[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Rules and Regulations]
[Pages 33853-33861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13442]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 
 ========================================================================
 

  Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Rules 
and Regulations  

[[Page 33853]]



DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM18-9-003; Order No. 2222-B]


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.

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

SUMMARY: In this order, the Federal Energy Regulatory Commission 
(Commission) addresses arguments raised on rehearing, sets aside in 
part and clarifies in part Order No. 2222-A.

DATES: This rule will become effective August 27, 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
Christopher Chaulk (Legal Information), Office of the General Counsel--
Energy Markets, Federal Energy Regulatory Commission, 888 First Street 
NE, Washington, DC 20426, (202) 502-6720

SUPPLEMENTARY INFORMATION: 

Table of Contents

 
                                                         Paragraph Nos.
 
I. Introduction......................................                  1
II. Discussion.......................................                  7
    A. Order No. 719 Demand Response Opt-Out.........                  7
        a. Requests for Rehearing....................                 11
            i. Jurisdiction..........................                 11
            ii. Adequate Notice......................                 16
            iii. Reasoned Decision-Making............                 19
        b. Commission Determination..................                 26
    B. Definition of Demand Response for Purposes of                  30
     Applying the Order No. 719 Opt-Out to
     Heterogeneous Distributed Energy Resource
     Aggregations....................................
        a. Request for Clarification.................                 32
        b. Commission Determination..................                 35
    C. Double Counting and Compensation for Behind-                   37
     the-Meter Distributed Energy Resources That
     Reduce Load.....................................
        a. Request for Clarification or Rehearing....                 39
        b. Commission Determination..................                 42
III. Information Collection Statement................                 46
IV. Regulatory Flexibility Act.......................                 47
V. Document Availability.............................                 48
VI. Effective Date and Congressional Notification....                 51
 

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

[[Page 33854]]

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\
---------------------------------------------------------------------------

    \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), order on reh'g, Order No. 2222-A, 86 FR 16511 (Mar. 
24, 2011), 174 FERC ] 61,197 (2021); 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).
    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \7\ Id. P 6.
---------------------------------------------------------------------------

    3. On March 18, 2021, the Commission issued Order No. 2222-A, which 
addressed arguments raised on rehearing, set aside in part, and 
clarified in part the Commission's determinations in Order No. 2222. 
While the Commission largely affirmed its findings in Order No. 2222, 
the Commission 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.\8\ The 
Commission stated that 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, but 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.\9\ In addition, as relevant here, the Commission provided 
clarification regarding restrictions to avoid double counting of 
services.\10\
---------------------------------------------------------------------------

    \8\ Order No. 2222-A, 174 FERC ] 61,197 at P 22; see Wholesale 
Competition in Regions with Organized Electric Markets, Order No. 
719, 73 FR 64100 (Oct. 28, 2008), 125 FERC ] 61,071, at P 155 
(2008), order on reh'g, Order No. 719-A, 74 FR 37776 (July 29, 
2009), 128 FERC ] 61,059, order on reh'g, Order No. 719-B, 129 FERC 
] 61,252 (2009).
    \9\ Order No. 2222-A, 174 FERC ] 61,197 at PP 22-23.
    \10\ Id. PP 63-64.
---------------------------------------------------------------------------

    4. On April 19, 2021, the Edison Electric Institute (EEI); the 
Louisiana Public Service Commission and the Mississippi Public Service 
Commission (together, the Southern Regulators); the National 
Association of Regulatory Utility Commissioners (NARUC); the North 
Carolina Utilities Commission (the North Carolina Commission); and the 
MISO Transmission Owners \11\ filed timely requests for rehearing of 
Order No. 2222-A. On April 19, 2021, Advanced Energy Economy and 
Advanced Energy Management Alliance (together, AEE/AEMA) filed a 
request for clarification, or in the alternative, rehearing of Order 
No. 2222-A. On April 19, 2021, Voltus, Inc. (Voltus) filed a request 
for clarification of Order No. 2222-A. On April 30, 2021, the 
Midcontinent Independent System Operator, Inc. (MISO) filed an answer 
in response to the rehearing requests. On May 4, 2021, ISO New England 
Inc. (ISO-NE) filed an answer to AEE/AEMA's request. On May 14, 2021, 
AEE/AEMA filed an answer in response to ISO-NE's answer. On May 28, 
2021, AEE/AEMA filed an answer in response to the requests for 
rehearing and MISO's answer.\12\
---------------------------------------------------------------------------

    \11\ The MISO Transmission Owners consist of Ameren Services 
Company, as agent for Union Electric Company d/b/a Ameren Missouri, 
Ameren Illinois Company d/b/a Ameren Illinois and Ameren 
Transmission Company of Illinois; Big Rivers Electric Corporation; 
Central Minnesota Municipal Power Agency; City Water, Light & Power 
(Springfield, IL); Cleco Power LLC; Cooperative Energy; Dairyland 
Power Cooperative; Duke Energy Business Services, LLC for Duke 
Energy Indiana, LLC; East Texas Electric Cooperative; Entergy 
Arkansas, LLC; Entergy Louisiana, LLC; Entergy Mississippi, LLC; 
Entergy New Orleans, LLC; Entergy Texas, Inc; Great River Energy; 
GridLiance Heartland LLC; Hoosier Energy Rural Electric Cooperative, 
Inc.; Indiana Municipal Power Agency; Indianapolis Power & Light 
Company; Lafayette Utilities System; MidAmerican Energy Company; 
Minnesota Power (and its subsidiary Superior Water, L&P); Missouri 
River Energy Services; Montana-Dakota Utilities Co.; Northern 
Indiana Public Service Company LLC; Northern States Power Company, a 
Minnesota corporation, and Northern States Power Company, a 
Wisconsin corporation, subsidiaries of Xcel Energy Inc.; 
Northwestern Wisconsin Electric Company; Otter Tail Power Company; 
Prairie Power, Inc.; Illinois Power Cooperative; Southern Indiana 
Gas & Electric Company (d/b/a Vectren Energy Delivery of Indiana); 
Southern Minnesota Municipal Power Agency; Wabash Valley Power 
Association, Inc.; and Wolverine Power Supply Cooperative, Inc.
    \12\ 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 ISO-NE's, MISO's, and AEE/
AEMA's answers.
---------------------------------------------------------------------------

    5. Pursuant to Allegheny Defense Project v. FERC,\13\ 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,\14\ we modify 
the discussion in Order No. 2222-A and set aside the decision, in part, 
and clarify in part, as discussed below.\15\
---------------------------------------------------------------------------

    \13\ 964 F.3d 1 (D.C. Cir. 2020) (en banc).
    \14\ 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.'').
    \15\ Allegheny Def. Project, 964 F.3d at 16-17.
---------------------------------------------------------------------------

    6. Specifically, we set aside the decision in Order No. 2222-A to 
decline to extend the opt-out and opt-in requirements of Order Nos. 719 
and 719-A to demand response resources participating in heterogeneous 
distributed energy resource aggregations. We also provide further 
clarification regarding appropriate restrictions to avoid double 
counting of services and the compensation of demand response resources 
that participate in heterogeneous distributed energy resource 
aggregations, as discussed further below.

