[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Rules and Regulations]
[Pages 67094-67158]
[FR Doc No: 2020-20973]

Vol. 85

Wednesday,

No. 204

October 21, 2020

Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 35

Participation of Distributed Energy Resource Aggregations in Markets
Operated by Regional Transmission Organizations and Independent System
Operator; Final Rule

Federal Register / Vol. 85 , No. 204 / Wednesday, October 21, 2020 /
Rules and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM18-9-000; Order No. 2222]

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

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
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 (RTO/ISO).

DATES: This rule is effective December 21, 2020. Each RTO/ISO must file
the tariff changes needed to implement the requirements of this final
rule by September 17, 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>
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......................................                  1
II. Procedural History...............................                 10
III. Need for Reform.................................                 16
    A. Comments......................................                 19
    B. Commission Determination......................                 26
IV. Discussion.......................................                 31
    A. Commission Jurisdiction.......................                 31
        1. Scope of Final Rule.......................                 31
            a. Comments..............................                 32
            b. Commission Determination..............                 38
        2. Opt-Out...................................                 45
            a. Comments..............................                 47
            b. Commission Determination..............                 56
        3. Interconnection...........................                 68
            a. Comments and Data Request Responses...                 70
            b. Commission Determination..............                 90
    B. Definitions of Distributed Energy Resource and                105
     Distributed Energy Resource Aggregator..........
        1. NOPR Proposal.............................                105
        2. Comments..................................                106
        3. Commission Determination..................                114
    C. Eligibility To Participate in RTO/ISO Markets                 119
     Through a Distributed Energy Resource Aggregator
        1. Participation Model.......................                119
            a. NOPR Proposal.........................                119
            b. Comments..............................                120
            c. Commission Determination..............                129
        2. Types of Technologies.....................                133
            a. NOPR Proposal.........................                133
            b. Comments..............................                135
            c. Commission Determination..............                141
        3. Double Counting of Services...............                147
            a. NOPR Proposal.........................                147
            b. Comments..............................                148
            c. Commission Determination..............                159
        4. Minimum and Maximum Size of Aggregation...                165
            a. NOPR Proposal.........................                165
            b. Comments..............................                167
            c. Commission Determination..............                171
        5. Minimum and Maximum Capacity Requirements                 175
         for Distributed Energy Resources
         Participating in an Aggregation.............
            a. NOPR Proposal.........................                175
            b. Comments..............................                176
            c. Commission Determination..............                179
        6. Single Resource Aggregation...............                182
            a. NOPR Proposal.........................                182
            b. Comments..............................                183
            c. Commission Determination..............                185
    D. Locational Requirements.......................                187
            a. NOPR Proposal.........................                187
            b. Comments..............................                191
            c. Commission Determination..............                204
    E. Distribution Factors and Bidding Parameters...                208
            a. NOPR Proposal.........................                208
            b. Comments..............................                210
            c. Commission Determination..............                225
    F. Information and Data Requirements.............                230

            a. NOPR Proposal.........................                230
            b. Comments..............................                231
            c. Commission Determination..............                236
    G. Metering and Telemetry System Requirements....                241
            a. NOPR Proposal.........................                241
            b. Comments..............................                246
            c. Commission Determination..............                262
    H. Coordination Between the RTO/ISO, Aggregator,                 272
     and Distribution Utility........................
        1. Market Rules on Coordination..............                272
            a. NOPR Proposal.........................                272
            b. Comments..............................                274
            c. Commission Determination..............                278
        2. Role of Distribution Utilities............                281
            a. NOPR Proposal.........................                281
            b. Comments..............................                282
            c. Commission Determination..............                292
        3. Ongoing Operational Coordination..........                300
            a. NOPR Proposal.........................                300
            b. Comments..............................                302
            c. Commission Determination..............                310
        4. Role of Relevant Electric Retail                          314
         Regulatory Authorities......................
            a. NOPR Proposal.........................                314
            b. Comments..............................                315
            c. Commission Determination..............                322
        5. Coordination Frameworks...................                325
            a. NOPR Proposal.........................                325
            b. Comments..............................                326
            c. Commission Determination..............                330
    I. Modifications to List of Resources in                         332
     Aggregation.....................................
            a. NOPR Proposal.........................                332
            b. Comments..............................                333
            c. Commission Determination..............                335
    J. Market Participation Agreements...............                339
        1. NOPR Proposal.............................                339
        2. Comments..................................                342
        3. Commission Determination..................                352
    K. Compliance....................................                357
        1. Comments..................................                358
        2. Commission Determination..................                360
    L. Issues Beyond the Scope of This Rulemaking....                362
        1. Comments..................................                362
        2. Commission Determination..................                363
V. Information Collection Statement..................                364
    A. Summary of this IC............................
    B. Discussion....................................                366
VI. Environmental Analysis...........................                369
VII. Regulatory Flexibility Act Certification........                370
VIII. Document Availability..........................                375
IX. Effective Date and Congressional Notification....                378
Appendix A: Abbreviated Names of Commenters..........

I. Introduction

    1. In this final rule, the Federal Energy Regulatory Commission
(Commission) is 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\ For the reasons discussed
below, we find 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 the RTO/
ISO markets, which reduce competition and fail to ensure just and
reasonable rates. Therefore, pursuant to the Commission's authority
under Federal Power Act (FPA) section 206,\3\ the Commission modifies
Sec.  35.28 \4\ of its regulations to require each RTO/ISO to revise
its tariff to ensure that its market rules facilitate the participation
of distributed energy resource aggregations, as discussed further
below.
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    \1\ We define a distributed energy resource as any resource
located on the distribution system, any subsystem thereof or behind
a customer meter. These resources may include, but are not limited
to, electric storage resources, distributed generation, demand
response, energy efficiency, thermal storage, and electric vehicles
and their supply equipment. See infra P 114.
    \2\ For purposes of this final rule, we define RTO/ISO markets
as the capacity, energy, and ancillary services markets operated by
the RTOs and ISOs. We note that, in the Notice of Proposed
Rulemaking (NOPR) in this proceeding, the Commission used
``organized wholesale electric markets'' and included that term in
the proposed regulatory text. See Electric Storage Participation in
Markets Operated by Regional Transmission Organizations &
Independent System Operators, Notice of Proposed Rulemaking, 81 FR
86522, 157 FERC ] 61,121 (2016) (NOPR). We find that using ``RTO/ISO
markets'' is sufficient to describe the markets at issue in this
final rule and therefore will no longer use ``organized wholesale
electric markets'' here or include that term in the regulatory text.
    \3\ 16 U.S.C. 824e.
    \4\ 18 CFR 35.28 (2020).
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    2. As the Commission explained in the NOPR, barriers to the
participation of new technologies, such as many types of distributed
energy resources, in the RTO/ISO markets can emerge when the rules
governing participation in those

markets are designed for traditional resources and in effect limit the
services that emerging technologies can provide.\5\ For example, the
Commission noted in the NOPR that, as a general matter, distributed
energy resources tend to be too small to meet the minimum size
requirements to participate in the RTO/ISO markets on a stand-alone
basis, and may be unable to meet certain qualification and performance
requirements because of the operational constraints they may have as
small resources.\6\ The Commission further stated that existing
participation models \7\ for aggregated resources, including
distributed energy resources, often require those resources to
participate in the RTO/ISO markets as demand response, which limits
their operations and the services that they are eligible to provide.\8\
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    \5\ See NOPR, 157 FERC ] 61,121 at P 2.
    \6\ See id. PP 13, 105.
    \7\ In addition to tariff provisions that apply to all market
participants, the RTOs/ISOs create tariff provisions for specific
types of resources when those resources have unique physical and
operational characteristics or other attributes that warrant
distinctive treatment from other market participants. The tariff
provisions that are created for a particular type of resource are
what we refer to in this final rule as a participation model.
    \8\ NOPR, 157 FERC ] 61,121 at P 106. Demand response means a
reduction in the consumption of electric energy by customers from
their expected consumption in response to an increase in the price
of electric energy or to incentive payments designed to induce lower
consumption of electric energy. 18 CFR 35.28(b)(4).
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    3. Where such barriers exist, resources that are technically
capable of providing some services on their own or through aggregation
are precluded from competing with resources that are already
participating in the RTO/ISO markets.\9\ These restrictions on
competition can reduce the efficiency of the RTO/ISO markets,
potentially leading an RTO/ISO to dispatch more expensive resources to
meet its system needs. By removing barriers to the participation of
distributed energy resource aggregations in the RTO/ISO markets, this
final rule will enhance competition and, in turn, help to ensure that
the RTO/ISO markets produce just and reasonable rates.
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    \9\ In Order No. 841, the Commission clarified that
``technically capable'' of providing a service means meeting all of
the technical, operational, and/or performance requirements that are
necessary to reliably provide that service. Electric Storage
Participation in Markets Operated by Regional Transmission
Organizations & Independent System Operators, Order No. 841, 83 FR
9580, 162 FERC ] 61,127, at P 78 (2018), order on reh'g, Order No.
841-A, 84 FR 23902, 167 FERC ] 61,154 (2019), aff'd sub nom. Nat'l
Ass'n of Regulatory Util. Comm'rs v. FERC, 964 F.3d 1177 (D.C. Cir.
2020).
    .
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    4. Facilitating distributed energy resource participation in RTO/
ISO markets will provide a variety of benefits to those markets.
Integrating these resources' capabilities into RTO/ISO planning and
operations will help the RTOs/ISOs account for the impacts of these
resources on installed capacity requirements and day-ahead energy
demand, thereby reducing uncertainty in load forecasts and reducing the
risk of over procurement of resources and the associated costs.\10\
These resources are able to locate where price signals indicate that
new capacity is most needed, potentially helping to alleviate
congestion and congestion costs during peak load conditions and to
reduce costs related to transmitting energy into persistently high-
priced load pockets.\11\ Indeed, in the NOPR, the Commission noted
certain valuable characteristics that distributed energy resources can
offer, including their ability to co-locate with load and provide
associated benefits. Additionally, their relatively short development
lead time allows distributed energy resources to respond rapidly to
near-term generation or transmission reliability-related requirements,
further improving their ability to enhance reliability and reduce
system costs.
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    \10\ NOPR, 157 FERC ] 61,121 at P 129.
    \11\ Id. P 130.
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    5. The rules that we adopt in this final rule will help enable the
participation of distributed energy resources in the RTO/ISO markets by
providing a means for these resources to, in the aggregate, satisfy
minimum size and performance requirements that they may not meet on a
stand-alone basis.\12\ The Commission in the NOPR noted that
distributed energy resource aggregations can help to address the
commercial and transactional barriers to distributed energy resource
participation in the RTO/ISO markets, such as sharing the significant
costs of participating in those markets, including the costs of the
necessary metering, telemetry, and communication equipment.\13\
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    \12\ See id. PP 105, 125.
    \13\ Id. P 126.
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    6. To address barriers to the participation of distributed energy
resource aggregations in the RTO/ISO markets, we require 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. Generally, we are adopting the specific reforms proposed in the
NOPR, but with certain revisions based on the record in this
proceeding, including input from the Commission technical conference
convened April 10-11, 2018, responses to a post-technical conference
notice, and responses to the Commission's September 5, 2019 Data
Requests to RTOs/ISOs on policies and procedures that affect the
interconnection of distributed energy resources. In particular, certain
proposals in the NOPR have been altered in this final rule to better
address the needs of different stakeholders, facilitate solutions to
potential technical challenges, and to reflect the substantial efforts
that have already been undertaken by some RTOs/ISOs to incorporate
distributed energy resources into their markets, by providing for
greater regional flexibility with respect to a number of proposed
requirements.
    8. For each RTO/ISO, the tariff provisions addressing distributed
energy resource aggregations must (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; (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. Additionally, each RTO/ISO must accept bids from
a distributed energy resource aggregator if its aggregation includes
distributed energy resources that are customers of utilities that
distributed more than 4 million megawatt-hours in the previous fiscal

year. An RTO/ISO must not accept bids from a distributed energy
resource aggregator if its aggregation includes distributed energy
resources that are customers of utilities that distributed 4 million
megawatt-hours or less in the previous fiscal year, unless the relevant
electric retail regulatory authority permits such customers to be bid
into RTO/ISO markets by a distributed energy resource aggregator.
    9. As discussed further below in Section IV.K (Compliance), each
RTO/ISO must file the tariff changes needed to implement the
requirements of this final rule within 270 days of the publication date
of this final rule in the Federal Register.

