it is not 
required to propose new restrictions but rather must explain on 
compliance how these existing restrictions prevent double 
counting.\166\ Such restrictions would only be appropriate ``if 
necessary to prevent double counting of services,'' \167\ and each RTO/
ISO must otherwise ``allow distributed energy resources that 
participate in one or more retail programs to participate in its 
wholesale markets.'' \168\ Thus, such distributed energy resources 
should not be prevented from participating in distributed energy 
resource aggregations unless that is the only possible way to prevent 
double counting of services. We note that, while AEE/AEMA describe 
existing mechanisms in the NYISO and ISO-NE tariffs, we will not 
prejudge these here but instead examine whether particular mechanisms 
comply with the requirements of Order No. 2222 when evaluating each 
RTO's/ISO's compliance filing.
---------------------------------------------------------------------------

    \166\ Id. (requiring each RTO/ISO ``to describe how it will 
properly account for the different services that distributed energy 
resources provide in the RTO/ISO markets'').
    \167\ Id. P 161.
    \168\ Id. P 160.
---------------------------------------------------------------------------

C. Coordination

1. Distribution Utility Review
    65. In Order No. 2222, the Commission required each RTO/ISO to 
modify its tariff to incorporate a comprehensive and non-discriminatory 
process for timely review by a distribution utility of the individual 
distributed energy resources that comprise a distributed energy 
resource aggregation, which is triggered by initial registration of the 
distributed energy resource aggregation or incremental changes to a 
distributed energy resource aggregation already participating in the 
markets.\169\
---------------------------------------------------------------------------

    \169\ Id. P 292.
---------------------------------------------------------------------------

a. Requests for Clarification or Rehearing
    66. AEE/AEMA argue that energy efficiency resources should not be 
included in the pre-aggregation distribution utility review process 
because such resources never pose a risk to reliable or safe operation 
of the distribution system.\170\ AEE/AEMA assert that a review process 
that is virtually guaranteed to reach the same conclusion every time 
regarding the non-impact of energy efficiency resources is precisely 
the type of arbitrary barrier to wholesale market participation that 
the Commission acted to remove in Order No. 2222.\171\ Similarly, 
Public Interest Organizations also state that, for resources that do 
not inject power into the distribution system, there should be a 
presumption of no impact.\172\
---------------------------------------------------------------------------

    \170\ AEE/AEMA Request for Rehearing at 22-23.
    \171\ Id. at 19-21.
    \172\ Public Interest Organizations Request for Rehearing at 39.
---------------------------------------------------------------------------

    67. Public Interest Organizations request that the Commission 
clarify that the distribution utility actually hosting the distributed 
energy resource being added to a distributed energy resource 
aggregation should be the only utility given an opportunity to conduct 
the distribution utility review.\173\ In addition, they request that 
the Commission clarify that a distribution utility should not be 
permitted to object to the withdrawal of a resource from a distributed 
energy resource aggregation, and that distribution utility review is 
only required when a resource joins an existing aggregation, not when a 
resource leaves an aggregation.\174\
---------------------------------------------------------------------------

    \173\ Id. at 36.
    \174\ Id. at 36-37.

---------------------------------------------------------------------------

[[Page 16525]]

    68. Public Interest Organizations request that the Commission's 
direction that the length of time needed to complete the distribution 
utility review ``should not exceed 60 days'' be clarified to indicate 
that 60 days is the firm limit on the amount of time for distribution 
utility review.\175\ Public Interest Organizations also urge the 
Commission to encourage development of shorter review periods involving 
initial registration of aggregations under a certain size or additions 
of resources under certain sizes to an existing aggregation.\176\
---------------------------------------------------------------------------

    \175\ Id. at 37 (quoting Order No. 2222, 172 FERC ] 61,247 at P 
295).
    \176\ Id. at 37-38.
---------------------------------------------------------------------------

b. Commission Determination
    69. We deny AEE/AEMA's and Public Interest Organizations' requested 
clarifications with respect to energy efficiency resources and 
resources that do not inject power into the distribution system. 
Although such resources participating in distributed energy resource 
aggregations may be less likely to pose distribution reliability 
concerns than other types of distributed energy resources, we find that 
including them in the distribution utility review process is also 
necessary in order for the reviewing utility to consider non-
reliability issues associated with such resources as part of an 
aggregation, such as the potential for double-counting of peak load 
reductions provided by energy efficiency resources that participate in 
both retail programs and wholesale markets. Further, assuming that AEE/
AEMA and Public Interest Organizations are correct that such resources 
by nature have no negative reliability impacts,\177\ the incremental 
time and effort required by the reviewing utility to reach that 
conclusion will likely be negligible, therefore diminishing the value 
of the presumption requested by Public Interest Organizations.
---------------------------------------------------------------------------