II. Discussion

A. Order No. 719 Demand Response Opt-Out

    7. In Order No. 2222, the Commission stated that the final rule 
does not affect the ability of relevant electric retail regulatory 
authorities (RERRA) to prohibit retail customers' demand response from 
being bid into RTO/ISO markets by aggregators pursuant to Order No. 
719.\16\ The Commission also stated that, because the definition of a 
distributed energy resource includes demand response resources, 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.\17\ 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.\18\ 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.
---------------------------------------------------------------------------

    \16\ Order No. 2222, 172 FERC ] 61,247 at P 59 (citing 18 CFR 
35.28(g)(1)(iii)).
    \17\ Id. P 118.
    \18\ Id. P 145.
---------------------------------------------------------------------------

    8. In Order No. 2222-A, the Commission 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

[[Page 33855]]

719-A.\19\ The Commission stated that, upon reconsideration, it 
declined to extend this opt-out to demand response resources that 
participate in heterogeneous distributed energy resource aggregations--
i.e., distributed energy resource aggregations that are made up of 
different types of resources including demand response.\20\ The 
Commission found that heterogeneous distributed energy resource 
aggregations that include demand response resources do not fall 
squarely within the Order No. 719 opt-out, as set forth in the 
Commission's regulations, because they are not solely aggregations of 
retail customers.\21\ The Commission stated that the Order No. 719 opt-
out will continue to apply to aggregations made up solely of resources 
that participate as demand response resources, consistent with the 
Commission's regulations.\22\
---------------------------------------------------------------------------

    \19\ Order No. 2222-A, 174 FERC ] 61,197 at P 22.
    \20\ Id. PP 22-23.
    \21\ Id. P 23 (citing 18 CFR 35.28(g)(1)(iii); 18 CFR 
35.28(b)(10), (g)(12); Order No. 2222, 172 FERC ] 61,247 at P 114); 
id. P 28 (concluding 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).
    \22\ Id. P 22 (emphasis in original).
---------------------------------------------------------------------------

    9. The Commission found 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, which would interfere with the 
Commission's responsibility to ensure that wholesale rates are just and 
reasonable.\23\ Specifically, the Commission concluded that extending 
the Order No. 719 opt-out to demand response resources that seek to 
participate in heterogeneous distributed energy resource aggregations 
would undermine the ability of aggregations to take advantage of the 
different resources' operational attributes and complementary 
capabilities.\24\ The Commission stated that 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.\25\ The Commission 
explained that, in addition to enhancing competition, diversity in 
distributed energy resource aggregations facilitates these non-
traditional resources' ability to provide a wide range of services in 
RTO/ISO markets.\26\ The Commission stated 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. The Commission also found 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.'' \27\
---------------------------------------------------------------------------

    \23\ Id. P 23 (citing Order No. 2222, 172 FERC ] 61,247 at PP 1, 
3, 142; Nat'l Ass'n of Regul. Util. Comm'rs v. FERC, 964 F.3d 1177, 
1189 (D.C. Cir. 2020) (NARUC)).
    \24\ Id. P 24.
    \25\ Id. P 25.
    \26\ Id. P 26 (citing Order No. 2222, 172 FERC ] 61,247 at P 
141).
    \27\ Id. P 27 (quoting Order No. 2222, 172 FERC ] 61,247 at P 
26).
---------------------------------------------------------------------------

    10. The Commission stated that it did not propose to overturn the 
Order No. 719 opt-out in this rulemaking and, to the extent that 
parties asked the Commission to do so on rehearing, it found that such 
requests were out of scope.\28\ The Commission also clarified 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.
---------------------------------------------------------------------------

    \28\ Id. P 28.
---------------------------------------------------------------------------

a. Requests for Rehearing
i. Jurisdiction
    11. Some petitioners argue that the Commission's opt-out finding in 
Order No. 2222-A violated the Commission's jurisdiction under the FPA 
or usurped state authority.\29\ The Southern Regulators argue that the 
Commission failed to properly balance the jurisdictional limitations of 
the FPA with the states' exclusive jurisdiction over retail issues in 
its decision to exercise authority over retail demand response.\30\
---------------------------------------------------------------------------

    \29\ NARUC Request for Rehearing at 3, 5; Southern Regulators 
Request for Rehearing at 12.
    \30\ Southern Regulators Request for Rehearing at 12.
---------------------------------------------------------------------------

    12. The Southern Regulators argue that the Commission contravened 
EPSA because, in their view, the Supreme Court concluded that it is 
precisely a state's right to opt out of participation by retail 
customers in an RTO demand response wholesale market that ensures the 
balance of federal and state power under the FPA.\31\ The Southern 
Regulators argue that EPSA requires a careful balancing of the 
interests of the states and those of the Commission in order to 
determine whether the Commission has and/or should exercise 
jurisdiction under the FPA. The Southern Regulators argue that in Order 
No. 2222-A the Commission disregarded the concept of cooperative 
federalism upon which the Court relied to reach its decision, a concept 
fundamental to the balance of overlapping jurisdiction under the 
FPA.\32\ The Southern Regulators argue that the Court concluded that, 
when it comes to retail customer participation in wholesale markets, 
states have the last word.\33\ The Southern Regulators argue that the 
Commission's historic practice in areas where federal and state 
jurisdiction overlap has been to recognize that balance, as it did in 
Order No. 1000.\34\ The Southern Regulators argue that Order No. 2222-A 
offers no discussion of or replacement for the state opt-out authority 
that would evidence the Commission's ``compliance with Sec.  824(b)'s 
allocation of federal and state authority.'' \35\
---------------------------------------------------------------------------

    \31\ Id. at 13 (citing FERC v. EPSA, 136 S. Ct. 760, 779-80 
(2016) (EPSA)).
    \32\ Id. at 12.
    \33\ Id. at 14 (citing EPSA, 136 S. Ct. at 780).
    \34\ Id. at 13-14 (citing Transmission Planning and Cost 
Allocation by Transmission Owning and Operating Public Utilities, 
Order No. 1000, 76 FR 49842 (Aug. 11, 2011), 136 FERC ] 61,051, at 
PP 225-27, 287 (2011), order on reh'g, Order No. 1000-A, 77 FR 32184 
(May 31, 2012), 139 FERC ] 61,132, at P 392, order on reh'g and 
clarification, Order No. 1000-B, 77 FR 64890 (Oct. 24, 2012), 141 
FERC ] 61,044 (2012), aff'd sub nom. S.C. Pub. Serv. Auth. v. FERC, 
762 F.3d 41 (D.C. Cir. 2014)).
    \35\ Id. at 15 (quoting EPSA, 136 S. Ct. at 780).
---------------------------------------------------------------------------