II. Procedural History

    10. This final rule arises out of the same Commission inquiry that
led to Order No. 841,\14\ in which the Commission amended its
regulations under the FPA to remove barriers to the participation of
electric storage resources in RTO/ISO markets. The Commission commenced
that inquiry by hosting a panel to discuss electric storage resources
at its November 19, 2015, open meeting. Subsequently, on April 11,
2016, Commission staff issued data requests to each of the six RTOs/
ISOs seeking information about the rules in the RTO/ISO markets that
affect the participation of electric storage resources. Concurrently,
Commission staff issued a request for comments, seeking information
from interested persons on whether barriers exist to the participation
of electric storage resources in the RTO/ISO markets that may
potentially lead to unjust and unreasonable wholesale rates. In
addition to the responses from the RTOs/ISOs, Commission staff received
44 comments. Many of the responses and comments discussed types of
distributed energy resources and general market participation issues
beyond concerns specific to electric storage resources.\15\
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    \14\ Order No. 841, 162 FERC ] 61,127.
    \15\ See, e.g., CAISO Response (AD16-20) at 2-3; ISO-NE Response
(AD16-20) at 6-7, 26-27; PJM Response (AD16-20) at 20-21; Advanced
Energy Economy Comments (AD16-20) on RTO/ISO Responses (AD16-20) at
16-18; RES Americas Comments (AD16-20) on RTO/ISO Responses (AD16-
20) at 4-5.
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    11. On November 17, 2016, the Commission issued the NOPR in that
proceeding. In addition to its proposed reforms to facilitate the
participation of electric storage resources in RTO/ISO markets, the
Commission proposed to amend its regulations under the FPA to remove
barriers in current RTO/ISO market rules that may prevent new, smaller
distributed energy resources that are technically capable of
participating in the RTO/ISO markets from doing so.\16\
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    \16\ NOPR, 157 FERC ] 61,121 at PP 103, 124.
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    12. The Commission received 109 comments on the NOPR from a diverse
set of stakeholders.\17\ On February 15, 2018, the Commission issued
Order No. 841. In that final rule, the Commission noted that more
information was necessary to inform its consideration of its NOPR
proposals regarding facilitating the participation of distributed
energy resource aggregations in RTO/ISO markets and stated that it
would continue to explore the proposed distributed energy resource
aggregation reforms under Docket No. RM18-9-000.\18\
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    \17\ See Appendix A for a list of entities that submitted
comments and the shortened names used throughout this final rule to
describe those entities.
    \18\ Order No. 841, 162 FERC ] 61,127 at P 5. The Commission
incorporated by reference all comments filed in response to the NOPR
in Docket No. RM16-23-000 into Docket No. RM18-9-000 and directed
any further comments regarding the proposed distributed energy
resource aggregation reforms should be filed henceforth in Docket
No. RM18-9-000.
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    13. The Commission also announced that it would hold a technical
conference to gather additional information regarding some distributed
energy resource aggregation issues. The technical conference, which was
held on April 10-11, 2018, addressed five issues related to this
proceeding: Locational requirements, state and local regulator
concerns, compensation for multiple services, coordination of
distributed energy resource aggregations, and ongoing operational
coordination.\19\ During the technical conference, more than 50
individuals and entities offered a broad range of perspectives. The
Commission issued a notice inviting post-technical conference comments
and requesting comments on a number of follow-up questions related to
each panel.\20\ The Commission received 52 post-technical conference
comments from a diverse set of stakeholders.
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    \19\ See Supplemental Notice of Technical Conference, Docket
Nos. RM18-9-000 and AD18-10-000 (Mar. 29, 2018), https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=14856384.
    \20\ See Notice Inviting Post-Technical Conference Comments,
Docket No. RM18-9-000 (Apr. 27, 2018), https://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=14 882250.
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    14. On September 5, 2019, Commission staff issued data requests to
each of the six RTOs/ISOs seeking information regarding their policies
and procedures that affect the interconnection of distributed energy
resources. In addition to the responses from the RTOs/ISOs, Commission
staff received 11 reply comments.
    15. Some RTOs/ISOs in recent years have taken steps to facilitate
the participation of distributed energy resource aggregations in their
markets, and the Commission has approved these proposals. In June 2016
and January 2020, the Commission accepted proposals to allow
distributed energy resource aggregations to participate in certain RTO/
ISO markets.\21\ In addition, RTOs/ISOs have implemented some
participation models for distributed energy resource aggregations to
participate in their markets, often as demand response resources, with
a few exceptions.\22\
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    \21\ See Cal. Indep. Sys. Operator Corp., 155 FERC ] 61,229
(2016); N.Y. Indep. Sys. Operator, Inc., 170 FERC ] 61,033 (2020)
(NYISO Aggregation Order).
    \22\ E.g., CAISO Data Request Response (2019 RM18-9) at 6
(citing CAISO Tariff, Section 4.17); ISO-NE Data Request Response
(2019 RM18-9) at 17-18 (stating that distributed energy resources
may participate in wholesale markets as demand resources or
Settlement Only Resources).
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III. Need for Reform

    16. In the NOPR, the Commission stated that its proposal is a
continuation of efforts pursuant to its authority under the FPA to
ensure that the RTO/ISO tariffs and market rules produce just and
reasonable rates, terms, and conditions of service.\23\ Specifically,
the Commission noted that it had observed that market rules designed
for traditional resources can create barriers to entry for emerging
technologies. The Commission expressed its concern that existing RTO/
ISO tariffs impede the participation of distributed energy resources in
the RTO/ISO markets by providing limited opportunities for distributed
energy resource aggregations.\24\
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    \23\ NOPR, 157 FERC ] 61,121 at P 9 (citing Integration of
Variable Energy Resources, Order No. 764, 139 FERC ] 61,246, order
on reh'g and clarification, Order No. 764-A, 141 FERC ] 61,232
(2012), order on clarification and reh'g, Order No. 764-B, 144 FERC
] 61,222 (2013); Wholesale Competition in Regions with Organized
Electric Markets, Order No. 719, 73 FR 64100 (Oct. 28, 2008), 125
FERC ] 61,071 (2008), order on reh'g, Order No. 719-A, 74 FR 37776
(Jul. 29, 2009), 128 FERC ] 61,059 (2009), order on reh'g, Order No.
719-B, 129 FERC ] 61,252 (2009)).
    \24\ Id. P 13.
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    17. The Commission acknowledged in the NOPR that distributed energy
resources can at times effectively provide the capacity, energy, and
ancillary services that are purchased and sold in the RTO/ISO
markets.\25\ However, the Commission explained that sometimes these
resources can be too small to participate in these markets
individually. The Commission also noted that current RTO/ISO market

rules often limit the services that distributed energy resources are
eligible to provide, in many cases only allowing these resources to be
used as demand response or load-side resources when they are located
behind a customer meter or by imposing prohibitively expensive or
otherwise burdensome requirements.
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    \25\ See id.
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    18. The Commission preliminarily found that the barriers to the
participation of distributed energy resources through distributed
energy resource aggregations in the RTO/ISO markets may, in some cases,
unnecessarily restrict competition, which could lead to unjust and
unreasonable rates.\26\ The Commission stated that effective wholesale
competition encourages entry and exit and promotes innovation, incents
the efficient operation of resources, and allocates risk appropriately
between consumers and producers. Thus, the Commission stated that
removing the barriers to participation by distributed energy resource
aggregations will enhance the competitiveness, and in turn the
efficiency, of RTO/ISO markets and thereby help to ensure just and
reasonable and not unduly discriminatory or preferential rates for
wholesale electric services.
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    \26\ See id. P 14.
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A. Comments