    \177\ See, e.g., AEE/AEMA Request for Rehearing at 20 (``By 
their very nature, energy efficiency resources do not burden utility 
systems because neither they nor their aggregators negatively impact 
the cost, operation, or reliability of distribution utilities or the 
distribution system. Energy efficiency resources effectively reduce 
electricity demand without the need for an RTO/ISO or a utility to 
take any actions--they operate without a dispatch signal and do not 
put any power out onto the distribution grid.'').
---------------------------------------------------------------------------

    70. We grant Public Interest Organizations' request to clarify that 
only the distribution utility hosting a distributed energy resource 
(i.e., the utility that owns and/or operates the distribution system to 
which the resource is interconnected) should be given an opportunity to 
review the addition of that resource to a distributed energy resource 
aggregation. We believe that adding a resource to a distributed energy 
resource aggregation is unlikely to directly affect the distribution 
system of more than the one distribution utility that hosts the 
distributed energy resource. Disputes regarding the distribution 
utility review process--including those between non-host distribution 
utilities and a host distribution utility or the RTO/ISO--may be 
resolved through the RTO's/ISO's dispute resolution process, the 
Commission's Dispute Resolution Service, or complaints filed pursuant 
to FPA section 206 at any time.\178\
---------------------------------------------------------------------------

    \178\ Order No. 2222, 172 FERC ] 61,247 at P 299.
---------------------------------------------------------------------------

    71. We deny Public Interest Organizations' requested clarification 
regarding distribution utility review when a distributed energy 
resource leaves an aggregation. Although any modification triggers the 
distribution utility review process, the Commission clarified that it 
may be appropriate for each RTO/ISO to abbreviate the distribution 
utility's review of modifications to distributed energy resource 
aggregations, including the addition or removal of individual 
resources.\179\ As the Commission explained, in most cases, removal of 
an individual resource from an aggregation should not negatively impact 
the distribution system. Nevertheless, the Commission found that an 
abbreviated process allows distribution utilities to update their 
records and ensure that the removal does not create negative impacts. 
Occasionally, the removal of a resource, particularly a large resource, 
from an aggregation could drastically change the operation and 
configuration of an aggregation on the distribution system and would 
need to be examined by a distribution utility. However, because such 
drastic impacts will likely be the exception more than the rule, we 
encourage RTOs/ISOs to propose abbreviated distribution utility review 
processes for modifications to existing aggregations. For example, an 
RTO/ISO may propose an abbreviated distribution utility review process 
as a default when an existing aggregation is modified but allow for a 
more fulsome review when a modification surpasses some materiality 
threshold or meets certain criteria.
---------------------------------------------------------------------------

    \179\ Id. P 337.
---------------------------------------------------------------------------

    72. We grant Public Interest Organizations' request to limit the 
length of distribution utility review to no more than 60 days. As the 
Commission stated in Order No. 2222, a lengthy review time or the lack 
of a deadline could erect a barrier to distributed energy resource 
participation in the RTO/ISO markets and may unduly delay 
participation.\180\ We expect that 60 days should be the maximum time 
needed for most distribution utility reviews. If an RTO/ISO believes 
unusual circumstances could give rise to the need for additional 
distribution utility review time, it may propose provisions for certain 
exceptional circumstances that may justify additional review time. In 
addition, as Public Interest Organizations request, we encourage 
shorter review periods for smaller aggregations and resources to the 
maximum extent practicable, and reiterate that any proposed review 
period must be shown to be reasonable based on what is being reviewed.
---------------------------------------------------------------------------

    \180\ Id. P 295.
---------------------------------------------------------------------------

2. Information Sharing and Procedural Safeguards
    73. In Order No. 2222, the Commission required each RTO/ISO to 
establish market rules that address information and data requirements 
for distributed energy resource aggregations.\181\ To support the 
distribution utility review process, the Commission required RTOs/ISOs 
to share any necessary information and data about individual 
distributed energy resources with distribution utilities, and that the 
results of a distribution utility's review be incorporated into the 
distributed energy resource aggregation registration process.\182\ The 
Commission also directed RTOs/ISOs to ensure that their distribution 
utility review processes are transparent and contain specific review 
criteria.\183\ Finally, the Commission required each RTO/ISO to revise 
its tariff to establish a process for ongoing coordination, including 
operational coordination, that addresses data flows and communication 
among itself, the distributed energy resource aggregator, and the 
distribution utility.\184\
---------------------------------------------------------------------------

    \181\ Id. P 236.
    \182\ Id. P 292.
    \183\ Id. P 293.
    \184\ Id. P 310.
---------------------------------------------------------------------------

a. Request for Clarification or Rehearing
    74. Public Interest Organizations request that the Commission 
clarify that an aggregator should receive any information that a 
distribution utility provides an RTO/ISO regarding one of its 
resources, whether related to registration or ongoing operational 
coordination.\185\ Public Interest Organizations argue that this will 
enable efficient responses by aggregators to

[[Page 16526]]

regulatory and market conditions and also provide the opportunity for 
aggregators to supplement or correct information, helping support 
information quality. In addition, Public Interest Organizations request 
clarification that any decision to deny wholesale market access to a 
resource should require clear and convincing evidence of a threat to 
distribution system reliability caused by specific changes in 
distributed energy resource operation as a result of wholesale market 
participation.
---------------------------------------------------------------------------