    13. The North Carolina Commission similarly argues that the 
Commission did not account for the long-standing authority of the 
states and the traditional, cooperative roles played by federal and 
state regulators in promoting adequate, reliable, safe, clean, and 
affordable electric services.\36\ The North Carolina Commission argues 
that the cooperative federalism inherent in the FPA and the regulation 
of wholesale and retail electric service requires a role for both 
federal and state regulators.\37\ The North Carolina Commission 
maintains that the Commission's action does not encourage utility 
participation in an RTO/ISO or encourage a state commission to allow a 
utility's RTO/ISO participation.\38\
---------------------------------------------------------------------------

    \36\ North Carolina Commission Request for Rehearing at 10.
    \37\ Id. at 11.
    \38\ Id. at 10.
---------------------------------------------------------------------------

    14. NARUC argues that, by eliminating the opt-out for demand 
response resources in heterogeneous aggregations, the Commission 
usurped authority from states that used the Order

[[Page 33856]]

No. 719 opt-out and built a legal framework for that regulatory 
scheme.\39\ NARUC argues that Order No. 2222-A allows a demand response 
resource to disregard the judgment of state regulators by joining a 
third-party aggregation with other types of resources.\40\ In addition, 
NARUC argues, the order allows third-party aggregators of demand 
response resources to add a solitary unit of a different type of 
distributed energy resource to its aggregations to circumvent state 
law.
---------------------------------------------------------------------------

    \39\ NARUC Request for Rehearing at 3, 5.
    \40\ Id. at 6.
---------------------------------------------------------------------------

    15. NARUC disputes the Commission's position that ``[b]ecause 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.'' \41\ NARUC argues that the 
Commission's action in Order No. 2222-A is unlike the Commission's 
decisions in Order Nos. 841 and 2222 because there were no state 
regulations already in place.\42\ NARUC explains that there was no need 
prior to Order No. 841 for states to prohibit storage resources on the 
distribution system or behind the meter from participating in wholesale 
markets because that was not possible before the order.\43\ NARUC 
points out that the challenge to Order No. 841 in NARUC was a facial 
challenge and argues that NARUC does not address as-applied 
challenges.\44\ NARUC explains that prior to Order No. 2222-A, some 
states had regulations that applied to demand response aggregations on 
the distribution system or behind the meter because Order No. 719 
permitted such participation in the wholesale markets.\45\ NARUC argues 
that Order No. 2222-A takes away this authority over demand response 
resources.\46\
---------------------------------------------------------------------------

    \41\ Id. (quoting Order No. 2222-A, 174 FERC ] 61,197 at P 12 
n.36).
    \42\ Id. at 5.
    \43\ Id. at 6.
    \44\ Id. (citing NARUC, 964 F.3d at 1188-89).
    \45\ Id. at 6-7 (emphasis in original).
    \46\ Id. at 7.
---------------------------------------------------------------------------

ii. Adequate Notice
    16. Multiple petitioners argue that the Commission violated the 
Administrative Procedure Act (APA) by effectively eliminating the Order 
No. 719 opt-out without providing adequate notice and without 
soliciting comments and evidence from RERRAs that have adopted and 
relied upon that opt-out.\47\ The Southern Regulators and NARUC argue 
that the procedurally proper method to modify the opt-out is in the 
proceeding in Docket No. RM21-14-000 that was noticed for this 
purpose.\48\ The Southern Regulators argue that nothing in the Notice 
of Proposed Rulemaking in Docket No. RM16-23-000 \49\ indicated an 
effort or intent by the Commission to reconsider the Order No. 719 opt-
out.\50\
---------------------------------------------------------------------------

    \47\ Southern Regulators Request for Rehearing at 10; EEI 
Request for Rehearing at 4; North Carolina Commission Request for 
Rehearing at 8-9.
    \48\ Southern Regulators Request for Rehearing at 10; NARUC 
Request for Rehearing at 8.
    \49\ Electric Storage Participation in Markets Operated by 
Regional Transmission Organizations and Independent System 
Operators, 81 FR 86522 (Nov. 30, 2016), 157 FERC ] 61,121 (2016) 
(NOPR).
    \50\ Southern Regulators Request for Rehearing at 10.
---------------------------------------------------------------------------

    17. The Southern Regulators argue that they were prejudiced by the 
Commission's failure to provide notice that the Order No. 719 opt-out 
was at risk in Docket No. RM18-9.\51\ The Southern Regulators and the 
North Carolina Commission explain that they have provisions restricting 
aggregators of retail customers in their respective jurisdictions.\52\ 
The Southern Regulators maintain that, because the NOPR offered no hint 
that the opt-out was in jeopardy, they had no reason to oppose 
elimination of the opt-out in the rulemaking docket or actively 
participate in the other portions of the rulemaking affecting demand 
response resources.
---------------------------------------------------------------------------

    \51\ Id. at 11.
    \52\ Southern Regulators Request for Rehearing at 11; North 
Carolina Commission Request for Rehearing at 2-3.
---------------------------------------------------------------------------

    18. In addition, NARUC and the Southern Regulators argue that 
eliminating the Order No. 719 opt-out for demand response resources in 
heterogeneous aggregations is outside the scope of Order No. 2222.\53\
---------------------------------------------------------------------------

    \53\ NARUC Request for Rehearing at 8; Southern Regulators 
Request for Rehearing at 7.
---------------------------------------------------------------------------

iii. Reasoned Decision-Making
    19. Several petitioners argue that the Commission acted arbitrarily 
and capriciously by departing from its policy in Order Nos. 719 and 
719-A in Order. No. 2222-A without acknowledgment, an adequate 
explanation, or an examination of the policy considerations in support 
of the opt-out.\54\ The MISO Transmission Owners further argue that the 
Commission did not adequately address how it will enforce the policy of 
avoiding unduly burdening states and retail regulators or why the 
policy considerations are no longer relevant.\55\ The Southern 
Regulators contend that the Commission's reasons for eliminating the 
opt-out in Order No. 2222-A were present at the time Order No. 719 was 
issued, and that the Commission has not explained why those reasons now 
require elimination of the opt-out.\56\
---------------------------------------------------------------------------

    \54\ See, e.g., MISO Transmission Owners Rehearing Request at 6; 
NARUC Rehearing Request at 8; North Carolina Commission Rehearing 
Request at 5; Southern Regulators Rehearing Request at 9.
    \55\ MISO Transmission Owners Rehearing Request at 8-9, 11.
    \56\ Southern Regulators Rehearing Request at 8-9.
---------------------------------------------------------------------------

    20. Next, several petitioners claim that the Commission failed to 
acknowledge the states' role in overseeing demand response activities 
within their borders.\57\ The MISO Transmission Owners assert that the 
Commission failed to consider the effect that limiting the opt-out will 
have on states' ability to control consumer costs, and the Southern 
Regulators argue that the Commission's opt-out decision unreasonably 
restricts the ability of states to protect retail customers.\58\
---------------------------------------------------------------------------