    19. Most commenters, including state entities and RTOs/ISOs,
support requiring RTOs/ISOs to remove barriers to the participation of
distributed energy resource aggregations in their markets, subject to
the Commission's adopting certain modifications to the NOPR proposals
and/or allowing for regional flexibility in implementing reforms in any
eventual final rule.\27\ Among other things, these commenters identify
improved competition and reliability as benefits of the proposed
reforms and note that they provide a better way to provide price
signals to distributed energy resources than current retail
programs,\28\ which may reduce the cost of meeting power system
needs.\29\ AWEA notes that participation in wholesale markets allows
distributed energy resources to receive real-time information about
system needs.\30\ Commenters also state that the removal of barriers
to, and integration of, distributed energy resource aggregations could
spur innovation, and allow these aggregations to serve important roles
on the grid.\31\ Several commenters emphasize that a distributed energy
resource aggregation framework must ensure that aggregated distributed
energy resources can provide all the services that they are capable of
providing,\32\ while competing on a level and technology-neutral
playing field with other resources.\33\ Some commenters note that
distributed energy resources do not currently fit within existing
paradigms, which were designed for, and favor, other resources.\34\
Others state that for distributed energy resources and distributed
energy resource aggregations to fairly participate, they must meet the
same technical and commercial requirements as other resources, and pay
equally for ancillary services and use of the transmission system.\35\
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    \27\ See, e.g., Advanced Energy Economy Comments (RM16-23) at
31-32; Connecticut Department of Energy Comments (RM16-23) at 4;
IPKeys/Motorola Comments (RM16-23) at 4; Leadership Group Comments
(RM16-23) at 2; MISO Comments (RM16-23) at 2; Ohio Commission
Comments (RM16-23) at 2-3.
    \28\ AWEA Comments (RM16-23) at 1-2; City of New York Comments
(RM16-23) at 3, 5, 7; Maryland and New Jersey Commissions Comments
(RM16-23) at 2; Ohio Commission Comments (RM16-23) at 2; Public
Interest Organizations Comments (RM16-23) at 5-6.
    \29\ AWEA Comments (RM16-23) at 2.
    \30\ Id.
    \31\ California Energy Storage Alliance Comments (RM16-23) at 4;
Microgrid Resources Coalition Comments (RM16-23) at 10; Union of
Concerned Scientists Comments (RM16-23) at 9, 15, 17 (noting the
lack of participation models for potential market service providers
like domestic electric water heaters and distributed solar
resources).
    \32\ See, e.g., Advanced Energy Management Comments (2018 RM18-
9) at 3; Direct Energy Comments (2018 RM18-9) at 5, 11-13; Energy
Storage Association Comments (2018 RM18-9) at 2; Microsoft Comments
(2018 RM18-9) at 16-17; NRG Comments (2018 RM18-9) at 5-6.
    \33\ Advanced Energy Economy Comments (2018 RM18-9) at 5;
Advanced Energy Management Comments (2018 RM18-9) at 3; Microsoft
Comments (2018 RM18-9) at 15-16; NRG Comments (2018 RM18-9) at 3.
    \34\ Fresh Energy/Sierra Club/Union of Concerned Scientists
Comments (RM16-23) at 1; Public Interest Organizations Comments
(RM16-23) at 5-6.
    \35\ PJM Market Monitor Comments (RM16-23) at 10-11; New York
Utility Intervention Unit Comments (RM16-23) at 3.
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    20. Several commenters assert that existing participation models
discriminate against distributed energy resources. For instance, Public
Interest Organizations argue that distributed energy resources in PJM
are often forced into participating as demand response, or
interconnecting as generation, which are cost prohibitive.\36\ Stem
asserts that CAISO's Non-Generator Resource and Distributed Energy
Resource Provider models effectively prevent participation of behind-
the-meter resources in CAISO.\37\ Advanced Energy Economy contends
that, despite the benefits that aggregated distributed energy resources
provide,\38\ performance penalties for deviation from the
characteristics of traditional generation effectively preclude
participation in the capacity market.\39\
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    \36\ Public Interest Organizations Comments (RM16-23) at 19.
    \37\ Stem Comments (RM16-23) at 12, 16.
    \38\ Advanced Energy Economy states that the benefits include
the ability to provide a quick response to system emergencies, which
gives other resources time to ramp up or procure fuel, the ability
of demand response to prevent blackouts during times of peak demand,
and the ability to be dispatched granularly to provide support to
specific parts of the grid. Advanced Energy Economy Comments (RM16-
23) at 42-43.
    \39\ Id. (arguing that PJM's capacity performance construct and
ISO-NE's pay-for-performance construct both effectively require
indefinite run times to avoid performance penalties that can amount
to more than a year's worth of capacity revenue).
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    21. Some commenters state that distributed energy resource
aggregation integration can be accomplished in a reliable and cost-
effective manner.\40\ Other commenters argue that allowing distributed
energy resource aggregations to participate in wholesale markets will
create new opportunities and enhance the reliability and resilience of
the grid, leading to benefits such as savings and efficiency.\41\
Advanced Energy Buyers suggest that allowing distributed energy
resources to participate in RTO/ISO markets will also provide such
resources with additional revenue streams, making them more economic
and candidates for greater investment, and provide additional benefit
to the grid as a result of increased market activity.\42\ Commenters
also note that the pairing of dispatchable resources with non-
dispatchable resources in an aggregation could create a portfolio that
overall could be dispatchable to the bulk power system.\43\ Other
commenters assert that, if distributed energy resources are not able to
participate in wholesale markets, it could result in system overbuild,
inaccurate wholesale price formation, and lack of visibility into
system conditions.\44\
---------------------------------------------------------------------------

    \40\ Advanced Energy Economy Comments (2018 RM18-9) at 5.
    \41\ See, e.g., Advanced Energy Buyers Comments (2018 RM18-9) at
3; CAISO Comments (2018 RM18-9) at 1; Direct Energy Comments (2018
RM18-9) at 11-13; NRG Comments (2018 RM18-9) at 5-6; Tesla Comments
(2018 RM18-9) at 3.
    \42\ Advanced Energy Buyers Comments (2018 RM18-9) at 5.
    \43\ NYISO Indicated Transmission Owners Comments (2018 RM18-9)
at 4.
    \44\ Id.; Microsoft Comments (2018 RM18-9) at 13.
---------------------------------------------------------------------------

    22. Certain United States senators express support for the proposed
rule which, they state, would help develop frameworks for how
renewables can aggregate together to more effectively participate in
energy markets, and provide useful guidance on how to better integrate
these resources with existing energy providers. In addition,

these United States senators maintain that the rulemaking comes at a
critical time for renewable energy because renewables led the way in
2016 for new additions onto the energy grid.\45\ These United States
senators, as well as members of the United States House of
Representatives, urge the Commission to adopt a final rule that
provides all distributed energy resources with the opportunity to
participate in RTO/ISO markets, noting that the changes proposed in the
NOPR will help improve the reliability and resilience of the bulk power
system by providing operators with new local tools to manage
unanticipated events and potentially lower costs for customers. They
state that renewable energy provided 10% of electricity generation in
2018 due to state and federal policies as well as consumer interest in
choosing cost-competitive technologies.\46\
---------------------------------------------------------------------------

    \45\ September 22, 2017 Letter to Chairman Neil Chatterjee from
United States Senators Sheldon Whitehouse, Cory A. Booker, Edward J.
Markey, Ron Wyden, Elizabeth Warren and Bernard Sanders (filed Sept.
25, 2017) (September 22 Letter); see also May 23, 2018 Letter to
Chairman Kevin McIntyre from United States Senators Sheldon
Whitehouse, Edward J. Markey, Martin Heinrich, Jeanne Shaheen,
Richard Blumenthal, Margaret Wood Hassan, Angus S. King, Jr., Dianne
Feinstein, Bernard Sanders, Catherine Cortez Masto, Jack Reed, Ron
Wyden, Jeff Merkley, Kamala D. Harris, Cory A. Booker, and Brian
Schatz (filed May 23, 2018) (discussing 2016 estimates from the
Energy Information Administration that distributed energy resources
accounted for about two percent of the installed generation capacity
in the United States). In response to the September 22 Letter,
Chairman Chatterjee stated that the Commission has a role in
fostering resource neutral, non-discriminatory policies with respect
to the wholesale markets, including removing barriers to the
participation of distributed energy resources in the wholesale
markets. Chairman's Response to September 22 Letter (filed Oct. 5,
2017).
    \46\ February 11, 2019 Letter to Chairman Neil Chatterjee from
United States Congress members Peter Welch, Mike Levin, Mike
Quigley, Paul D. Tonko, Daniel W. Lipinski, Jerry McNerney, James R.
Langevin, Kathy Castor, Raul M. Grijalva, Mark Pocan, Donald S.
Beyer Jr., Matt Cartwright, Nanette Diaz Barrag[aacute]n, Sean
Casten, Jamie Raskin, James P. McGovern, and Mike Doyle (filed Feb.
11, 2019); February 11, 2019 Letter to Chairman Neil Chatterjee from
United States Senators Sheldon Whitehouse, Edward J. Markey, Cory A.
Booker, Catherine Cortez Masto, Martin Heinrich, Brian Schatz, Ron
Wyden, Jeffrey A. Merkley, Kamala D. Harris, Richard Blumenthal,
Jack Reed, Angus S. King, Jr., Tina Smith, Jacky Rosen, Margaret
Wood Hassan, Jeanne Shaheen, Dianne Feinstein, and Bernard Sanders
(filed Feb. 21, 2019).
---------------------------------------------------------------------------

    23. Mensah asserts that one of the biggest limitations that needs
to be addressed is the ability of behind-the-meter distributed energy
resources to inject onto the grid.\47\ Tesla requests the Commission
extend to distributed energy resource aggregations the finding in Order
No. 841 that existing tariffs do not recognize the operational
characteristics of electric storage resources and limit their
participation in the markets.\48\ Tesla urges the Commission to require
that RTO/ISO tariffs allow distributed energy resources, including
those resources physically located behind an end-use customer meter, to
employ their full operational range by injecting energy onto the grid
in order to provide any wholesale service through participation in
distributed energy resource aggregations.\49\
---------------------------------------------------------------------------

    \47\ Mensah Comments (RM16-23) at 3.
    \48\ Tesla Comments (2018 RM18-9) at 7.
    \49\ Id. at 1, 7.
---------------------------------------------------------------------------

    24. Some commenters argue that the Commission needs to provide
general guidance on distributed energy resource aggregation, with
straightforward rules, clearly defined responsibilities, and data-
driven market signals.\50\ They explain that distributed energy
resource aggregations must have transparent and predictable parameters
for participation that are not overly restrictive and do not contain
undue administrative delay.\51\ Microsoft suggests that the Commission
provide ``directional guidance'' to RTOs/ISOs to remove barriers.\52\
---------------------------------------------------------------------------

    \50\ Advanced Energy Buyers Comments (2018 RM18-9) at 2;
Advanced Energy Economy Comments (2018 RM18-9) at 5.
    \51\ Advanced Energy Buyers Comments (2018 RM18-9) at 5.
    \52\ Microsoft Comments (2018 RM18-9) at 13.
---------------------------------------------------------------------------

    25. In contrast, EEI states that the Commission should defer to
regional stakeholder processes and coordination with state-
jurisdictional entities to formulate the detailed provisions required
to implement distributed energy resource aggregation participation in
the wholesale market.\53\ APPA states that the evidence is thin to show
that there is a great demand for distributed energy resource
aggregation programs or that such programs will bring meaningful
benefits to consumers in the RTO/ISO regions.\54\
---------------------------------------------------------------------------

    \53\ EEI Comments (2018 RM18-9) at 3.
    \54\ APPA Comments (2018 RM18-9) at 10.
---------------------------------------------------------------------------

B. Commission Determination

    26. For the reasons discussed below, in this final rule, we affirm
the preliminary finding in the NOPR that existing RTO/ISO market rules
are unjust and unreasonable because they present barriers to the
participation of distributed energy resource aggregations in the RTO/
ISO markets, and such barriers reduce competition and fail to ensure
just and reasonable rates. Specifically, current RTO/ISO market rules
present barriers that prevent certain distributed energy resources that
are technically capable of participating in the RTO/ISO markets on
their own or through aggregation from doing so.\55\ Permitting
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.\56\
The reforms adopted in this final rule will remove the barriers that
qualification and performance requirements currently pose to the
participation of distributed energy resources in the RTO/ISO
markets.\57\
---------------------------------------------------------------------------