    \185\ Public Interest Organizations Request for Rehearing at 38.
---------------------------------------------------------------------------

b. Commission Determination
    75. We grant Public Interest Organizations' requested clarification 
that the specific information regarding a distributed energy resource 
that is provided by a distribution utility to an RTO/ISO as part of the 
distribution utility review process should be shared with the 
distributed energy resource aggregator. Such information could include 
whether a resource: (1) Affects the safety and reliability of the 
distribution system; or (2) is capable of participating in an 
aggregation.\186\ We agree that this information sharing will provide 
the transparency sought by Public Interest Organizations and provide 
aggregators the opportunity to supplement or correct information as 
necessary. In addition, on a more general level, to the extent a 
distribution utility declines to provide distributed energy resources 
the information needed to participate in RTO/ISO markets via an 
aggregation, we expect that RTOs/ISOs will provide an avenue to 
facilitate those resources' participation, including, where 
appropriate, the use of the RTO/ISO dispute resolution procedures.
---------------------------------------------------------------------------

    \186\ See Order No. 2222, 172 FERC ] 61,247 at P 292.
---------------------------------------------------------------------------

    76. We deny Public Interest Organizations' request to clarify that 
wholesale market access cannot be denied without clear and convincing 
evidence of a threat to distribution system reliability. However, we 
clarify that, to the extent a distribution utility recommends removal 
of a distributed energy resource from an aggregation due to a 
reliability concern, an RTO/ISO should not remove the resource without 
a showing that the resource's market participation presents a threat to 
distribution system reliability.\187\ In Order No. 2222, the Commission 
required that each RTO/ISO coordinate with distribution utilities to 
develop a distribution utility review process that is non-
discriminatory and transparent \188\ and that includes criteria by 
which the distribution utilities will determine whether a proposed 
distributed energy resource will pose ``significant risks to the 
reliable and safe operation of the distribution system.'' \189\ We are 
thus providing each RTO/ISO with flexibility to develop review 
procedures and criteria appropriate for its region, and we recognize 
that distribution utility review is an important step to ensure that 
wholesale market participation does not threaten distribution system 
reliability. We expect, however, that criteria proposed on compliance 
will require that an RTO/ISO decision to deny wholesale market access 
to a distributed energy resource for reliability reasons be supported 
by a showing that the resource presents significant risks to the 
reliable and safe operation of the distribution system. The Commission 
also suggested in Order No. 2222 that RTOs/ISOs may consider requiring 
a signed affidavit or other evidence from the distribution utility that 
a distributed energy resource's participation in RTO/ISO markets would 
pose a significant risk to the safe and reliable operation of the 
distribution system.\190\ Such a process would require a distribution 
utility to justify the removal of, or establishment of operating limits 
for, a resource that does not inject onto the distribution system.
---------------------------------------------------------------------------

    \187\ See id. P 297 (finding that such a request for removal of 
a distributed energy resource from an aggregation should be based on 
specific significant reliability or safety concerns that the 
distribution utility clearly demonstrates to the RTO/ISO and 
distributed energy resource aggregator on a case-by-case basis).
    \188\ See id. PP 292-293.
    \189\ Id. P 292.
    \190\ Id. P 297.
---------------------------------------------------------------------------

3. Duplication of Interconnection Review
a. Request for Clarification or Rehearing
    77. Public Interest Organizations request that the Commission 
clarify how the distribution utility review relates to interconnection 
agreements and standards in order to avoid duplicative review.\191\ In 
particular, where a resource is already subject to an executed 
distribution network interconnection agreement, Public Interest 
Organizations argue that the scope of utility review of that resource's 
inclusion in an aggregation participating in wholesale markets should 
be strictly limited to matters not already addressed in the 
interconnection agreement. Furthermore, according to Public Interest 
Organizations, in order to object to a resource's participation in a 
wholesale market aggregation, the utility should bear the burden of 
proving that the manner in which the resource will operate (including 
the extent and timing of exports) is outside the range of scenarios 
contemplated in its interconnection agreement.\192\
---------------------------------------------------------------------------

    \191\ Public Interest Organizations Request for Rehearing at 39-
41.
    \192\ Id. at 40.
---------------------------------------------------------------------------

    78. Additionally, where the utility establishes a valid reliability 
or safety concern associated with a resource's participation in a 
distributed energy resource aggregation, Public Interest Organizations 
argue that the utility should be required to give the resource in 
question an opportunity to modify its interconnection agreement to 
address the identified concerns and enable wholesale market 
participation. Finally, with respect to a utility's review of issues 
not addressed in an interconnection agreement, Public Interest 
Organizations urge the Commission to clarify its expectation that this 
would be a narrow range of reliability or safety concerns and to 
encourage the codification of such concerns into interconnection 
standards.\193\
---------------------------------------------------------------------------