    \57\ See, e.g., MISO Transmission Owners Rehearing Request at 9-
10 (citing EPSA, 136 S. Ct. at 779).
    \58\ MISO Transmission Owners Rehearing Request at 9-10; 
Southern Regulators Rehearing Request at 15.
---------------------------------------------------------------------------

    21. Next, some petitioners argue that the Commission relies on a 
false distinction between heterogeneous and homogeneous distributed 
energy resource aggregations to justify eliminating state opt-out 
authority.\59\
---------------------------------------------------------------------------

    \59\ E.g., Southern Regulators Rehearing Request at 19.
---------------------------------------------------------------------------

    22. NARUC challenges the Commission's finding that ``heterogeneous 
distributed energy resource aggregations that include demand response 
resources do not fall squarely within the Order No. 719 opt-out, as set 
forth in our regulations because they are not solely aggregations of 
retail customers,'' because the definition of ``aggregator of retail 
customers'' that the Commission relies upon does not say that the 
aggregations are exclusively retail loads, just ``mostly.'' \60\ NARUC 
argues that the Commission acted capriciously by changing the treatment 
of demand response resources on the distribution system and behind the 
meter without further evidence of the types of load involved or inquiry 
into the experience of states that have employed the opt-out.\61\
---------------------------------------------------------------------------

    \60\ NARUC Rehearing Request at 7 (quoting Order No. 2222-A, 174 
FERC ] 61,197 at P 23).
    \61\ Id. at 8.
---------------------------------------------------------------------------

    23. Some petitioners also object to the Commission's 
characterization of demand response resources in declining to extend 
the opt-out to heterogeneous distributed energy resource aggregations. 
The Southern Regulators criticize the Commission's reliance on the 
ability of distributed energy resources to take advantage of operating 
attributes and complementary

[[Page 33857]]

capabilities.\62\ The MISO Transmission Owners argue that, in allowing 
demand response resources to participate through a heterogeneous 
aggregation, the Commission did not distinguish between injection and 
non-injection resources, as it previously did when maintaining the opt-
out in Order Nos. 841 and 2222.\63\
---------------------------------------------------------------------------

    \62\ Southern Regulators Rehearing Request at 20 (citing Order 
No. 2222-A, 174 FERC ] 61,197 at P 24).
    \63\ MISO Transmission Owners Rehearing Request at 7 (citing 
Order No. 841-A, 167 FERC ] 61,154 at P 53).
---------------------------------------------------------------------------

    24. Several petitioners further argue that the Commission's 
decision is arbitrary and capricious because it would allow distributed 
energy resource aggregations comprised primarily of demand response 
resources to evade state regulations.\64\
---------------------------------------------------------------------------

    \64\ EEI Rehearing Request at 4; MISO Transmission Owners 
Rehearing Request at 6 n.13; North Carolina Commission Rehearing 
Request at 7-8.
---------------------------------------------------------------------------

    25. Finally, EEI argues that it was arbitrary and capricious for 
the Commission to remove the opt-out without allowing an opportunity 
for public comment in Docket No. RM21-14-000, where the Commission has 
opened a far-reaching inquiry about removing the demand response opt-
out from its regulations.\65\ EEI and the MISO Transmission Owners 
argue that the Commission has effectively undermined that inquiry in 
Docket No. RM21-14-000.\66\
---------------------------------------------------------------------------

    \65\ EEI Rehearing Request at 1-2; MISO Transmission Owners 
Rehearing Request at 11.
    \66\ EEI Rehearing Request at 4; MISO Transmission Owners 
Rehearing Request at 8.
---------------------------------------------------------------------------

b. Commission Determination
    26. Upon reviewing the requests for rehearing, we set aside our 
prior decision not to extend the Order No. 719 opt-out to demand 
response resources that participate in heterogeneous distributed energy 
resource aggregations. As discussed below, we find that these issues 
are better addressed in Docket No. RM21-14-000.\67\
---------------------------------------------------------------------------

    \67\ The Commission has broad discretion in how to manage its 
proceedings. See Vt. Yankee Nuclear Power Corp. v. Natural Res. Def. 
Council, Inc., 435 U.S. 519, 524-25 (1978) (recognizing that 
agencies have broad discretion over the formulation of their 
procedures); S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 81 (D.C. 
Cir. 2014) (affirming the Commission's discretion in how to manage 
the proceedings before it); Tenn. Gas Pipeline Co. v. FERC, 972 F.2d 
376, 381 (D.C. Cir. 1992) (``The agency is entitled to make 
reasonable decisions about when and in what type of proceeding it 
will deal with an actual problem.'') (citing Mobil Oil Expl. & 
Producing Se. Inc. v. United Distrib. Cos., 498 U.S. 211, 230 (1991) 
(``An agency enjoys broad discretion in determining how best to 
handle related, yet discrete, issues in terms of procedures . . . 
.'')).
---------------------------------------------------------------------------

    27. As an initial matter, we disagree with the arguments on 
rehearing that the Commission's interpretation of the Order No. 719 
opt-out in Order No. 2222-A would have exceeded the Commission's 
jurisdiction under the FPA. The Southern Regulators rely on EPSA to 
argue that the Commission failed to properly balance the jurisdictional 
limitations of the FPA. We disagree. EPSA held that the Commission's 
regulation of demand response participation in wholesale markets is a 
practice that directly affects wholesale rates.\68\ Further, the Court 
also held that the Commission's regulation of demand response resources 
does not regulate retail sales in violation of FPA section 201(b).\69\ 
As the D.C. Circuit explained in NARUC, the Court in EPSA ``did not 
condition its holdings on the existence of an opt-out.'' \70\ 
Accordingly, we continue to conclude that the Commission was not 
legally required either to grant the opt-out in Order No. 719 or to 
extend that opt-out in this proceeding.\71\
---------------------------------------------------------------------------

    \68\ EPSA, 136 S. Ct. at 774 (referring to the Commission's 
jurisdiction under FPA sections 205 and 206 to regulate practices 
affecting jurisdictional rates); see also Order No. 2222, 172 FERC ] 
61,247 at P 41 (discussing EPSA's application to this proceeding).
    \69\ EPSA, 136 S. Ct. at 784; see also Order No. 2222, 172 FERC 
] 61,247 at P 41.
    \70\ NARUC, 964 F.3d at 1189-90; see 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 (2018), order on reh'g and clarification, Order No. 841-A, 84 
FR 23902 (May 23, 2019), 167 FERC ] 61,154, at P 40 (2019), aff'd 
sub nom. NARUC, 964 F.3d 1177 (explaining that the Court in EPSA 
described how its ``analysis of FERC's regulatory authority 
proceeds'' without referring to an opt-out, and explaining that, 
when the Court stated that it viewed the opt-out merely as the 
``finishing blow'' to EPSA's already losing arguments that the 
Commission ``aimed to obliterate [states'] regulatory authority or 
override their pricing policies,'' that statement was not a 
determinative part of its analysis) (quoting EPSA, 136 S. Ct. at 
773, 779).
    \71\ See Order No. 2222, 172 FERC ] 61,247 at P 59 (explaining 
that the Commission was not obligated to provide an opt-out in Order 
No. 719 but did so as an exercise of its discretion); see also 
NARUC, 964 F.3d at 1187 (``[B]ecause FERC has the exclusive 
authority to determine who may participate in the wholesale markets, 
the Supremacy Clause . . . requires that [s]tates not interfere.'').
---------------------------------------------------------------------------