    \55\ See NOPR, 157 FERC ] 61,121 at P 124.
    \56\ See id. P 125.
    \57\ See infra section IV.C.4 (Minimum and Maximum Size of
Aggregation) (agreeing with commenters that a minimum size
requirement not to exceed 100 kW will help improve competition in
the RTO/ISO markets and avoid confusion about appropriate minimum
size requirements for distributed energy resource aggregations under
existing or new participation models); Section IV.C.6 (Single
Resource Aggregation) (explaining that a consistent minimum size
requirement will minimize barriers in the event that an individual
distributed energy resource ceases to participant in RTO/ISO markets
as a single qualifying distributed energy resource aggregation).
---------------------------------------------------------------------------

    27. The reforms adopted in this final rule are timely, as there has
been significant development of distributed energy technologies and
deployment of distributed energy resources in recent years. Moreover,
this development has generated discussions on the potential for such
resources--including new distributed energy resources that are smaller,
interconnected at lower voltages, and geographically dispersed--to
provide grid services through participation in RTO/ISO markets. Wider
scale use of distributed energy resources is enabled by increased
deployment of, and improvements in, metering, telemetry, and
communication technologies. Aggregations of new and existing
distributed energy resources can provide new cost-effective sources of
energy and grid services and enhance competition in wholesale markets
as new market participants.
    28. Individual distributed energy resources often do not meet the
minimum size requirements to participate in the RTO/ISO markets under
existing participation models and often cannot satisfy all the
performance requirements of the various participation models due to
their small size. In order to participate in RTO/ISO markets,
distributed energy resources tend to participate in RTO/ISO demand
response programs. While these demand response programs have helped
reduce barriers to load curtailment resources, they often limit the
operations of some

types of distributed energy resources, such as electric storage or
distributed generation, as well as the services that they are eligible
to provide.\58\
---------------------------------------------------------------------------

    \58\ For example, when participating through demand response
programs, distributed energy resources generally can only operate to
reduce customer demand at the meter, and any injection/generation
cannot exceed customer demand. Consequently, these resources are
prevented from injecting additional electricity into the grid to
make sales of electricity in RTO/ISO markets.
---------------------------------------------------------------------------

    29. We find that adopting the reforms described below will enhance
the competitiveness, and in turn the efficiency, of RTO/ISO markets and
thereby help to ensure just and reasonable and not unduly
discriminatory or preferential rates for wholesale electric
services.\59\ Further, the reforms required by this final rule will
help the RTOs/ISOs account for the impacts of distributed energy
resources on installed capacity requirements and day-ahead energy
demand, thereby reducing uncertainty in load forecasts and the risk of
over procurement of resources and the associated costs, and provide
numerous other benefits.\60\ Accordingly, as discussed further below,
we adopt the NOPR proposal to add Sec.  35.28(g)(12)(i) to the
Commission's regulations and require each RTO/ISO to have tariff
provisions that allow distributed energy resource aggregations to
participate directly in RTO/ISO markets.\61\ While we agree with
commenters that there are operational, technological, and cost
implications that must be evaluated and addressed, as explained below,
we find that the record in this proceeding provides sufficient basis
for taking action to require the implementation of the generic
requirements discussed herein.
---------------------------------------------------------------------------

    \59\ See infra Section IV.C.1 (Participation Model); Section
IV.C.2 (Types of Technologies); Section IV.C.3 (Double Counting of
Services); Section IV.H.2 (Role of Distribution Utilities); Section
IV.J (Market Participation Agreements).
    \60\ See infra Section IV.C.4 (Minimum and Maximum Size of
Aggregation); Section IV.D (Locational Requirements).
    \61\ In addition, we adopt the proposal to add sections
35.28(b)(10) and (11) to the Commission's regulations incorporating
the definitions for distributed energy resource and distributed
energy resource aggregator.
---------------------------------------------------------------------------

    30. To the extent that an RTO/ISO proposes to comply with any or
all of the requirements in this final rule using its currently
effective requirements for distributed energy resources, it must
demonstrate on compliance that its existing approach meets the
requirements in this final rule.

IV. Discussion

A. Commission Jurisdiction

1. Scope of Final Rule
    31. In the NOPR, the Commission stated that it was proposing
reforms pursuant to its legal authority under section 206 of the FPA to
ensure that the RTO/ISO tariffs are just and reasonable and not unduly
discriminatory or preferential.\62\
---------------------------------------------------------------------------

    \62\ NOPR, 157 FERC ] 61,121 at P 1.
---------------------------------------------------------------------------

a. Comments
    32. Several commenters assert that the basis for the Commission's
jurisdiction is straightforward because sales from distributed energy
resource aggregators into wholesale markets are sales at wholesale in
interstate commerce.\63\ Other commenters question the Commission's
authority to implement the proposed reforms, seek clarification of the
NOPR's scope, or ask the Commission to respect existing federal, state,
and local jurisdictional boundaries.\64\
---------------------------------------------------------------------------

    \63\ See, e.g., Sunrun Comments (2018 RM18-9) at 3-4 (citing 16
U.S.C. 824(b)(1)); Connecticut State Entities Comments (RM16-23) at
7; Stem Comments (2018 RM18-9) at 3.
    \64\ See, e.g., APPA/NRECA Comments (RM16-23) at 18-20; MISO
Transmission Owners Comments (RM16-23) at 17-18; NESCOE Comments
(RM16-23) at 16; TAPS Comments (RM16-23) at 4-5; Xcel Energy
Services Comments (RM16-23) at 6-9, 23-24.
---------------------------------------------------------------------------

    33. Stem asserts that the Commission should clarify that it has
jurisdiction over participation in the wholesale markets and the
associated transactions, while relevant electric retail regulatory
authorities \65\ have jurisdiction over the physical dispatch and the
resulting electrical activity on the distribution system.\66\
Connecticut State Entities argue that, while the management of the
impacts of new generation on the distribution system remains with the
states, the comprehensive and effective integration of these emerging
technologies into the wholesale markets rests with the Commission.\67\
---------------------------------------------------------------------------

    \65\ The term ``relevant electric retail regulatory authority''
means the entity that establishes the retail electric prices and any
retail competition policies for customers, such as the city council
for a municipal utility, the governing board of a cooperative
utility, or the state public utility commission. See Order No. 719,
125 FERC ] 61,071 at P 158.
    \66\ Stem Comments (2018 RM18-9) at 3.
    \67\ Connecticut State Entities Comments (RM16-23) at 7.
---------------------------------------------------------------------------

    34. Harvard Environmental Policy Initiative argues that the
Commission's proposal to assert jurisdiction over a distributed energy
resource aggregator's sale of sink-related services to RTOs/ISOs would
fall under the Commission's jurisdiction under the test applied by the
U.S. Supreme Court in FERC v. Electric Power Supply Ass'n,\68\ and that
the Commission has authority under FPA section 206 to require RTOs/ISOs
to enable the participation of distributed energy resource
aggregators.\69\ Harvard Environmental Policy Initiative further
contends that a company's distribution system investments, even if
motivated by a Commission rule, are not evidence that the Commission
has overstepped its legal authority, and that, even if a change in
state law were necessary to allow consumers to participate, the NOPR
does not force states to do anything and does not require states to
facilitate the development of distributed energy resources.\70\
---------------------------------------------------------------------------

    \68\ Harvard Environmental Policy Initiative Comments (RM16-23)
at 3 (citing FERC v. Electric Power Supply Ass'n, 136 S. Ct. 760,
776 (2016) (EPSA)).
    \69\ Id. at 4-5.
    \70\ Id. at 9, 12.
---------------------------------------------------------------------------

    35. In contrast, some commenters question the Commission's
authority to impose the proposed reforms or seek clarification of
federal and state jurisdictional boundaries.\71\ APPA/NRECA interpret
the NOPR to be limited to reforms to the RTO/ISO tariff rules governing
RTO/ISO markets and they urge the Commission not to expand the scope of
the NOPR beyond RTO/ISO markets and to preserve state and local
authority over retail sales, generation facilities, and local
distribution facilities.\72\ TAPS similarly asserts that any final rule
should be limited to (1) the treatment by RTOs/ISOs of energy and
ancillary services from distributed energy resources after those
resources have already been delivered to the RTO's/ISO's markets; and
(2) assuring that any such participation of distributed energy resource
aggregations in RTO/ISO markets is compatible with the safe and
reliable operation of the distribution system, as well as relevant
electric retail regulatory authority and distribution utility tariffs,
rules, and requirements.\73\ FirstEnergy argues that any rules adopted
by the Commission must preserve state jurisdictional authority over
distribution-level resources.\74\ Similarly, the Maryland and New
Jersey Commissions ask the Commission to confirm that state decisions
on distribution system design, resource interconnection access,
operations, and costs will not be viewed

as a barrier to wholesale competition or subject to Commission
review.\75\ MISO Transmission Owners assert that any final rule must
not disturb a state's jurisdiction over retail electricity sales and
retail distribution service, including state regulation of retail
rates, net metering programs, and participation in wholesale markets by
resources located behind a retail distribution service meter.\76\
---------------------------------------------------------------------------

    \71\ See EEI Comments (RM16-23) at 25; Icetec Comments (2018
RM18-9) at 1-2; Maryland and New Jersey Commissions Comments (RM16-
23) at 2-3; Massachusetts Commission Comments (RM16-23) at 10; Stem
Comments (2018 RM18-9) at 3.
    \72\ APPA/NRECA Comments (RM16-23) at 18-20.
    \73\ TAPS Comments (RM16-23) at 9.
    \74\ FirstEnergy Comments (2019 RM18-9) at 5 n.13.
    \75\ Maryland and New Jersey Commissions Comments (RM16-23) at
3.
    \76\ MISO Transmission Owners Comments (RM16-23) at 5-6.
---------------------------------------------------------------------------

    36. The Maryland and New Jersey Commissions ask the Commission to
enunciate clear federal and state jurisdictional lines pertaining to
both the distribution system and distributed energy resources, whether
in front of or behind the meter.\77\ The Massachusetts Commission and
EEI ask the Commission to clarify whether distribution system-connected
and behind-the-meter distributed energy resources that participate in
wholesale markets are Commission-jurisdictional facilities.\78\ EEI
notes that the Commission has exclusive jurisdiction over sales for
resale under the FPA.\79\ The Harvard Environmental Policy Initiative
states that EEI confuses Commission jurisdiction over energy sales with
state jurisdiction over generation facilities and argues that states
will retain authority over the resources themselves.\80\
---------------------------------------------------------------------------

    \77\ Maryland and New Jersey Commissions Comments (RM16-23) at
2.
    \78\ Massachusetts Commission Comments (RM16-23) at 11.
    \79\ EEI Comments (RM16-23) at 23-24 (citing 16 U.S.C.
824o(a)(1)).
    \80\ Harvard Environmental Policy Initiative Comments (RM16-23)
at 12.
---------------------------------------------------------------------------