    \193\ Id. at 40-41.
---------------------------------------------------------------------------

b. Commission Determination
    79. We partially grant Public Interest Organizations' requested 
clarification to the extent that, when the Commission found that RTOs/
ISOs must include potential impacts on distribution system reliability 
as a criterion in the distribution utility review process,\194\ the 
Commission was referring specifically to any incremental impacts from a 
resource's participation in a distributed energy resource aggregation 
that were not previously considered by the distribution utility during 
the interconnection study process for that resource. For instance, if 
the original interconnection study process for a particular distributed 
energy resource did not consider the impacts to distribution system 
reliability under scenarios that would account for the resource's 
participation in a distributed energy resource aggregation in RTO/ISO 
markets, such as the impact of full generation output while associated 
load is at a minimum level, then that resource's participation in a 
distributed energy resource aggregation could present previously 
unconsidered safety and reliability impacts to the distribution system.
---------------------------------------------------------------------------

    \194\ Order No. 2222, 172 FERC ] 61,247 at P 297.
---------------------------------------------------------------------------

    80. We deny Public Interest Organizations' request to encourage the 
codification of a distribution utility's reliability or safety concerns 
into interconnection standards or to require that a distribution 
utility offer a

[[Page 16527]]

distributed energy resource an opportunity to modify its 
interconnection agreement to address such concerns. In Order No. 2222, 
the Commission declined to exercise its jurisdiction over the 
interconnections of distributed energy resources to distribution 
facilities for the purpose of participating in RTO/ISO markets 
exclusively as part of a distributed energy resource aggregation.\195\ 
Further, the Commission stated that the final rule in no way prevents 
state and local regulators from amending their interconnection 
processes to address potential distribution system impacts due to the 
participation of distributed energy resources in aggregations.\196\ 
Moreover, the distribution utility review process, including its 
processes for dispute resolution as necessary, will allow a distributed 
energy resource aggregator to address any concerns raised by the 
distribution utility and propose additional mitigation measures.
---------------------------------------------------------------------------

    \195\ Id. P 90.
    \196\ Id. P 294.
---------------------------------------------------------------------------

4. RERRA Involvement
    81. In Order No. 2222, the Commission required each RTO/ISO to 
specify in its tariff, as part of the market rules on coordination, how 
each RTO/ISO will accommodate and incorporate voluntary RERRA 
involvement in coordinating the participation of aggregated distributed 
energy resources in RTO/ISO markets.\197\
---------------------------------------------------------------------------

    \197\ Id. P 322.
---------------------------------------------------------------------------

a. Request for Clarification or Rehearing
    82. Public Interest Organizations request that the Commission 
encourage RTOs/ISOs to explain in their compliance filings how they 
will ensure that coordination with RERRAs does not unjustly limit 
distributed energy resource aggregators' access to wholesale 
markets.\198\
---------------------------------------------------------------------------

    \198\ Public Interest Organizations Request for Rehearing at 41-
42.
---------------------------------------------------------------------------

b. Commission Determination
    83. We deny Public Interest Organizations' requested clarification. 
In Order No. 2222, the Commission recognized the voluntary role that 
RERRAs can play, as the regulatory agencies governing distribution 
utilities and the distribution system, in stakeholder discussions to 
establish RTO/ISO rules for distributed energy resource 
aggregations.\199\ In recognizing this role, the Commission required 
that each RTO/ISO must specify in its tariff any role for RERRA 
involvement in coordinating the participation of distributed energy 
resource aggregations in RTO/ISO markets.\200\ Consistent with the 
goals of Order No. 2222,\201\ the Commission will evaluate on 
compliance whether an RTO's/ISO's proposal delineates a role for RERRAs 
that would result in unjust and unreasonable limits on the 
participation of distributed energy resource aggregators in wholesale 
markets.
---------------------------------------------------------------------------

    \199\ Order No. 2222, 172 FERC ] 61,247 at PP 322-324.
    \200\ Id. P 324.
    \201\ See id. P 279 (stating that ``coordination requirements 
should not create undue barriers to entry for distributed energy 
resource aggregations''); see also id. P 130 (``The Commission will 
evaluate each proposal submitted on compliance to determine whether 
it meets the goals of this final rule to allow distributed energy 
resources to provide all services that they are technically capable 
of providing through aggregation.'').
---------------------------------------------------------------------------

III. Information Collection Statement

    84. The burden estimates have not changed from the final rule.

IV. Regulatory Flexibility Act

    85. The Regulatory Flexibility Act of 1980 (RFA) \202\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
Pursuant to section 605(b) of the RFA, we still conclude that this rule 
will not have a significant economic impact on a substantial number of 
small entities.
---------------------------------------------------------------------------

    \202\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

V. Document Availability

    86. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (http://www.ferc.gov). At 
this time, the Commission has suspended access to the Commission's 
Public Reference Room due to the President's March 13, 2020 
proclamation declaring a National Emergency concerning the Novel 
Coronavirus Disease (COVID-19).
    87. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    88. User assistance is available for eLibrary and the Commission's 
website during normal business hours from FERC Online Support at 202-
502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

VI. Effective Date and Congressional Notification

    89. The further revised regulation in this order is effective June 
1, 2021.

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

    By the Commission.

