What is FERC Order 2222 and what is its meaning for distributed energy resources in the US?

In September 2020, the Federal Energy Regulatory Commission (FERC) introduced legislation to progress this evolution further in the form of Order 2222. This controversial regulation opens the door for broader participation in energy markets throughout the country by instructing regional grid operators (RGOs) to allow Distributed Energy Resources (DERs) to participate in markets previously restricted to larger projects operating on the transmission system.

In this blog, Piclo and Mott MacDonald take a look at FERC Order 2222 and what it could mean for DERs as well as the energy markets and Utilities taking on this new wave of participation. Photo by Andrey Metelev on Unsplash.

What is Order 2222? 

As outlined by FERC themselves: 

‍FERC Order No. 2222 will help usher in the electric grid of the future and promote competition in electric markets by removing the barriers preventing distributed energy resources (DERs) from competing on a level playing field in the organized capacity, energy and ancillary services markets run by regional grid operators

Why is Order 2222 needed? 

Introducing a wide variety of DERs into energy markets has several benefits including lower costs for consumers through enhanced competition, improved resilience through grid flexibility, and more innovation across the industry. However, whilst it was already possible for some DERs to participate in RGO markets, such as battery and storage systems, in reality, many barriers remained that prevented a level playing field for all DERs. These include: 

• Size requirements: across many RGO markets, capacity thresholds make it difficult for smaller DER or aggregators to gain access
• Costs: market requirements such as metering is often too cost-prohibitive for small DERs to invest and participate
• Market access rules: RGO tariffs and participation models were set up for traditional, larger-scale assets and do not universally accommodate DERs or aggregators with different asset mixes

What are the compliance directives of Order 2222? 

As outlined within the Order, FERC included 11 key compliance directives: 

1. Allow Distributed Energy Resource Aggregators (DERAs) to participate directly in Regional Transmission Organization (RTO)/Independent Service Operator (ISO) markets and establish DERAs as a type of market participant.
2. Allow DERAs to register DER aggregations under one or more participation models that accommodate the physical and operational characteristics of the DER aggregations 
3. Establish a minimum size requirement for DERAs that does not excess 100kW
4. Address locational requirements for DERAs
5. Address distribution factors and bidding parameters for DERAs
6. Address information and data requirements for DERAs
7. Address metering and telemetry requirements for DERAs
8. Address coordination between the RTO/ISO, the DERA, the distribution utility, and the relevant electric retail regulatory authorities 
9. Address modifications to the list of resources in a DERA 
10. Address market participation agreements for DERA
11. Each RTO/ISO must accept bids from a DERA if its aggregation includes DERs that are customers of utilities that distributed more than 4 million megawatt-hours in the previous fiscal year. An RTO/ISO must not accept bids from a DERA if its aggregation includes DERs that are customers of utilities that distributed 4 million megawatt-hours or less in the previous fiscal year unless the relevant retail regulatory authority permits such customers to be bid into RTO/ISO markets by a DERA. 

FERC Order 2222 applies to FERC regulated RGOs only and it is the responsibility of the RGOs to propose and implement solutions to become compliant with the directives. These proposed implementations will be reviewed and eventually approved by FERC.

Challenges facing Order 2222

• ‍The make-up of the US energy market is complex and varied. In total, two-thirds of the nation’s electricity load is served in what is known as Regional Grid Organisation (RGO) regions. Each region under an RGO has its own structures, markets, actors and rules for participation and will have its own proposed implementation of the Order. As a result, streamlining the experience for DERs, aggregators, DUs, and RGOs will be a significant undertaking, but critical to building market confidence and trust across the board.‍
• The sheer scale of change. As market rules and structures were previously tailored for types of resources such as large-scale generators. The incorporation of aggregated DERs of 100kW is a monumental step change in the management of these markets but will bring with it a monumental challenge for the DUs and RGOs to effectively manage the grid while facilitating this expanded marketplace. This will require new systems, processes, and technologies to successfully be implemented. This will take investment, time, and coordination across the industry - particularly between RGOs, Distribution Utilities, DERs and regulators. ‍
• Political pushback. While many see the goals of Order 2222 as levelling the playing field, many feel that the policy is an over-reach of FERC authority by forcing a substantial burden on DUs, that are not within FERC's jurisdiction. 