    28. Nonetheless, we acknowledge that, in implementing the opt-out 
in Order No. 719, a number of states broadly prohibited demand response 
participation in RTO/ISO markets,\72\ and that those states--and other 
entities affected by the opt-out--may not have anticipated that this 
proceeding would call into question those broad prohibitions. Given the 
importance of these issues, which affect both federal and state 
regulatory interests,\73\ we believe that the better course is to 
provide them full consideration through the Notice of Inquiry (NOI) 
issued contemporaneously with Order No. 2222-A. The record under 
development in that proceeding bears on many of those federal and state 
interests and will provide an opportunity for all interested views to 
be heard and considered by the Commission.\74\ Specifically, the NOI

[[Page 33858]]

states that the Commission is ``exploring whether to revise the 
Commission's regulations to remove the [Order No. 719 opt-out], 
recognizing that the Commission, when it established the [Order No. 719 
opt-out], balanced the interests and concerns of state and local 
regulatory authorities with the Commission's goal of removing barriers 
to demand response resource participation in RTO/ISO markets. 
Circumstances may have changed in the years since the issuance of Order 
Nos. 719 and 719-A, such that the balance reflected in those orders 
adopting the [Order No. 719 opt-out] may have shifted and the RTO/ISO 
market rules reflecting the [Order No. 719 opt-out] may no longer be 
just and reasonable.'' \75\ To ensure an adequate opportunity for 
interested entities to comment on the Order No. 719 opt-out in light of 
our decision to set aside Order No. 2222-A in part, concurrently with 
this decision, the Commission is issuing a notice extending the comment 
periods in Docket No. RM21-14-000.\76\
---------------------------------------------------------------------------

    \72\ See, e.g., North Carolina Commission Request for Rehearing 
at 2-3 (quoting 2010 North Carolina Commission decision ordering 
that ``under North Carolina law and its traditional regulatory 
structure, Dominion's retail customers cannot participate in PJM's 
wholesale markets through its demand response programs individually 
or through aggregation by a third party not regulated by the 
Commission''); Southern Regulators Request for Rehearing at 11 n.33 
(citing Notice of Intent of Entergy Mississippi, LLC to Change Rates 
by Filing Market Valued Demand Response Rider, 2019 WL 5212152, at 
*1 (Miss. Pub. Serv. Comm'n Sept. 10, 2019) (``The Commission 
further finds that [Market Valued Demand Response] Schedule MVDR-1 
is the only vehicle through which end-use retail customers and/or 
[aggregators of retail customers] will be permitted to participate 
as DR resources in the MISO wholesale market. Entergy Mississippi 
will be the sole Market Participant [ ] in MISO for all DR resources 
provided by Participants in [Entergy Mississippi's] service 
territory.'')).
    \73\ Compare Order No. 2222-A, 174 FERC ] 61,197 (Christie, 
Comm'r, dissenting at P 6) (``Providing such flexibility to the 
states and other RERRAs [to fully opt-out] would allow them to 
manage the deployment of behind-the-meter [distributed energy 
resources] in ways necessary to meet their own unique 
challenges.''); NARUC Request for Rehearing at 6-7 (arguing that the 
Commission in Order No. 2222-A took away the authority of those 
states that had regulations that applied to wholesale market 
participation of demand response aggregations on the distribution 
system or behind the meter); with Order No. 2222-A, 174 FERC ] 
61,197 at P 23 (``find[ing] 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'').
    \74\ For example, the Commission in the NOI asked: ``What are 
the potential benefits of removing the [Order No. 719 opt-out], 
including any benefits not considered by the Commission in Order 
Nos. 719 and 719-A, and considering any changed circumstances that 
may be relevant?'' Participation of Aggregators of Retail Demand 
Response Customers in Markets Operated by Regional Transmission 
Organizations and Independent System Operators, 86 FR 15933 (Mar. 
25, 2021), 174 FERC ] 61,198, at P 24 (2021) (question five) 
(emphasis added); see id. P 25 (question 9) (``To what extent has 
the [Order No. 719 opt-out] prevented interference with the 
operation of existing retail demand response programs, or avoided 
placing an undue burden on state and local retail regulatory 
entities, as noted in Order No. 719?''); id. P 24 (question 6) 
(``What are the potential benefits of creating more consistency 
between the participation models for [aggregators of retail 
customers] and distributed energy resource aggregators by removing 
the [Order No. 719 opt-out]? In light of market participation 
opportunities for energy efficiency resources, electric storage 
resources, and distributed energy resource aggregations, would 
eliminating the [Order No. 719 opt-out] established in Order Nos. 
719 and 719-A enhance clarity for market participants and prevent 
disputes regarding the eligibility of resource aggregations to 
participate in wholesale markets?''); id. (question 8) (``Is there 
any other evidence to suggest that RTO/ISO market rules reflecting 
the [Order No. 719 opt-out] are no longer just and reasonable?'').
    \75\ Id. P 21.
    \76\ Notice of Extension of Time for Filing Initial and Reply 
Comments, Participation of Aggregators of Retail Demand Response 
Customers in Markets Operated by Regional Transmission Organizations 
and Independent System Operators, Docket No. RM21-14-000 (June 17, 
2021) (extending time to and including July 23, 2021 to file initial 
comments, and to and including August 23, 2021 to file reply 
comments).
---------------------------------------------------------------------------

    29. Because we set aside our prior decision in Order No. 2222-A to 
not extend the Order No. 719 opt-out to demand response resources that 
participate in heterogeneous distributed energy resource aggregations, 
we find that, as the Commission stated in Order No. 2222, ``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. Therefore, if the relevant electric retail 
regulatory authority where a demand response resource is located has 
either chosen to opt out or has not opted in [pursuant to Order Nos. 
719 and 719-A], then the demand response resource may not participate 
in a distributed energy resource aggregation.'' \77\
---------------------------------------------------------------------------

    \77\ Order No. 2222, 172 FERC ] 61,247 at P 145.
---------------------------------------------------------------------------

B. Definition of Demand Response for Purposes of Applying the Order No. 
719 Opt-Out to Heterogeneous Distributed Energy Resource Aggregations

    30. Order No. 2222 requires each RTO/ISO to revise its tariff to 
allow market participation by heterogeneous distributed energy resource 
aggregations.\78\ The Commission found that requiring each RTO/ISO to 
allow heterogeneous aggregations will further 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 such as minimum run times, 
which will help ensure that these markets produce just and reasonable 
rates.
---------------------------------------------------------------------------

