[Federal Register Volume 86, Number 59 (Tuesday, March 30, 2021)]
[Rules and Regulations]
[Pages 16511-16530]
[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,<PHONE_NUMBER>
Nicole Businelli (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER>
Karin Herzfeld (Legal Information), Office of General Counsel--Energy
Markets, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER>

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

        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

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

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

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).
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    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

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

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

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

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

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)

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

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\

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

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.
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    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\
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    \160\ Id. at 10.
    \161\ Id. at 13.
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    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\
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    \162\ Id. at 14.
    \163\ Id. at 15.
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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.
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    \164\ Order No. 2222, 172 FERC ] 61,247 at P 160.
    \165\ Id. P 161.
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    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.
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    \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.
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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\
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    \169\ Id. P 292.
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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\
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    \170\ AEE/AEMA Request for Rehearing at 22-23.
    \171\ Id. at 19-21.
    \172\ Public Interest Organizations Request for Rehearing at 39.
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    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\
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    \173\ Id. at 36.
    \174\ Id. at 36-37.

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    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\
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    \175\ Id. at 37 (quoting Order No. 2222, 172 FERC ] 61,247 at P
295).
    \176\ Id. at 37-38.
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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.
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    \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.'').
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    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\
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    \178\ Order No. 2222, 172 FERC ] 61,247 at P 299.
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    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.
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    \179\ Id. P 337.
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    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.
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    \180\ Id. P 295.
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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\
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    \181\ Id. P 236.
    \182\ Id. P 292.
    \183\ Id. P 293.
    \184\ Id. P 310.
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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

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.
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    \185\ Public Interest Organizations Request for Rehearing at 38.
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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.
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    \186\ See Order No. 2222, 172 FERC ] 61,247 at P 292.
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    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.
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    \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