    Commissioner Danly is dissenting with a separate statement 
attached.

    Commissioner Christie is dissenting with a separate statement 
attached.

    Issued: March 18, 2021.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

    In consideration of the foregoing, the Commission is proposing to 
amend part 35, chapter I, title 18, Code of Federal Regulations, as 
follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for Part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

0
2. In Sec.  35.28, paragraph (g)(12)(i) is revised as follows:

Sec.  35.28  Non-discrimination open access transmission tariff.

* * * * *
    (g) * * *
    (12) * * * (i) Each independent system operator and regional 
transmission organization must have tariff provisions that allow 
distributed energy resource aggregations to participate directly in the 
independent system operator or regional transmission organization 
markets.
* * * * *

    Note: The following appendices will not appear in the Code of 
Federal Regulations

Department of Energy Federal Energy Regulatory Commission

Participation of Distributed Energy Resource Aggregations in Markets 
Operated by Regional Transmission Organizations and Independent System 
Operators; Docket No. RM18-9-002

DANLY, Commissioner, dissenting:

    1. I dissent from this order on rehearing of Order No. 2222, the 
Commission's distributed energy resource aggregations mandate, for the 
same reasons that I dissented from the

[[Page 16528]]

original.\1\ It oversteps the reasonable exercise of the Commission's 
authority at the expense of the states. I am surprised and disappointed 
that no party sought rehearing of the Commission's decision not to 
establish a state opt-out--if parties, especially states, do not 
vigorously advocate for their own interests before the Commission, 
their failure denies the Commission the record evidence it needs to 
weigh the issues at stake in our proceedings and, more critically, they 
deprive themselves of a vehicle for appeal.
---------------------------------------------------------------------------

    \1\ See Participation of Distributed Energy Res. Aggregations in 
Mkts. Operated by Reg'l Transmission Orgs. & Indep. Sys. Operators, 
Order No. 2222, 85 FR 67,094 (Oct. 21, 2020), 172 FERC ] 61,247 
(2020) (Danly, Comm'r, dissenting).
---------------------------------------------------------------------------

    2. I acknowledge the recent cases upon which the Commission relies 
to exercise its jurisdiction in this order, but these cases concerned 
whether the Commission possesses claimed authority, reserving the 
question of whether the Commission has discretion to exercise it.\2\ 
Clearly the Commission has the power, exclusive jurisdiction or not, to 
establish a state opt-out.\3\ I would decline to exercise our 
jurisdiction to obstruct the states from asserting authority over 
distributed energy resource aggregations. The Commission owes fidelity 
to the clear division of jurisdiction between the federal government 
and the states, a due regard for federalism that is embedded in the 
very structure of the Federal Power Act (FPA). This order unnecessarily 
invades an area best left to the states, burdening them with another of 
our Good Ideas, the details of which we leave them to figure out, and 
the burdens of which we leave to them to bear.
---------------------------------------------------------------------------

    \2\ Compare FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 
(2016) (EPSA), with Nat'l Ass'n of Regul. Util. Comm'rs v. FERC, 964 
F.3d 1177 (D.C. Cir. 2020) (NARUC).
    \3\ See NARUC, 964 F.3d at 1189 (``The Supreme Court described 
the opt-out feature as `cooperative federalism . . . .' '') (quoting 
EPSA, 136 S. Ct. at 780).
---------------------------------------------------------------------------

    3. And, as always, this decision, which flies in the face of the 
division of state and federal authority in the FPA, will inevitably 
lead to more conflicting and incoherent law in which no principled 
basis can be adduced for why the Commission embraces some actions while 
at the same time refusing to countenance others. Put another way: 
blurred lines create fuzzy results. For example, the Commission ruled 
in Order No. 2222 that it has jurisdiction and chose to exercise it 
over the electricity sales of distributed energy resource aggregations. 
Or, as we summarized it in today's order,

the Commission found that it has jurisdiction to decide which 
entities may participate in wholesale markets, which means that a 
[relevant electric retail regulatory authority (RERRA)] cannot 
broadly prohibit the participation in RTO/ISO markets of all 
distributed energy resources or of all distributed energy resource 
aggregators, as doing so would intrude upon the Commission's 
statutory authority to ensure that wholesale electricity markets 
produce just and reasonable rates.\4\
---------------------------------------------------------------------------

    \4\ Participation of Distributed Energy Res. Aggregations in 
Mkts. Operated by Reg'l Transmission Orgs. & Indep. Sys. Operators, 
Order No. 2222-A, 174 FERC ] 61,197, at P 6 (2021).