    \78\ Id. P 142.
---------------------------------------------------------------------------

    31. In Order No. 2222-A, for purposes of applying the opt-out, the 
Commission clarified the definition of heterogeneous aggregations as 
``those that are made up of different types of resources including 
demand response as opposed to those made up solely of demand 
response.'' \79\ The Commission found that ``[t]he opt-out will 
continue to apply to aggregations made up solely of resources that 
participate as demand response resources, consistent with [its] 
regulations'' (i.e., consistent with the opt-out requirements of Order 
No. 719). The Commission clarified 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).'' \80\ The Commission 
stated that, ``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.'' But, the 
Commission stated, ``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.''
---------------------------------------------------------------------------

    \79\ Order No. 2222-A, 174 FERC ] 61,197 at P 22.
    \80\ Id. P 29.
---------------------------------------------------------------------------

a. Request for Clarification
    32. Voltus requests clarification that demand response paired with 
a behind-the-meter distributed energy resource constitutes a 
heterogeneous distributed energy resource aggregation not subject to 
the Order No. 719 opt-out.\81\ Voltus argues that the Commission stated 
that resources ``made up solely of demand response'' are subject to the 
opt-out. Voltus maintains that the Commission could have easily stated 
that demand response paired with behind-the-meter distributed energy 
resources to reduce load is a demand response resource subject to the 
opt-out, but it did not draw this distinction.\82\
---------------------------------------------------------------------------

    \81\ Voltus Request for Clarification at 1, 4.
    \82\ Id. at 5.
---------------------------------------------------------------------------

    33. Voltus argues that clarification is necessary because paragraph 
29 of Order No. 2222-A has caused MISO to propose that an aggregation 
of demand response using behind-the-meter generation and/or storage to 
reduce load would be subject to the Order No. 719 opt-out.\83\ Voltus 
argues that this conclusion is based on an overly broad reading of a 
single paragraph, which draws no distinction regarding whether a 
distributed energy resource acts to reduce load. Voltus maintains that 
it would be needlessly complicated if a resource could evade the opt-
out because it is configured to inject but never actually does.\84\
---------------------------------------------------------------------------

    \83\ Id. at 1, 4, 5.
    \84\ Id. at 5.
---------------------------------------------------------------------------

    34. Voltus argues that classifying demand response paired with 
behind-the-meter resources as a heterogeneous aggregation is consistent 
with AEE/AEMA's request for clarification that a behind-the-meter 
distributed energy resource used to serve onsite load should be paid at 
the locational marginal price (LMP), as required by Order No. 745. 
Voltus argues that LMP payments are proper because Order No. 2222-A did 
not change Order No. 745's payment structure for resources that reduce 
load to the bulk power system.\85\
---------------------------------------------------------------------------

    \85\ Id. at 6.
---------------------------------------------------------------------------

b. Commission Determination
    35. Because we set aside the Commission's decision in Order No. 
2222-A to decline to extend the Order No. 719 opt-out to heterogeneous 
distributed energy resource aggregations, we find that Voltus's request 
for clarification is largely moot.
    36. Nevertheless, with respect to potential confusion underlying 
Voltus's request for clarification, we note that the Commission has 
stated previously that load reductions in demand response programs can 
be facilitated by a variety of technologies and still constitute demand 
response.\86\ Thus, we clarify

[[Page 33859]]

that a behind-the-meter resource that is solely used to facilitate 
demand response, i.e., deployed solely to reduce customer load from 
expected consumption, would itself be considered a demand response 
resource.\87\
---------------------------------------------------------------------------

    \86\ See, e.g., Demand Response Supporters v. N.Y. Indep. Sys. 
Operator, Inc., 155 FERC ] 61,151, at P 13 (2016) (``[A] reduction 
in metered load on the grid, even a reduction facilitated by behind-
the-meter generation, is still a reduction and thus is appropriately 
considered demand response as defined in section 35.28(d)(4).''); 
Demand Response Compensation in Organized Wholesale Energy Markets, 
Order No. 745, 76 FR 16658 (Mar. 24, 2011), 134 FERC ] 61,187, order 
on reh'g and clarification, Order No. 745-A, 137 FERC ] 61,215, at P 
66 (2011), reh'g denied, Order No. 745-B, 138 FERC ] 61,148 (2012), 
vacated sub nom. Elec. Power Supply Ass'n v. FERC, 753 F.3d 216 
(D.C. Cir. 2014), rev'd & remanded sub nom. EPSA, 136 S. Ct. 760 
(``[T]he manner in which a customer is able to produce such a load 
reduction from its validly established baseline (whether by shifting 
production, using internal generation, consuming less electricity, 
or other means) does not change the effect or value of the reduction 
to the wholesale grid.'').
    \87\ See 18 CFR 35.28(b)(4).
---------------------------------------------------------------------------

C. Double Counting and Compensation for Behind-the-Meter Distributed 
Energy Resources That Reduce Load

    37. In Order No. 2222, the Commission clarified that the 
requirements in Order No. 745 would apply to demand response resources 
participating in heterogeneous aggregations.\88\ The Commission also 
stated that ``this final rule does not affect existing demand response 
rules.'' \89\ In Order No. 2222-A, the Commission stated that 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 its mandate to ensure that 
Commission-jurisdictional rates are just and reasonable.\90\
---------------------------------------------------------------------------

    \88\ Order No. 2222, 172 FERC ] 61,247 at P 145. In Order No. 
2222, the Commission stated that ``[d]emand response means 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.'' Id. P 2 n.8 (citing 18 CFR 
35.28(b)(4)).
    \89\ Id. P 118.
    \90\ Order No. 2222-A, 174 FERC ] 61,197 at P 25 (citing 16 
U.S.C. 824e).
---------------------------------------------------------------------------

    38. With respect to double counting, the Commission in Order No. 
2222 required each RTO/ISO to include any appropriate restrictions on 
distributed energy resource 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.\91\ 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.\92\ In Order No. 2222-A, the 
Commission clarified 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,'' \93\ 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.
---------------------------------------------------------------------------

    \91\ Order No. 2222, 172 FERC ] 61,247 at PP 160-161.
    \92\ Id. P 161.
    \93\ Order No. 2222-A, 174 FERC ] 61,197 at P 63 (citing Order 
No. 2222, 172 FERC ] 61,247 at P 161).
---------------------------------------------------------------------------

a. Request for Clarification or Rehearing
    39. AEE/AEMA seek clarification--or, in the alternative, 
rehearing--that behind-the-meter distributed energy resources used to 
serve onsite load, therefore reducing power consumption from the bulk 
power system, should be compensated at full locational marginal price 
(LMP) in compliance with Order No. 745 with no need to eliminate retail 
savings generated by the distributed energy resource, and that payment 
of full LMP to behind-the-meter distributed energy resources does not 
constitute double counting.\94\ AEE/AEMA ask the Commission to confirm 
that double counting does not occur when a distributed energy resource 
participating in an aggregation is compensated for acting as a provider 
of a service, whether procured on a forward-looking basis or in real-
time, and reduces an end-use customer's load on the bulk power system, 
resulting in retail savings.\95\
---------------------------------------------------------------------------