    37. Icetec asks the Commission either to (1) clarify that retail
customers transmitting power from distributed energy resources behind
their retail service point to their retail point of interconnection are
not considered public utilities subject to Open Access Transmission
Tariff (OATT) and Open Access Same-Time Information System (OASIS)
requirements, or (2) require RTOs/ISOs to include a pro forma request
for waiver of those requirements in distributed energy resource
participation agreements.\81\ The Harvard Environmental Policy
Initiative states that the Commission should establish a jurisdictional
line that distinguishes between sales by distributed energy resource
aggregators and sales by individual distributed energy resources by
determining that an energy sale from an individual distributed energy
resource is not a ``wholesale sale in interstate commerce'' but is
instead ``any other sale'' under FPA section 201 and therefore not
subject to Commission regulation.\82\
---------------------------------------------------------------------------

    \81\ Icetec Comments (2018 RM18-9) at 9.
    \82\ Harvard Environmental Policy Initiative Comments (RM16-23)
at 13 (quoting 16 U.S.C. 824(b)(1)).
---------------------------------------------------------------------------

b. Commission Determination
    38. FPA section 201 authorizes the Commission to regulate the
transmission of electric energy in interstate commerce and the
wholesale sale of electric energy in interstate commerce, as well as
all facilities used for such transmission or sale of electric
energy.\83\ FPA section 201 also defines a public utility as a person
who owns or operates facilities subject to the jurisdiction of the
Commission.\84\ FPA sections 205 \85\ and 206 \86\ provide the
Commission with jurisdiction over all rates and charges made, demanded,
or received by any public utility for or in connection with the
transmission or sale of electric energy subject to the Commission's
jurisdiction. Those sections also provide the Commission with
jurisdiction over all rules, regulations, practices, or contracts
affecting jurisdictional rates, charges, or classifications.
---------------------------------------------------------------------------

    \83\ 16 U.S.C. 824.
    \84\ Id. 824(e).
    \85\ Id. 824d.
    \86\ Id. 824e.
---------------------------------------------------------------------------

    39. The Commission's authority to issue regulations pertaining to
distributed energy resource aggregations stems from both the
Commission's jurisdiction over the wholesale sales by distributed
energy resource aggregators into RTO/ISO markets and from its
jurisdiction over practices affecting wholesale rates.\87\
---------------------------------------------------------------------------

    \87\ See Nat'l Ass'n of Regulatory Util. Comm'rs v. FERC, 964
F.3d at 1186 (``FERC bears the responsibility of regulating the
wholesale market, which encompasses `both wholesale rates and the
panoply of rules and practices affecting them.' '') (quoting EPSA,
136 S. Ct. at 773).
---------------------------------------------------------------------------

    40. First, we find that the sales of electric energy by distributed
energy resource aggregators for purposes of participating in an RTO/ISO
market are wholesale sales subject to the Commission's jurisdiction. In
Order No. 841, the Commission observed that an electric storage
resource that injects electric energy back to the grid for purposes of
participating in an RTO/ISO market engages in a sale of electric energy
at wholesale in interstate commerce.\88\ Similarly, to the extent that
a distributed energy resource aggregator's transaction in RTO/ISO
markets entails the injection of electric energy onto the grid and a
sale of that energy for resale in wholesale electric markets, we find
that the Commission has jurisdiction over such wholesale sales.\89\
---------------------------------------------------------------------------

    \88\ Order No. 841, 162 FERC ] 61,127 at P 30.
    \89\ See EnergyConnect, Inc., 130 FERC ] 61,031, at P 29 (2010).
We note that injections of electric energy to the grid do not
necessarily trigger the Commission's jurisdiction. See Sun Edison
LLC, 129 FERC ] 61,146 (2009), reh'g granted on other grounds, 131
FERC ] 61,213 (2010) (the Commission's jurisdiction would arise only
when a facility operating under a state net metering program
produces more power than it consumes over the relevant netting
period); MidAmerican Energy Co., 94 FERC ] 61,340 (2001).
---------------------------------------------------------------------------

    41. Second, we find that RTO/ISO market rules governing sales in
RTO/ISO markets by distributed energy resource aggregators from demand
resources (e.g., demand response and energy efficiency) are practices
affecting wholesale rates. This finding aligns with the decision of the
U.S. Supreme Court in EPSA, which interpreted the FPA as providing the
Commission with jurisdiction over the participation in RTO/ISO markets
of demand response resources: A type of non-traditional resource that,
by definition, is located behind a customer meter and generally is
located on the distribution system.\90\ First, the Court found that the
Commission's regulation of demand response participation in wholesale
markets met the ``affecting'' standard in FPA sections 205 and 206
``with room to spare.'' \91\ Second, the Court found that the
Commission's regulation of demand response resources did not regulate
retail sales in violation of FPA section 201(b).\92\ These holdings
apply equally to RTO/ISO market rules governing sales in RTO/ISO
markets by distributed energy resource aggregators from demand
resources.
---------------------------------------------------------------------------

    \90\ See Order No. 841-A, 167 FERC ] 61,154 at P 33 (citing
EPSA, 136 S. Ct. 760; 18 CFR 35.28(b)(4)).
    \91\ EPSA, 136 S. Ct. at 774 (referring to the Commission's
jurisdiction under FPA sections 205 and 206 to regulate practices
affecting jurisdictional rates).
    \92\ Id. at 784.
---------------------------------------------------------------------------

    42. We clarify that, to the extent a distributed energy resource
aggregator makes sales of electric energy into RTO/ISO markets, it will
be considered a public utility subject to the Commission's
jurisdiction.\93\ Such distributed energy resource aggregators must
fulfill certain responsibilities set forth in the FPA and the
Commission's rules and regulations.\94\ If a distributed

energy resource aggregator (1) aggregates only demand resources; or (2)
aggregates only customers in a net metering program that are not net
sellers, that distributed energy resource aggregator would not become a
public utility.\95\
---------------------------------------------------------------------------

    \93\ See EnergyConnect, Inc., 130 FERC ] 61,031 at P 29 (finding
an aggregator of retail customers to be a public utility under FPA
section 201(e) because its agreements to make sales of balancing
energy for resale in RTO/ISO markets would constitute jurisdictional
facilities under FPA section 201(b)).
    \94\ Examples of such responsibilities include filing rates
under FPA section 205 (potentially including obtaining market-based
rate authority); filing Electric Quarterly Reports; submitting FPA
sections 203 and 204 filings related to corporate mergers and other
activities; and fulfilling FPA section 301 accounting obligations
and FPA section 305(b) interlocking directorate obligations. See 16
U.S.C. 824b, 824c, 824d, 825, 825d(b).
    \95\ See EnergyConnect, Inc., 130 FERC ] 61,031 at P 30 (finding
that ``where an entity is only engaged in the provision of demand
response services, and makes no sales of electric energy for resale,
that entity would not own or operate facilities that are subject to
the Commission's jurisdiction and would not be a public utility that
is required to have a rate on file with the Commission''); Sun
Edison LLC, 129 FERC ] 61,146 (the Commission's jurisdiction would
arise only when a facility operating under a state net metering
program produces more power than it consumes over the relevant
netting period); MidAmerican Energy Co., 94 FERC ] 61,340.
---------------------------------------------------------------------------

    43. We further clarify that we are only exercising jurisdiction in
this final rule over the sales by distributed energy resource
aggregators into the RTO/ISO markets. Hence, an individual distributed
energy resource's participation in a distributed energy resource
aggregation would not cause that individual resource to become subject
to requirements applicable to Commission-jurisdictional public
utilities.
    44. As the Commission stated in Order Nos. 841 and 841-A, the
Commission recognizes a vital role for state and local regulators with
respect to retail services and matters related to the distribution
system, including design, operations, power quality, reliability, and
system costs.\96\ As in Order No. 841, we reiterate that nothing in
this final rule preempts the right of states and local authorities to
regulate the safety and reliability of the distribution system and that
all distributed energy resources must comply with any applicable
interconnection and operating requirements.\97\
---------------------------------------------------------------------------

    \96\ Order No. 841, 162 FERC ] 61,127 at P 36; Order No. 841-A,
167 FERC ] 61,154 at P 42.
    \97\ See Order No. 841-A, 167 FERC ] 61,154 at P 46.
---------------------------------------------------------------------------

2. Opt-Out
    45. In the NOPR, the Commission proposed to require each RTO/ISO to
revise its tariff as necessary to accommodate the participation of
distributed energy resource aggregations in RTO/ISO markets.\98\ In the
NOPR, the Commission stated that, to the extent existing rules or
regulations explicitly prohibit certain technologies from participating
in RTO/ISO markets, it did not intend to overturn those rules or
regulations.\99\ However, the Commission did not propose a mechanism by
which relevant electric retail regulatory authorities could authorize
or prohibit the participation of distributed energy resources or
distributed energy resource aggregators in RTO/ISO markets. The
Commission also explained that, because the individual resources in
distributed energy resource aggregations likely will fall under the
purview of multiple organizations (e.g., the RTO/ISO, state regulatory
commissions, relevant distribution utilities, and local regulatory
authorities), the proposed market participation agreements \100\ for
distributed energy resource aggregators must require that the
aggregator attest that its distributed energy resource aggregation is
compliant with the tariffs and operating procedures of the distribution
utilities and the rules and regulations of any other relevant
regulatory authority.\101\ The Commission stated that this may include
any laws or regulations of the relevant electric retail regulatory
authority that do not permit demand response resources to participate
in RTO/ISO markets as the Commission considered in Order No. 719.\102\
---------------------------------------------------------------------------

    \98\ NOPR, 157 FERC ] 61,121 at P 124.
    \99\ Id. P 133.
    \100\ See Section IV.J (Market Participation Agreements) below
for more discussion of market participation agreements.
    \101\ NOPR, 157 FERC ] 61,121 at P 157.
    \102\ Id. P 157 n.238 (citing Order No. 719, 125 FERC ] 61,071
at P 154).
---------------------------------------------------------------------------

    46. After the technical conference, the Commission sought comments
on whether states could require distributed energy resources to choose
to participate in either an RTO/ISO market or retail compensation
program, but not allow participation in both.\103\ The Commission also
sought comments on the benefits and drawbacks of such an approach.
---------------------------------------------------------------------------

    \103\ Notice Inviting Post-Technical Conference Comments at 6.
---------------------------------------------------------------------------

a. Comments
    47. As described above,\104\ numerous commenters question the
Commission's authority to require RTOs/ISOs to accommodate the
participation of distributed energy resource aggregations in RTO/ISO
markets. They believe that, to mitigate their jurisdictional concerns,
relevant electric retail regulatory authorities and/or distribution
utilities must be allowed to either authorize or prohibit the
participation of distributed energy resources and/or distributed energy
resource aggregators in the RTO/ISO markets (i.e., to opt in or opt
out, respectively).\105\ Thus, they specifically request that the
Commission adopt an opt-out/opt-in provision similar to that
established in Order No. 719 to allow relevant electric retail
regulatory authorities to decide whether distributed energy resources
may participate in aggregations in RTO/ISO markets.\106\
---------------------------------------------------------------------------