    4. The Commission's assertion of authority over ``RERRAs,'' 
including ``states,'' includes electricity sales by qualifying 
facilities even if the qualifying facility is the sole entity in a 
distributed energy resource aggregation, which, by the by, strikes me 
as loading the term ``aggregation'' with quite a bit more weight than 
it can reasonably bear.\5\
---------------------------------------------------------------------------

    \5\ See Order No. 2222, 172 FERC ] 61,247 at P 186.
---------------------------------------------------------------------------

    5. As if to intentionally muddy the waters, we then ``clarify'' on 
rehearing that ``we decline to exercise our jurisdiction over the 
interconnections of distributed energy resources'' that also are 
qualifying facilities that participate in a distributed energy resource 
aggregation.\6\ This also is true even if the qualifying facility is 
the sole entity in a distributed energy resource aggregation.\7\ We 
decline this latter exercise of our authority ``to avoid a significant 
increase in the number of distribution-level [qualifying facility (QF)] 
interconnections subject to the Commission's jurisdiction, which . . . 
could create uncertainty and potentially impose an overwhelming burden 
on RTOs/ISOs.'' \8\ We also cite the ``confluence of local, state, and 
federal authorities over QF distributed energy resource 
interconnections.'' \9\
---------------------------------------------------------------------------

    \6\ Order No. 2222-A, 174 FERC ] 61,197 at P 47.
    \7\ See id. PP 42-47.
    \8\ Id. P 47.
    \9\ Id.
---------------------------------------------------------------------------

    6. I agree wholeheartedly with every word of that. And these are 
the exact same excellent reasons to decline to exercise any authority 
we may have over distributed energy resource aggregations in the first 
place. It is difficult to square these two outcomes. Either we have 
jurisdiction over ``aggregations'' of QF power that allows us to 
prevent the states from prohibiting QFs from selling in the RTO 
markets, or we do not. But once we have asserted that we do have such 
jurisdiction over aggregators selling power generated by QFs 
interconnected at the distribution level, it is odd indeed to then 
disclaim jurisdiction over the QF's interconnections. These are the 
kinds of inconsistent determinations that inevitably arise when the 
Commission goes too far in exercising its discretion to assert its 
jurisdiction absent a principled basis. This inconsistency counsels 
strongly for prudent, deliberate action before the Commission usurps 
the states' already diminishing power.
    7. My point is not that I want the Commission to exercise 
jurisdiction over QF interconnections at the distribution level, but 
that I prefer that the Commission stay out of the way when it can--as 
it certainly can here--and let the states exercise their own authority 
to the maximum extent possible over distribution systems and retail 
sales. A free enterprise market system might also develop and do a 
better job than the Commission at efficiently allocating resources to 
the development of distributed energy resources. I prefer that free-
market, local approach over drawing arbitrary lines between Commission 
and ``RERRA'' authority, such as over the sales but not the 
interconnections of QFs participating--even as the sole entity--in 
distributed energy resource aggregations.
    8. We saw the same jurisdictional inconsistencies when it came to 
demand response. The Commission previously required (some assert, 
``allowed'') wholesale demand response programs to permit states to opt 
out.\10\ In Order No. 2222, the Commission worked itself into fits to 
assert jurisdiction over distributed energy resource aggregations, 
which include many demand response resources, without detracting from 
the state opt-out the Commission previously required (or ``allowed'') 
for wholesale demand response programs.\11\ Today we issue a Notice of 
Inquiry aimed at eliminating the state opt-out for demand response.\12\ 
While one may see this as an admirable first, if small, step toward 
consistency, it would have been better, and consistent from the outset, 
if the Commission simply honored the states and their decision whether 
or not to participate in wholesale programs.
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    \10\ See Wholesale Competition in Regions with Organized Elec. 
Mkts., Order No. 719, 125 FERC ] 61,071, at P 154 (2008), order on 
reh'g, Order No. 719-A, 128 FERC ] 61,059, at P 60, reh'g denied, 
Order No. 719-B, 129 FERC ] 61,252 (2009) .
    \11\ See Order No. 2222, 172 FERC ] 61,247 at P 145; see also 
id. at PP 41-43, 118.
    \12\ See Participation of Aggregators of Retail Demand Response 
Customers in Mkts. Operated by Reg'l Transmission Orgs. and Indep. 
Sys. Operators, 174 FERC ] 61,198 (2021).
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    9. But the inconsistency is not cabined merely to this genus of 
Commission-created wholesale program--no, it is seen in nearly all the

[[Page 16529]]