    \94\ AEE/AEMA Request for Clarification at 2-3, 5-6.
    \95\ Id. at 2, 5.
---------------------------------------------------------------------------

    40. AEE/AEMA maintain that the Supreme Court in EPSA held that the 
Commission has authority to authorize RTOs/ISOs to pay demand response 
resources full LMP.\96\ AEE/AEMA contend that the Commission has 
clarified that payment of full LMP to demand response resources does 
not constitute double counting--regardless of the existence of behind-
the-meter distributed energy resources or other manner of load 
reduction to the bulk power system.\97\ AEE/AEMA argue that the 
principles of Order No. 745 apply to all reductions in load from the 
perspective of the bulk power system, regardless of the method or 
methods used to achieve that reduction, even though Order No. 2222 
defined demand response resources more narrowly as reductions to usage 
by a customer.\98\
---------------------------------------------------------------------------

    \96\ Id. at 3-4 (citing EPSA, 136 S. Ct. 760).
    \97\ Id. at 4 (citing Order No. 745, 134 FERC ] 61,187 at PP 64, 
66).
    \98\ Id. at 5 (citing Order No. 745-A, 137 FERC ] 61,215 at P 
66; Order No. 2222, 172 FERC ] 61,247 at P 2 n.8).
---------------------------------------------------------------------------

    41. AEE/AEMA state that their members are encountering continued 
confusion in ongoing RTO/ISO stakeholder processes regarding the double 
counting restrictions in Order No. 2222, specifically regarding 
compensation for wholesale market services provided by 
aggregations.\99\ AEE/AEMA argue that, absent clarification, RTO/ISO 
compliance submissions may not fully comply with Order Nos. 745 and 
2222-A and may result in significant stakeholder discussions that could 
delay implementation of new participation rules and deployment of 
distributed energy resources.\100\ AEE/AEMA assert that Order No. 2222 
proposals that pay demand response resources less than full LMP would 
not enhance competition or ensure just and reasonable rates.\101\
---------------------------------------------------------------------------

    \99\ Id. at 2, 6.
    \100\ Id. at 6.
    \101\ Id.
---------------------------------------------------------------------------

b. Commission Determination
    42. We grant, in part, AEE/AEMA's request for clarification. As an 
initial matter, we disagree with AEE/AEMA's claim that Order No. 2222 
modified the definition of demand response. In Order Nos. 745 and 2222, 
the Commission cited to the same definition of demand response 
contained in the Commission's regulations.\102\ Further, we disagree 
with AEE/AEMA's suggestion that all reductions in load from the 
perspective of the bulk power system should be compensated consistent 
with Order No. 745. Only those reductions that meet the definition of 
demand response in the Commission's regulations and are used to reduce 
customer load from a validly established baseline pursuant to Order 
Nos. 745 and 745-A must be compensated consistent with those 
orders.\103\
---------------------------------------------------------------------------

    \102\ Order No. 745, 134 FERC ] 61,187 at P 2 n.2; Order No. 
2222, 172 FERC ] 61,247 at P 2 n.8 (citing 18 CFR 35.28(b)(4)) 
(``Demand response means 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.'').
    \103\ See supra P 36.
---------------------------------------------------------------------------

    43. We clarify that payment of full LMP in the energy market to 
behind-the-

[[Page 33860]]

meter distributed energy resources participating as demand response 
resources in distributed energy resource aggregations does not 
constitute double counting, so long as the requirements of Order No. 
745, including the net benefits test, are satisfied.\104\ Order No. 
2222 provided that the requirements of Order No. 745 apply to demand 
response resources participating in heterogeneous aggregations.\105\ In 
Order No. 745, the Commission found that when a demand response 
resource is participating in an RTO/ISO market and dispatch of that 
demand response resource is cost-effective as determined by the net 
benefits test, that demand response resource must be compensated in the 
energy market at the LMP.\106\ Accordingly, in circumstances in which 
the net benefits test is satisfied, paying LMP to behind-the-meter 
distributed energy resources participating as demand response resources 
in distributed energy resource aggregations, without reflecting the 
savings load realized from not having to purchase electricity, does not 
reflect a double payment.\107\ We will evaluate, on compliance, any 
proposed distributed energy resource aggregation compensation rules 
regarding demand response for consistency with the requirements of 
Order No. 745. However, with respect to compensation issues beyond the 
scope of Order No. 745, such as if a behind-the-meter resource 
participates as another type of distributed energy resource, we will 
not prejudge RTO/ISO proposals but rather evaluate them on compliance.
---------------------------------------------------------------------------

    \104\ See Order No. 2222, 172 FERC ] 61,247 at P 145.
    \105\ Id.
    \106\ Order No. 745-A, 137 FERC ] 61,215 at P 64 (citing Order 
No. 745, 134 FERC ] 61,187 at P 61).
    \107\ See id.
---------------------------------------------------------------------------

    44. With respect to the participation of demand response resources 
in distributed energy resource aggregations, we clarify that, if an 
individual distributed energy resource is a behind-the-meter generator, 
it may participate within a distributed energy resource aggregation as 
a demand response resource or as a different type of distributed energy 
resource. If the distributed energy resource participates as demand 
response, the requirements in Order No. 745 would apply, and the RTOs/
ISOs are required to allow that distributed energy resource to 
aggregate with other types of distributed energy resources in a 
heterogeneous distributed energy resource aggregation.\108\ If the 
behind-the-meter resource participates as another type of distributed 
energy resource (i.e., not as a demand response resource), the 
requirements in Order No. 745 would not apply.
---------------------------------------------------------------------------

    \108\ See Order No. 2222, 172 FERC ] 61,247 at P 142 (requiring 
RTOs/ISOs to allow heterogeneous DER aggregations); id. P 145 
(clarifying that the requirements in Order No. 745 apply to demand 
response resources participating in heterogeneous aggregations).
---------------------------------------------------------------------------

    45. We reiterate, however, that we will evaluate each RTO's/ISO's 
``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,'' \109\ and accordingly, whether it appropriately 
compensates distributed energy resources for providing such services.
---------------------------------------------------------------------------

    \109\ Order No. 2222, 172 FERC ] 61,247 at P 130.
---------------------------------------------------------------------------

III. Information Collection Statement

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

IV. Regulatory Flexibility Act

    47. The Regulatory Flexibility Act of 1980 (RFA) \110\ 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.
---------------------------------------------------------------------------

    \110\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

V. Document Availability

    48. 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).
    49. 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.
    50. 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

    51. This rule is effective August 27, 2021.
    By the Commission.
    Commissioner Chatterjee is concurring with a separate statement 
attached.
    Commissioner Danly is concurring with a separate statement 
attached.
    Commissioner Christie is concurring in part and dissenting in part 
with a separate statement attached.