    \104\ See supra Section IV.A.1 (Scope of Final Rule).
    \105\ See, e.g., APPA/NRECA Comments (RM16-23) at 21-22; DTE
Electric/Consumers Energy Comments (RM16-23) at 7; MISO Transmission
Owners Comments (RM16-23) at 6; NARUC Comments (RM16-23) at 4-5;
TAPS Comments (RM16-23) at 10, 16-17.
    \106\ See, e.g., AES Companies Comments (RM16-23) at 31; Kansas
Commission Comments (2018 RM18-9) at 4; NRECA Comments (2018 RM18-9)
at 6-7, 27-28; Organization of MISO States Comments (RM16-23) at 4-
5; Southern Companies Comments (2018 RM18-9) at 3-4 (citing Order
No. 719, 125 FERC ] 61,071; Order No. 719-A, 128 FERC ] 61,059); see
discussion of opt-out/opt-in infra PP 59, 64.
---------------------------------------------------------------------------

    48. Some of these commenters contend that the Commission would be
exceeding its statutory authority if the final rule does not include an
opt-out.\107\ They argue that the Commission may determine how
distributed energy resources participate in RTO/ISO markets, but
whether they participate is the exclusive province of the states.\108\
APPA points to the existing opt-out for demand response resources
established in Order No. 719 to argue that the applicability of
relevant electric retail regulatory authority should not turn on the
wholesale participation model selected by the aggregator.\109\ APPA
asserts that the authority of relevant electric retail regulators over
the terms and conditions of interconnection to the distribution system
includes the authority to limit the manner in which a distributed
energy resource uses the distribution system.\110\ APPA argues that an
opt-out is consistent with the NOPR's proposal that market
participation agreements include an attestation that an aggregation is
compliant with distribution utility tariffs and the rules and
regulations of any other relevant regulatory authority. APPA further
argues that an opt-out conforms with the requirement in Order No. 841
that an electric storage resource must be ``contractually permitted''
to inject electric energy back onto the grid (e.g., per the
interconnection agreement between an electric storage resource that is
interconnected on a distribution system or behind the meter and the
distribution utility to which it is

interconnected).\111\ Xcel Energy Services argues that, to the extent
distributed energy resource participation in RTO/ISO markets does
occur, the applicable state has the authority to establish the
parameters of the participation model, not the RTO/ISO.\112\ Xcel
Energy Services asserts that the Commission should not usurp the
states' authority to address inappropriate arbitrage between retail and
wholesale consumption.\113\
---------------------------------------------------------------------------

    \107\ Kansas Commission Comments (2018 RM18-9) at 3; NARUC
Comments (2018 RM18-9) at 2-3; see APPA Comments (2018 RM18-9) at
15.
    \108\ Kansas Commission Comments (2018 RM18-9) at 2-3; NARUC
Comments (2018 RM18-9) at 2-3.
    \109\ APPA Comments (2018 RM18-9) at 17-18.
    \110\ Id. at 15-16 (noting that CAISO's Distributed Energy
Resource Provider program requires compliance with applicable
distribution utility tariffs and operating procedures, as well as
applicable requirements of the relevant electric retail regulatory
authority).
    \111\ Id. at 16 (citing NOPR, 157 FERC ] 61,121 at P 157; Order
No. 841, 162 FERC ] 61,127 at P 33).
    \112\ Xcel Energy Services Comments (RM16-23) at 23-24.
    \113\ Id. at 24.
---------------------------------------------------------------------------

    49. Multiple United States senators urge the Commission to preserve
the authority of state and local authorities over distribution
utilities with respect to distributed energy resource aggregators. They
express concern that the final rule could have a negative effect on
state and local authorities' ability to regulate retail and
distribution service. They argue that, if the Commission authorizes the
aggregation of distributed energy resources by entities other than the
local distribution utility without authorization by the appropriate
state or local regulator, the Commission would break precedent and
expand Commission regulation into areas that are jurisdictional to
state and localities under the FPA. They maintain that the relevant
electric retail regulatory authority is best positioned to decide
whether to authorize third-party distributed energy resource
aggregators to transact with retail customers.\114\
---------------------------------------------------------------------------

    \114\ May 7, 2019 Letter to Chairman Neil Chatterjee from United
States Senators John Hoeven, Kevin Cramer, John Barrasso, John
Boozman, Lisa Murkowski, Michael B. Enzi, Joni K. Ernst, Roger F.
Wicker, Shelley Moore Capito, Chuck Grassley, M. Michael Rounds,
Steve Daines, John Thune, Thom Tillis, Mike Crapo, Cindy Hyde-Smith,
Roy Blunt, James E. Risch, James Lankford, Deb Fischer, James M.
Inhofe, and Bill Cassidy. In response to this letter, the Chairman
noted that he asked state regulators participating at the April 2018
technical conference to discuss whether and why they view as
important in the context of this rulemaking the type of flexibility
that the Commission has provided to relevant electric retail
regulatory authorities with respect to participation of demand
response resources in wholesale electric markets. The Chairman also
stated that he recognizes the important role of state and local
regulators with respect to reliability and resilience, particularly
with respect to the distribution system. Chairman's Response to May
7, 2019 Letter (filed June 4, 2019).
---------------------------------------------------------------------------

    50. Those commenters advocating for an opt-out also generally
express concerns about the cost, and operational and reliability
impacts, of distributed energy resource aggregations on distribution
utilities and the distribution system.\115\ With regard to cost
impacts, some commenters suggest that costs borne by small utilities
and their customer bases may outweigh the benefits of distributed
energy resource aggregation participation in RTO/ISO markets, and that
small to medium-sized distribution utilities may not have the resources
needed to coordinate with distributed energy resource aggregators and
RTOs/ISOs.\116\ In addition, NRECA argues that opt-out/opt-in
provisions would lessen the compliance burden on smaller entities and
would be consistent with the deference to relevant electric retail
regulatory authorities included in IEEE 1547.\117\ NRECA also raises
concerns that distributed energy resource aggregators may ``cherry-
pick'' the more lucrative resources in a system, undermining
reliability and the ability of utilities to develop and invest in their
own integrated distributed energy resources portfolio.\118\
Organization of MISO States suggests that even a temporary opt-out
would allow for safe and reliable implementation with minimal
disruption to the distribution system.\119\
---------------------------------------------------------------------------

    \115\ See, e.g., Vice Chairman Place Comments (2018 RM18-9) at
2-3; EEI Comments (2018 RM18-9) at 19-20; Eversource Comments (2018
RM18-9) at 12-13; NRECA Comments (2018 RM18-9) at 7-10, 12; see also
AMP Comments (2019 RM18-9) at 1.
    \116\ APPA Comments (2018 RM18-9) at 7 (asserting that rate
design challenges can be particularly acute for small to medium-
sized distribution utilities), 9-10 (asserting that monitoring and
responding to system impacts associated with distributed energy
resource aggregation activity could be particularly difficult for
small and medium-sized utilities); APPA/NRECA Comments (RM16-23) at
39 (asserting that the costs of installing new meters or new
communication technology to capture wholesale market transactions
would burden smaller distribution utilities in particular); NRECA
Comments (2018 RM18-9) at 14 (asserting that smaller distribution
cooperatives may not have staff or resources needed to conduct
ongoing operational coordination with RTOs/ISOs and distributed
energy resource aggregators), 26 (asserting that the considerable
amount of funding required to potentially benefit a small number of
customers imposes too large of a burden on small utilities); TAPS
Comments (RM16-23) at 15-16 (asserting that, particularly for a
small utility, the costs of ongoing coordination, metering,
settlements, and rate-unbundling needed to support sales to RTO/ISO
markets by distributed energy resources may far exceed the potential
efficiency benefits from their participation in RTO/ISO markets).
    \117\ NRECA Comments (2018 RM18-9) at 27-28. IEEE-1547 is a
standard of the Institute of Electrical and Electronics Engineers
(IEEE) that provides a set of criteria and requirements for the
interconnection of distributed energy resources.
    \118\ Id. at 22-23.
    \119\ Organization of MISO States Comments (2018 RM18-9) at 5-6.
---------------------------------------------------------------------------

    51. Some commenters argue that, to relieve smaller entities of cost
and coordination burdens, the Commission should at a minimum establish
an express opt-in requirement for small distribution utilities similar
to the one the Commission adopted in Order No. 719.\120\ NRECA asserts
that the distributed energy resource aggregation proposals would be
costly for small cooperatives in rural, remote communities.\121\ NRECA
and TAPS recommend that the Commission require express permission from
the relevant electric retail regulatory authority before the RTO/ISO
may accept bids from distributed energy resource aggregations located
on the system of a utility that distributes 4 million MWh or less,
employing the same size threshold as the small utility opt-in allowed
in Order No. 719-A.\122\
---------------------------------------------------------------------------

    \120\ APPA Comments (2018 RM18-9) at 19-20; TAPS Comments (RM16-
23) at 16; TAPS Comments (2018 RM18-9) at 19-21.
    \121\ NRECA Comments (2019 RM18-9) at 4-5.
    \122\ Id.; TAPS Comments (RM16-23) at 16-17; TAPS Comments (2018
RM18-9) at 19 & n.27.
---------------------------------------------------------------------------

    52. In contrast, other commenters caution against adopting the
Order No. 719 construct.\123\ Many of those commenters argue that an
opt-out is not necessary because the Commission has exclusive
jurisdiction over sales from distributed energy resource aggregators
into RTO/ISO markets.\124\ Moreover, several commenters argue that the
responsibility for integrating emerging technologies into RTO/ISO
markets rests with the Commission (while the states are responsible for
managing the impacts on the distribution system) and that the Order No.
719 opt-out provision has effectively prevented the development of
demand response in the Midwest and led to higher wholesale rates.\125\
In addition, some commenters argue that providing states with an opt-
out would be inconsistent with the Commission's denial of such an opt-
out

from electric storage participation in Order No. 841.\126\
---------------------------------------------------------------------------

    \123\ See, e.g., Advanced Energy Buyers Comments (2018 RM18-9)
at 6; Advanced Energy Management Comments (2018 RM18-9) at 7-8, 10-
11; Icetec Comments (2018 RM18-9) at 10-11; SEIA Comments (2018
RM18-9) at 8; Stem Comments (2018 RM18-9) at 4-6.
    \124\ See, e.g., Advanced Energy Economy Comments (2018 RM18-9)
at 18; Energy Storage Association Comments (2018 RM18-9) at 5;
Icetec Comments (2018 RM18-9) at 11; Stem Comments (2018 RM18-9) at
4-5 (arguing that the FPA does not permit a state to use its
jurisdiction over generation or local distribution facilities to
prevent distributed energy resources or distributed energy resource
aggregators from accessing Commission-jurisdictional markets);
Sunrun Comments (2018 RM18-9) at 3-4 (arguing that whether wholesale
sales originate from facilities on the transmission system, the
distribution system, or behind the meter is immaterial to the
Commission's jurisdiction and that FPA section 201(b) distinguishes
between authority to regulate transactions and authority to regulate
facilities).
    \125\ Advanced Energy Economy Comments (RM16-23) at 44-45;
Connecticut State Entities Comments (RM16-23) at 7; Organization of
MISO States Comments (RM16-23) at 5 n.3 (noting concerns of Illinois
Commission).
    \126\ E.g., Advanced Energy Management Comments (2018 RM18-9) at
7-8 (citing Order No. 841, 162 FERC ] 61,127 at P 35).
---------------------------------------------------------------------------