Commission's treatment of our jurisdictional markets. The same 
Commission that asserts jurisdiction over distribution resources and 
demand response, seemingly to ``protect'' the wholesale markets, 
enthusiastically permits the states to suppress wholesale capacity 
market prices through renewable subsidy programs. We issue such an 
order today in a ruling that--inexplicably--holds that an expansive 
Virginia tax break that overwhelmingly targets new solar resources is 
not a state subsidy under PJM's minimum offer price rule because other 
types of pollution controls also qualify for the relief.\13\ The notion 
that the Commission acts to protect wholesale markets when it deprives 
the states of their authority over local concerns that may affect those 
markets cannot be squared with our simultaneous decisions granting the 
states broad latitude to distort the same markets.
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    \13\ See Hollow Road Solar LLC, 174 FERC ] 61,200 (2021).
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    10. As a final thought, I would simply issue a warning. The 
Commission's longstanding policy has been to promote the development of 
RTOs and ISOs.\14\ As the march of federal overreach into the retail 
and distribution operations of RTO participants proceeds apace, it 
becomes increasingly difficult to imagine why any utility that has not 
already joined an RTO would even consider joining or forming a new one. 
Assertion of jurisdiction, especially when exercised inconsistently and 
in tension with the statute, will do nothing to encourage the 
development of our markets.
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    \14\ See, e.g., Reg'l Transmission Orgs., Order No. 2000, FERC 
Stats. & Regs. ] 31,089 (1999) (cross-referenced at 89 FERC ] 
61,285), order on reh'g, Order No. 2000-A, FERC Stats. & Regs. ] 
31,092 (2000) (cross-referenced at 90 FERC ] 61,201), aff'd sub nom. 
Pub. Util. Dist. No. 1 of Snohomish Cty. v. FERC, 272 F.3d 607 (D.C. 
Cir. 2001); Order No. 719, 125 FERC ] 61,071 at P 1 (``National 
policy has been, and continues to be, to foster competition in 
wholesale electric power markets. This policy was embraced in the 
Energy Policy Act of 2005 . . . and is reflected in Commission 
policy and practice.'') (citation omitted).
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    11. In sum, I would decline to exercise our jurisdiction over 
distributed energy resource aggregations, including both the sales and 
interconnections of qualifying facilities participating in a 
distributed energy resource aggregation, whether the sole resource in 
the aggregation or not.
    For these reasons, I respectfully dissent.

James P. Danly,
Commissioner.

Department of Energy

Federal Energy Regulatory Commission

Participation of Distributed Energy Resource Aggregations in Markets 
Operated by Regional Transmission Organizations and Independent System 
Operators; Docket No. RM18-9-002

CHRISTIE, Commissioner, dissenting:

    1. Today the majority doubles down on siding with commercial 
interests seeking entry into the RTO/ISO markets and against the states 
and other authorities \1\ whose job is to defend the public, not 
private, interest.\2\ By doing so, the majority also sides against the 
consumers who for years to come will almost surely pay billions of 
dollars for grid expenditures likely to be rate-based in the name of 
``Order 2222 compliance.'' \3\
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    \1\ Other Relevant Electric Retail Regulatory Authorities 
(RERRAs), as referenced in both Orders No. 2222 and 2222-A, include 
municipal and public-power authorities, and electric co-operatives, 
all of whom face costly operational compliance challenges. See, 
e.g., November 6, 2019 Reply Comments of the National Rural Electric 
Cooperative Association (NRECA) at 3-6, February 13, 2017 Comments 
of American Public Power Association (APPA) and NRECA at 22; see 
also April 17, 2019 Supplemental Comments of APPA and NRECA at 2-3, 
5-6.
    \2\ See also June 26, 2018 Comments of the National Association 
of Regulatory Utility Commissioners (NARUC) at 3-4 (``State 
commissions, like FERC, are required to act in the public interest. 
The limited opt-out provision envisions a scenario in which an 
entity that is solely motivated by its commercial interests makes a 
unilateral decision about its participation before the State 
commission can determine whether this distribution asset should 
participate in that market, which puts profits before State 
responsibilities. FERC should not eschew cooperative federalism and 
attempt to give control over resource adequacy and other crucial 
State decisions to a commercial stakeholder instead of FERC's 
longstanding partners in energy regulation, State commissions.'')
    \3\ Technically speaking, Order No. 2222-A is issued today in 
response to requests for rehearing of Order No. 2222, approved by 
the Commission last September, when I was not a member. It keeps all 
the worst aspects of Order No. 2222 largely intact; the relatively 
minor changes it does make, render Order No. 2222 even worse in its 
infringement on state policies and potential costly impact on 
consumers.
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    2. It is indeed ironic that at the same time we hear many, 
including some members of this Commission, demanding that FERC 
`respect' state public policies in capacity markets instead of imposing 
MOPR-type rules (and I have agreed with trying to accommodate state 
policies in RTO markets), this order goes in the exact opposite 
direction. So apparently `respect' for state public policies only 
applies when states are doing what some want.
    3. Sadly, instead of making the states, municipal and public-power 
authorities and electric co-operatives truly equal partners in managing 
the timing and conditions of deployment of behind-the-meter DERs in 
ways that are sensitive to local needs and challenges--both technical 
and economic--today's order denies them any meaningful control by 
prohibiting any opt-out or opt-in options except in relatively tiny 
circumstances. This order--and its predecessor--intentionally seize 
from the states and other authorities their historic authority to 
balance the competing interests of deploying new technologies while 
maintaining grid reliability and protecting consumers from unaffordable 
costs.
    4. A rapid concentration of behind-the-meter aggregated DERs at 
various locations on the local grid will inevitably require costly 
upgrades to a distribution grid that has largely been engineered to 
deliver power from the substation to end-user retail customers. Meeting 
the technological challenges of this re-engineering of the local grid 
are not insuperable but there are substantial costs and we all know 
these costs will ultimately be imposed on retail consumers. States, 
public-power authorities and co-operatives are far better positioned to 
manage these costs and competing interests in their own areas of 
responsibility than FERC.\4\
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    \4\ While Order No. 2222-A ostensibly leaves state regulators in 
charge of interconnection, that apparent authority is merely an 
illusion if state regulators are blocked from the fundamental 
decision whether interconnection for purposes of entry by 
aggregators into RTO markets is worth the costs to all consumers of 
the system upgrades necessary to protect reliability. Even more 
practically, this order invites endless litigation as commercial 
interests seeking entry into RTO markets challenge state 
interconnection policies as illegal barriers to entry and use 
litigation as a weapon against the state regulators, public-power 
authorities and co-operatives, which are limited in the resources 
they have available to fight such litigation. See, e.g., Order No. 
2222-A at P 83 (``Consistent with the goals of Order No. 2222, the 
Commission will evaluate on compliance whether an RTO's/ISO's 
proposal delineates a role for RERRAs that would result in unjust 
and unreasonable limits on the participation of distributed energy 
resource aggregators in wholesale markets.'' (footnote omitted)) 
(emphasis added).
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    5. Order No. 2222-A is not ``cooperative federalism,'' \5\ but its 
opposite. It undermines the overarching policy framework that Congress 
incorporated into the Federal Power Act decades ago: Federal regulation 
of wholesale rates and the bulk power system; state regulation of 
retail rates and the local distribution grid. Any argument that 
allowing state policies to determine the entry of aggregated DERS into 
capacity or other markets will result in a `checkerboard' or 
`patchwork' of different policies, is an argument against state 
authority itself. The