    Issued: June 17, 2021.
Debbie-Anne A. Reese,
Deputy Secretary.

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. RM18-9-003
    CHATTERJEE, Commissioner, concurring:
    1. I concur with today's order because it continues to find that 
the Commission was under no legal obligation to provide the Order No. 
719 opt-out.\1\
---------------------------------------------------------------------------

    \1\ Participation of Distributed Energy Resource Aggregations in 
Markets Operated by Regional Transmission Organizations and 
Independent System Operators, Order No. 2222-B, 175 FERC ] 61,227 at 
P 27 (2021). See Order No. 2222, 172 FERC ] 61,247 at P 59 
(explaining that the Commission was not obligated to provide an opt-
out in Order No. 719 but did so as an exercise of its discretion); 
see also NARUC, 964 F.3d at 1187 (``[B]ecause FERC has the exclusive 
authority to determine who may participate in the wholesale markets, 
the Supremacy Clause . . . requires that [s]tates not interfere.'').
---------------------------------------------------------------------------

    2. I write separately to reiterate and emphasize my support for 
eliminating the Order No. 719 opt-out, which has for years prevented 
demand response resources in many states from participating in our 
wholesale markets. The outdated Order No. 719 opt-out cannot be 
reconciled with the competitive principles underpinning Order No. 2222 
and the Commission's statutory responsibility to ensure rates subject 
to the Commission's jurisdiction are just and reasonable and not unduly 
discriminatory or preferential.\2\ There is no reasonable explanation 
as to why the Commission should maintain the Order No. 719 opt-out and 
treat demand response resources differently from all other distributed 
energy resources.

[[Page 33861]]

Accordingly, to ensure consumers can realize the full benefits of Order 
No. 2222 and the wholesale market services demand response resources 
can provide, I urge the Commission to press forward to eliminate the 
Order No. 719 opt-out once and for all.
---------------------------------------------------------------------------

    \2\ 16 U.S.C. 824e.
---------------------------------------------------------------------------

    For these reasons, I respectfully concur.

Neil Chatterjee,

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. RM18-9-003
    DANLY, Commissioner, concurring:
    1. I agree with the Commission's order today granting rehearing to 
extend the states' existing rights to opt-out of wholesale demand 
response programs \1\ including demand response resources that 
participate in ``heterogeneous distributed energy resource 
aggregations.'' \2\ In other words, states can choose to prohibit 
demand response resources within their boundaries from participating in 
multi-state, wholesale distributed energy resource programs. This order 
represents the correct division of authority between state and federal 
jurisdiction.
---------------------------------------------------------------------------

    \1\ See Wholesale Competition in Regions with Organized Electric 
Markets, Order No. 719, 125 FERC ] 61,071, at P 155 (2008), order on 
reh'g, Order No. 719-A, 128 FERC ] 61,059, order on reh'g, Order No. 
719-B, 129 FERC ] 61,252 (2009).
    \2\ Participation of Distributed Energy Res. Aggregations in 
Mkts. Operated by Reg'l Transmission Orgs. & Indep. Sys. Operators, 
175 FERC ] 61,227, at P 26 (2021) (Order).
---------------------------------------------------------------------------

    2. I write separately to highlight that even if the Commission is 
correct that it has jurisdiction over distributed energy resource 
aggregations--including those ``aggregations'' comprised of a single 
resource \3\--the Commission still should have chosen not to exercise 
such jurisdiction in Order No. 2222.\4\ This order on rehearing returns 
authority over demand response resources--which often are included in 
distributed energy resource aggregations--to the states, letting the 
states choose whether demand response resources can participate in 
wholesale distributed energy resource aggregations. This correctly 
preserves the traditional allocation of authority between the 
individual states and the federal government.
---------------------------------------------------------------------------

    \3\ 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, at 
P 1 n.1 (2020), corrected, 85 FR 68,450 (Oct. 29, 2020), order on 
reh'g, Order No. 2222-A, 174 FERC ] 61,197 (2021) (Danly, Comm'r, 
dissenting) (discussing single resource ``aggregations''); 18 CFR 
35.28(b)(10) (2020).
    \4\ See Order, 175 FERC ] 61,227 at P 27 (discussing case law on 
jurisdiction).
---------------------------------------------------------------------------

    For these reasons, I respectfully concur.

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. RM18-9-003
    CHRISTIE, Commissioner, concurring in part and dissenting in part:
    1. I concur with the first sentence of Paragraph 26 and other 
provisions of the order which set ``aside our prior decision [in Order 
No. 2222-A] not to extend the Order No. 719 opt-out to demand response 
resources that participate in heterogeneous distributed energy resource 
aggregations . . . .'' \1\
---------------------------------------------------------------------------

    \1\ 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 (2020), corrected, 85 FR 68450 (Oct. 29, 
2020), order on reh'g, Order No. 2222-A, 174 FERC 61,197 (2021), 
order on reh'g and clarification, Order No. 2222-B, 175 FERC ] 
61,227, at P 26 (2021).
---------------------------------------------------------------------------

    2. As the second sentence in Paragraph 26 and other provisions in 
today's order indicate, however, there is no decision affirmatively to 
preserve those Order No. 719 opt-out provisions; \2\ on the contrary, 
the prospect of ultimately removing even these opt-out provisions is 
very much alive as a result of the NOI proceeding in Docket No. RM21-
14-000.\3\
---------------------------------------------------------------------------

    \2\ Order No. 2222-B at P 26.
    \3\ Participation of Aggregators of Retail Demand Response 
Customers in Markets Operated by Regional Transmission Organizations 
and Independent System Operators, Notice of Inquiry, 174 FERC ] 
61,198 (2021) (NOI); see also Order No. 2222-B at P 28.
---------------------------------------------------------------------------

    3. Beyond the parts of this order that restore, at least 
temporarily, those opt-out provisions, I dissent from the remainder of 
the order, because I would have voted against Order No. 2222 had I been 
a member of the Commission at that time and I did vote against Order 
No. 2222-A. As I said in my dissent to the latter:
    Today the majority . . . 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.''
    . . .
    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\
---------------------------------------------------------------------------

    \4\ Order No. 2222-A (Christie, Comm'r, dissenting at PP 1, 3 
(emphasis in original) (footnotes omitted) (available at https://www.ferc.gov/news-events/news/item-e-1-commissioner-mark-c-christie-dissent-regarding-participation-distributed)).
---------------------------------------------------------------------------

    4. To ameliorate at least some of the damaging effects caused by 
Order Nos. 2222 and 2222-A, I would authorize states and other RERRAs 
the right to exercise an opt-out from the requirements of those orders, 
if not permanently then at least for some period of years to enable 
them better to prepare for the impacts on retail customers and 
distribution grids they now face.
    For these reasons, I respectfully concur in part and dissent in 
part.

Mark C. Christie,

Commissioner.

[FR Doc. 2021-13442 Filed 6-25-21; 8:45 am]
BILLING CODE 6717-01-P