    53. With respect to the Commission's authority, some commenters
assert that only the Commission has jurisdiction to determine
eligibility for wholesale market participation \127\ and that limiting
or conditioning wholesale market participation through retail tariffs
\128\ or distribution interconnection agreements \129\ would interfere
with that jurisdiction. Advanced Energy Management asserts that because
selling injections of electric energy in wholesale markets is governed
under the FPA and distributed energy resources are not always behind
the meter, there should not be a blanket opt-out available to relevant
electric retail regulatory authorities.\130\
---------------------------------------------------------------------------

    \127\ Advanced Energy Economy Comments (2018 RM18-9) at 18
(citing Advanced Energy Econ., 161 FERC ] 61,245 (2017) (AEE
Declaratory Order), reh'g denied, 163 FERC ] 61,030 (2018) (AEE
Rehearing Order); Order No. 841, 162 FERC ] 61,127 at P 35);
Advanced Energy Management Comments (2018 RM18-9) at 18; Icetec
Comments (2018 RM18-9) at 11, 16.
    \128\ Advanced Energy Economy Comments (2018 RM18-9) at 18.
    \129\ Icetec Comments (2018 RM18-9) at 11; see Stem Comments
(2018 RM18-9) at 15.
    \130\ Advanced Energy Management Comments (RM16-23) at 7.
Advanced Energy Management states that there should be no
restriction on where distributed energy resource aggregators can
recruit customers to participate in the wholesale market. Advanced
Energy Management Comments (2018 RM18-9) at 11.
---------------------------------------------------------------------------

    54. However, some commenters recognize that states do have the
right to implement retail tariffs that disqualify a resource from
participating in the state program if the resource elects to
participate in RTO/ISO markets.\131\ Several commenters caution that,
if the Commission does consider an opt-out, it must be narrowly
tailored.\132\ Harvard Environmental Policy Initiative points to the
Commission's proposed coordination provisions to demonstrate that the
Commission will not preempt state authority over distribution system
planning or create new authority for the Commission to allow
distributed energy resources to connect to a distribution system
without a utility's approval or knowledge.\133\
---------------------------------------------------------------------------

    \131\ See Advanced Energy Management Comments (2018 RM18-9) at
11; Stem Comments (2018 RM18-9) at 11; Sunrun Comments (2018 RM18-9)
at 8.
    \132\ See Advanced Energy Economy Comments (2018 RM18-9) at 21;
Public Interest Organizations Comments (2018 RM18-9) at 8-10
(suggesting a Commission waiver process with a notice and comment
period); Stem Comments (2018 RM18-9) at 6 (suggesting, as one basis
to restrict distributed energy resource participation, the
demonstration of a reliability violation that cannot be resolved
through effective distribution system management).
    \133\ Harvard Environmental Policy Initiative Comments (RM16-23)
at 12.
---------------------------------------------------------------------------

    55. In response to concerns about the impact of distributed energy
resource aggregations on the distribution system, several commenters
argue that distributed energy resource aggregation participation in
RTO/ISO markets does not introduce additional reliability or cost
concerns beyond those that are addressed through the interconnection
process.\134\ In contrast with commenters that suggest that distributed
energy resource aggregations introduce reliability or cost concerns,
Advanced Energy Economy argues that an opt-out would limit RTO/ISO
visibility into distributed energy resource operations, thereby
preventing RTO/ISO operators from using them to maintain reliability
and improve resilience, and would limit an RTO's/ISO's ability to
efficiently optimize all of the resources available in its region,
risking increased costs to consumers.\135\
---------------------------------------------------------------------------

    \134\ See, e.g., Advanced Energy Economy Comments (2018 RM18-9)
at 17-18; Advanced Energy Management Comments (2018 RM18-9) at 9-10;
Stem Comments (2018 RM18-9) at 9, 15; Sunrun Comments (2018 RM18-9)
at 6; see also New Jersey Board Comments (2018 RM18-9) at 4.
    \135\ Advanced Energy Economy Comments (2018 RM18-9) at 15-16.
---------------------------------------------------------------------------

b. Commission Determination
    56. We decline to include a mechanism for all relevant electric
retail regulatory authorities to prohibit all distributed energy
resources from participating in the RTO/ISO markets through distributed
energy resource aggregations (i.e., to opt out). However, we modify the
NOPR proposal in recognition of the potential indirect costs borne by
smaller utilities due to this final rule. More specifically, and as
discussed further below, we add Sec.  35.28(g)(12)(iv) to the
Commission's regulations to provide that RTOs/ISOs may not accept bids
from distributed energy resource aggregators aggregating customers of
small utilities \136\ unless the relevant electric retail regulatory
authority allows such customers of small utilities to participate in
distributed energy resource aggregations (i.e., to opt in).
---------------------------------------------------------------------------

    \136\ As discussed below, we will consider small utilities to be
those with a total electric output for the preceding fiscal year not
exceeding 4 million MWh.
---------------------------------------------------------------------------

    57. We disagree with the suggestion that the Commission is legally
required to grant an opt-out that enables all relevant electric retail
regulatory authorities to prohibit all distributed energy resources
from participating in the RTO/ISO markets through distributed energy
resource aggregations. The Commission 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.\137\ As
the Commission previously has found, 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.\138\
---------------------------------------------------------------------------

    \137\ Order No. 841-A, 167 FERC ] 61,154 at P 38; Order No. 841,
162 FERC ] 61,127 at P 35 (citing EPSA, 136 S. Ct. 760; AEE
Declaratory Order, 161 FERC ] 61,245 at PP 59-60; see also Nat'l
Ass'n of Regulatory Util. Comm'rs, 964 F.3d at 1187 (``FERC has the
exclusive authority to determine who may participate in the
wholesale markets.''); Nat'l Ass'n of Regulatory Util. Comm'rs v.
FERC, 475 F.3d 1277, 1280-82 (D.C. Cir. 2007); Transmission Access
Policy Study Grp. v. FERC, 225 F.3d 667, 696 (D.C. Cir. 2000).
    \138\ Order No. 841-A, 167 FERC ] 61,154 at P 31; see also id. P
38 (citing AEE Rehearing Order, 163 FERC ] 61,030 at P 36). 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. See Hughes v.
Talen Energy Mktg., LLC, 136 S. Ct. 1288, 1293-94 (2016) (Hughes);
EPSA, 136 S. Ct. at 769.
---------------------------------------------------------------------------

    58. This final rule addresses rules for participation in RTO/ISO
markets by distributed energy resource aggregators. Like the
Commission's rules governing demand response and electric storage
resource participation in RTO/ISO markets, this final rule
``addresses--and addresses only--transactions occurring on the
wholesale market.'' \139\ Thus, we continue to find that the FPA and
relevant precedent does not legally compel the Commission to adopt a
relevant electric retail regulatory authority opt-out with respect to
participation in RTO/ISO markets by all resources interconnected on a
distribution system or located behind a retail meter.\140\ As the
United States Court of Appeals for the District of Columbia Circuit
(D.C. Circuit) recently explained, the Commission has jurisdiction to
decide which entities may participate in wholesale markets, which means
that a relevant electric

retail regulatory authority 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 interfere
with the Commission's statutory obligation to ensure that wholesale
electricity markets produce just and reasonable rates.\141\
---------------------------------------------------------------------------

    \139\ EPSA, 136 S. Ct. at 776; see also Nat'l Ass'n of
Regulatory Util. Comm'rs, 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.
    \140\ Order No. 841-A, 167 FERC ] 61,154 at P 32; see also AEE
Declaratory Order, 161 FERC ] 61,245 at P 62 (citing EPSA, 136 S.
Ct. at 776).
    \141\ See Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at
1187 (``[B]ecause FERC has the exclusive authority to determine who
may participate in the wholesale markets, the Supremacy Clause . . .
requires that [s]tates not interfere. . . . FERC's statement in
Order No. 841-A that [s]tates may not block RTO/ISO market
participation `through conditions on the receipt of retail service,'
or impose any `condition[ ] aimed directly at the RTO/ISO markets,
even if contained in the terms of retail service,' is simply a
restatement of the well-established principles of federal
preemption.'') (quoting Order No. 841-A, 167 FERC ] 61,154 at P 41)
(finding that states cannot intrude on the Commission's jurisdiction
by prohibiting all consumers from selling into the wholesale market)
(citing AEE Rehearing Order, 163 FERC ] 61,030 at P 37; AEE
Declaratory Order, 161 FERC ] 61,245 at P 61); see also Hughes, 136
S. Ct. at 1298 (``States may not seek to achieve ends, however
legitimate, through regulatory means that intrude on FERC's
authority over interstate wholesale rates . . . .''); Oneok, Inc. v.
Learjet, Inc., 575 U.S. 373, 386 (2015) (finding that the proper
test for determining whether a state action is preempted is
``whether the challenged measures are 'aimed directly at interstate
purchasers and wholesalers for resale' or not'') (quoting N. Natural
Gas Co. v. State Corp. Comm'n of Kan., 372 U.S. 84, 94 (1963));
Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at 1187 (similar).
---------------------------------------------------------------------------

    59. As commenters point out, the Commission in Order No. 719
granted relevant electric retail regulatory authorities an opt-out from
allowing retail customers to participate directly in wholesale markets
through aggregations of demand response resources.\142\ As noted above,
the Commission was not obligated to provide such an opt-out, but rather
did so as an exercise of its discretion.\143\ Consistent with that
previous exercise of the Commission's discretion, we clarify that this
final rule does not affect the ability of relevant electric retail
regulatory authorities to prohibit retail customers' demand response
from being bid into RTO/ISO markets by aggregators.\144\
---------------------------------------------------------------------------

    \142\ Order No. 719, 125 FERC ] 61,071 at PP 154-55.
    \143\ See 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''); Nat'l Ass'n of Regulatory Util. Comm'rs,
964 F.3d at 1190 (``Local Utility Petitioners correctly acknowledge
that EPSA did not condition its holdings on the existence of an opt-
out.'').
    \144\ See 18 CFR 35.28(g)(1)(iii). Similarly, we recognize
Kentucky's existing right to exclude energy efficiency resources
from wholesale market participation. AEE Declaratory Order, 161 FERC
] 61,245 at P 66.
---------------------------------------------------------------------------