Who are the main players?

Federal Energy Regulatory Commission (FERC) is responsible for regulating the interstate transmission of electricity and ensuring there is competition across energy, capacity and ancillary services run by regional grid operators. FERC is responsible for publishing Order 2222, reviewing proposals for compliance and monitoring its implementation. 

Regional Grid Operators (RGOs): are split into two in the US: Independent System Operators (ISOs) and Regional Transmission Organisations (RTOs). ISOs are independent and federally regulated entities, which coordinate regional transmission and ensure non-discriminatory access to the electricity grid. RTOs perform similar roles but have jurisdiction over a larger geographic area. Both operate the transmission systems and each has energy and ancillary services markets. 

There are seven ISO/RTOs including California (CAISO), Midcontinent (MISO), New England (ISO NE), New York (NYISO), Northwest, PJM, Southwest Power Pool (SPP) and Texas (ERCOT - the only one not regulated by FERC). In terms of Order 2222, RGOs are responsible for removing barriers to DER participation in markets and as a result, each is drafting new proposals to comply with these regulations and will be held responsible for implementing the changes.

DERs: is defined by FERC: 

DERs are small-scale power generation or storage technologies (typically from 1 kW to 10,000 kW) that can provide an alternative to or an enhancement of the traditional electric power system. These can be located on an electric utility’s distribution system, a subsystem of the utility’s distribution system or behind a customer meter. They may include electric storage, intermittent generation, distributed generation, demand response, energy efficiency, thermal storage or electric vehicles and their charging equipment.

DERs role is to engage with this process to determine the best outcome for participation and ultimately participate once implemented! 

Distribution Utilities: across the US, there are approximately 3,000 electric distribution utilities operating. The largest include Duke Energy, Elexon, FirstEnergy, AEP and PG&E. The majority of DERs are interconnected to the distribution grids owned, operated, and maintained by DUs. DU’s fit with Order 2222 due to managing the interconnection of DERs as well as assessing the impact of resources on their networks individually and also in aggregate. As a result, DU’s will have a large role to play in the eligibility of assets in RGO markets and much closer coordination between distribution utilities and RGOs will be needed. 

Regulatory Authorities: State public utilities commissions plus and other related agencies have jurisdiction over areas such as the construction of some electricity generation (except commercial nuclear facilities and hydro), transmission and distribution systems and retail sales of electricity. With regards to FERC Order 2222, regulators will be key to coordination, could be involved in dispute resolutions and do not have the power to broadly prohibit DER from participating in their respective regional markets. 

What’s happened so far? 

Since being published in September 2020, there’s been a variety of movements in the industry including some clarifications to the interpretation of the rules and responsibilities, plus RGOs have been preparing their compliance proposals. CAISO (the Californian ISO) and NYISO (New York) were the only RGOs with pre-existing plans for DER participation on a limited basis however, even these are being updated and adapted to accommodate the new regulations. Consequently, in January 2022 both CAISO and NYISO submitted their proposals, with the remaining RGO requesting extensions to the submission deadline, each being submitted between February and April 2022. Indeed, in Spring 2022 both PJM and NE-ISO published their compliance proposals. 

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Mott MacDonald has been acting in the North American T&D market for over 30 years with a particular expertise in power generation and transmission/distribution. In 2020 Mott MacDonald invested in Piclo who have developed a globally leading marketplace, Piclo Flex, that simplifies the end-to-end process for System Operators to source energy flexibility from flexibility providers. Together, Mott MacDonald and Piclo have evaluated FERC Order 2222 drawing on Piclo’s experience of market platforms and driving market liquidity, initially in the UK and now expanding to other markets.