[[Page 16530]]

existence of fifty states by definition means a patchwork of 50 state 
retail regulatory structures, but that goes with the territory in our 
constitutional structure and is entirely consistent with the Federal 
Power Act's basic division of federal and state authority. This panoply 
of diverse state policies is exactly what Justice Brandeis celebrated 
when he recognized states as laboratories of democracy.\6\
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    \5\ FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760, 780 
(2016).
    \6\ New State Ice Co. v. Liebman, 52 S. Ct. 371, 386-87 (1932) 
(Brandeis, J. dissenting).
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    6. Unfortunately this order is a missed opportunity. It could have 
been a constructive move in the development and deployment of behind-
the-meter DERs. For at least the next several years the regime set up 
should have been made fully ``opt out'' for all load-serving utilities, 
including state-regulated, municipals and co-operatives, which this 
Commission clearly has the authority to do.\7\ Providing such 
flexibility to the states and other RERRAs would allow them to manage 
the deployment of behind-the-meter DERs in ways necessary to meet their 
own unique challenges.
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    \7\ The Commission recognizes in today's order that even if it 
possesses jurisdiction, it may provide opt-outs and opt-ins to the 
RERRAs. Order at P 34 (in addressing the small utility opt-in, the 
Commission noted that ``[a] RERRA that elects not to opt in under 
either Order No. 719 or Order No. 2222 does not intrude on the 
Commission's exclusive authority over practices that directly affect 
wholesale rates because the Commission chose to provide such an opt-
in and expressly codified this opt-in in the Commission's 
regulations.'' (footnote omitted)). To my point: Even if the 
Commission believes it has exclusive jurisdiction, the Commission 
has the discretion to provide an opt-out or an opt-in. See id.
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    7. In addition, at a time when there has been discussion about how 
to incentivize states to require or allow their utilities to enter 
RTOs/ISOs, I note that if the cost of entering an RTO/ISO is forfeiting 
a big chunk of the state's authority to balance protecting its 
consumers with the costs of new technology deployments and associated 
grid upgrades, the incentive for states to approve RTO membership just 
took a nosedive in value with the approval of this order. Combined with 
the NOI obviously designed to remove or severely restrict the current 
opt-out provisions in Order Nos. 719 and 719-A on today's agenda, these 
two orders may not only deter states currently outside RTOs from 
participation, but may well cause states in RTOs/ISOs to reconsider 
whether their consumers' interests are best served by continued 
participation.
    8. Let me be clear: Encouraging the development of DERs is a good 
thing; eviscerating the states' historic authority in the name of 
encouraging DER development is not. On the contrary, it is the states 
and other local authorities that are far better positioned than FERC to 
manage successfully the development and deployment of DERs in ways that 
serve reliability needs, that protect consumers from inflated costs, 
and that are far more sustainable in the long run.
    For these reasons, I respectfully dissent.

Mark C. Christie,
Commissioner.

[FR Doc. 2021-06089 Filed 3-29-21; 8:45 am]
BILLING CODE 6717-01-P