    60. However, unlike aggregators of demand response, distributed
energy resource aggregators are capable of engaging in sales for resale
of electricity and those distributed energy resource aggregators making
such sales in the RTO/ISO markets are public utilities subject to the
Commission's jurisdiction.\145\ We recognize that the participation of
distributed energy resource aggregators in RTO/ISO markets necessarily
has effects on the distribution system,\146\ and, as in Order No. 841,
we have considered those effects in evaluating whether to exercise our
discretion to grant an opt-out. Upon such consideration, we 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. Specifically, we find that the
reliability, transparency, and market-related benefits of removing
barriers to the participation of distributed energy resource
aggregators in RTO/ISO markets are significant. Considering those
benefits,\147\ we are not persuaded that concerns about potential
effects on the distribution system justify adopting an opt-out that
could substantially limit that participation.\148\ As discussed below,
there are several ways that relevant electric retail regulatory
authorities may address any such concerns without broadly prohibiting
the participation of distributed energy resources or distributed energy
resource aggregators in RTO/ISO markets. Therefore, we do not find it
appropriate and thus decline to exercise discretion to adopt a broad
opt-out with respect to distributed energy resource aggregations in
this final rule.
---------------------------------------------------------------------------

    \145\ See Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at
1190 (citing Order No. 841-A, 167 FERC ] 61,154 at PP 51-52
(distinguishing [electric storage resource] participation in
wholesale sales from demand response resources participating in
wholesale bids)).
    \146\ See Order No. 841-A, 167 FERC ] 61,154 at P 56 (citing
EPSA, 136 S. Ct. at 776).
    \147\ See, e.g., supra PP 4 (explaining that integrating
distributed energy resources' capabilities into RTO/ISO planning and
operations will help the RTOs/ISOs account for the impacts of these
resources on installed capacity requirements and day-ahead energy
demand, thereby reducing uncertainty in load forecasts and reducing
the risk of over procurement of resources), 27 (stating that
distributed energy resource aggregations can provide new grid
services and enhance competition in wholesale markets as new market
participants), 29 (finding that the reforms in this final rule will
enhance the competitiveness, and in turn the efficiency, of RTO/ISO
markets); see, e.g., infra PP 114 (explaining that the revised
definition of distributed energy resource adopted in this final rule
is technology-neutral, thereby ensuring that any resource that is
technically capable of providing wholesale services through
aggregation is eligible to do so, which enhances competition in the
RTO/ISO markets), 142 (stating that requiring RTOs/ISOs to allow
heterogeneous aggregations will further enhance competition in RTO/
ISO markets by ensuring that complementary resources, including
those with different physical and operational characteristics, can
meet qualification and performance requirements), 160, 163
(discussing how the final rule enhances competition and improves
reliability by requiring RTOs/ISOs to allow participation of
distributed energy resources in both wholesale and retail or
multiple wholesale programs), 173 (finding that requiring RTOs/ISOs
to establish a minimum size requirement not to exceed 100 kW will
remove a barrier to distributed energy resource aggregations,
improve competition in RTO/ISO markets, avoid confusion about
appropriate requirements, and help ensure just and reasonable
rates), 205 (discussing the benefits of single-node and multi-node
aggregations).
    \148\ The list of benefits catalogued in the preceding footnote
includes many of the same benefits that the D.C. Circuit pointed to
when explaining why the Commission's decision not to provide an opt-
out in Order No. 841 was not an unreasoned departure from Order No.
719. See Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at 1190
(explaining that the Commission's decision to forgo an opt-out was
``neither unexplained nor unsupported'' and pointing to the
Commission's consideration of the benefits of enabling broad
participation of electric storage resources, including on
``competition,'' ``prices,'' and the ``diversity'' of resource types
that can participate in RTO/ISO markets).
---------------------------------------------------------------------------

    61. We continue to recognize the important role that state and
local authorities play with respect to distributed energy resources and
their potential aggregation. This final rule does not curtail that
authority. As in Order No. 841, the reforms adopted in this final rule
do not preclude or limit state or local regulation of: Retail rates;
distribution system planning, distribution system operations, or
distribution system reliability; distributed energy resource facility
siting; and interconnection of resources to the distribution system
that are not subject to Commission jurisdiction, as discussed further
below.\149\ In addition, and again as recognized in Order No. 841,
under a relevant electric retail regulatory authority's jurisdiction
over its retail programs, such a regulatory authority is able to
condition a distributed energy resource's participation in a retail
distributed energy resource program on that resource not also
participating in the RTO/ISO markets.\150\ This should allow

a retail regulatory authority to address any specific concerns.
---------------------------------------------------------------------------

    \149\ See Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at
1188 (noting that the similar decision in ``Order No. 841 does not
`usurp[ ] state power' '' and pointing to the fact that ``States
retain their authority to impose safety and reliability requirements
without interference from FERC, and [electric storage resources]
must still obtain all requisite permits, agreements, and other
documentation necessary to participate in federal wholesale
markets'') (quoting EPSA, 136 S. Ct. at 777).
    \150\ See Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at
1188 (``States retain their authority to prohibit local [electric
storage resources] from participating in the interstate and
intrastate markets simultaneously, meaning [s]tates can force local
[electric storage resources] to choose which market they wish to
participate in.''); Order No. 841-A, 167 FERC ] 61,154 at P 41
(acknowledging that states have the authority to include conditions
in their own retail distributed energy resource or retail electric
storage resource programs that prohibit any participating resources
from also selling into RTO/ISO markets because, in that scenario,
the owner of a resource has a choice between participating in the
retail market or wholesale market); see also Arkansas Commission
Comments (2019 RM18-9) at 2-4.
---------------------------------------------------------------------------

    62. As to commenters' concerns regarding cost impacts on the
distribution system, we note that, in Order No. 841, with respect to
concerns about electric storage resources' use of the distribution
system, the Commission observed that, in PJM Interconnection L.L.C.,
the Commission permitted a distribution utility to assess a wholesale
distribution charge to an electric storage resource participating in
the PJM markets. Consistent with this precedent, the Commission found
that it may be appropriate, on a case-by-case basis, for distribution
utilities to assess a charge on electric storage resources similar to
those assessed to the market participant in that proceeding.\151\
Consistent with that conclusion, we find that it may also be
appropriate, on a case-by-case basis, for distribution utilities to
assess a wholesale distribution charge on distributed energy resource
aggregators participating in RTO/ISO markets.
---------------------------------------------------------------------------

    \151\ Order No. 841, 162 FERC ] 61,127 at P 296 (citing PJM
Interconnection L.L.C., 149 FERC ] 61,185, at P 12 (2014) (wholesale
distribution charge that ComEd will assess to Energy Vault is a
weighted average carrying charge that is applied on a case-by-case
basis, depending on the distribution facilities expected to be used
in providing wholesale distribution service), order on reh'g, 151
FERC ] 61,231, at PP 16-18 (2015)).
---------------------------------------------------------------------------

    63. Moreover, we recognize that, where appropriate, the Commission
previously has taken steps to address a potential burden imposed by a
Commission final rule on smaller entities. For instance, the Commission
has distinguished small utilities whose total electric output for the
preceding fiscal year did not exceed 4 million MWh \152\ for purposes
of granting waivers from Order No. 889's \153\ standards of conduct for
transmission providers \154\ and determining whether a specific
cooperative should be considered a non-public utility outside the scope
of a refund obligation involving the California energy crisis.\155\ In
Order No. 719-A, the Commission provided an opt-in for small utilities,
which requires the relevant electric retail regulatory authority to
give affirmative permission for the demand response of customers of
utilities that distributed 4 million MWh or less in the previous fiscal
year to be bid into RTO/ISO markets by an aggregator of those retail
customers.\156\
---------------------------------------------------------------------------

    \152\ The 4 million MWh cutoff stems from the Small Business
Size Standards component of the North American Industry
Classification System, which previously defined a small utility as
one that, including its affiliates, is primarily engaged in the
generation, transmission, or distribution of electric energy for
sale, and whose total electric output for the preceding fiscal year
did not exceed 4 million MWh. 13 CFR 121.201 (2013) (Sector 22,
Utilities, North American Industry Classification System (NAICS)).
Currently, the number of employees is the basis used to measure
whether electric power generation, transmission, and distribution
industries are small businesses. 13 CFR 121.201 (2020) (Sector 22,
Utilities, NAICS).
    \153\ Open Access Same-Time Information System & Standards of
Conduct, Order No. 889, FERC Stats. & Regs. ] 31,035 (1996) (cross-
referenced at 75 FERC ] 61,078), clarified, 76 FERC ] 61,009 (1996),
order on reh'g, Order No. 889-A, FERC Stats. & Regs. ] 31,049
(cross-referenced at 78 FERC ] 61,221), reh'g denied, Order No. 889-
B, 81 FERC ] 61,253 (1997), aff'd in relevant part sub nom.
Transmission Access Policy Study Grp. v. FERC, 225 F.3d 667 (D.C.
Cir. 2000).
    \154\ See Wolverine Power Supply Coop., 127 FERC ] 61,159, at P
15 (2009).
    \155\ See 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).
    \156\ Order No. 719-A, 128 FERC ] 61,059 at PP 51, 59-60.
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    64. Notwithstanding our finding that the benefits of this final
rule outweigh the policy considerations in favor of a broad opt-out, we
acknowledge that this final rule may place a potentially greater burden
on smaller utility systems.\157\ Recognizing this potentially greater
burden on small utility systems, we will exercise our discretion to
include in this final rule an opt-in mechanism for small utilities
similar to that provided in Order No. 719-A. Specifically, we determine
that customers of utilities that distributed 4 million MWh or less in
the previous fiscal year may not participate in distributed energy
resource aggregations unless the relevant electric retail regulatory
authority affirmatively allows such customers to participate in
distributed energy resource aggregations.
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    \157\ See supra P 50 (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).
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    65. We therefore direct each RTO/ISO to amend its market rules as
necessary to (1) accept bids from a distributed energy resource
aggregator if its aggregation includes distributed energy resources
that are customers of utilities that distributed more than 4 million
MWh in the previous fiscal year, and (2) not accept bids from
distributed energy resource aggregators 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 relevant electric retail regulatory authority permits such
customers to be bid into RTO/ISO markets by a distributed energy
resource aggregator. We conclude 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. Accordingly, we find that adopting this mechanism helps to
ensure that any ``negative effects'' of this final rule are
``outweighed by the benefits,'' \158\ listed above,\159\ that it
provides to RTO/ISO markets.
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    \158\ Nat'l Ass'n of Regulatory Util. Comm'rs, 964 F.3d at 1190.
    \159\ See supra n.147.
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    66. On compliance, we require each RTO/ISO to explain how it will
implement this small utility opt-in. We note that an RTO/ISO may choose
to implement this requirement in a similar manner as it currently
implements the small utility opt-in provision under Order No. 719-A.
    67. Although the Small Business Administration (SBA) no longer
defines small utilities based on total electric output for the
preceding fiscal year of 4 million MWh or less,\160\ we use this
standard for purposes of this final rule, as it is consistent with the
Commission's use of this standard for the opt-in adopted in Order No.
719-A,\161\ and is supported by commenters asking the Commission to
include an opt-in as part of this rule.\162\
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    \160\ The SBA now defines small utilities based on the number of
employees. 13 CFR 121.201 (establishing a threshold of 1,000
employees for electric power distribution utilities).
    \161\ Order No. 719-A, 128 FERC ] 61,059 at PP 51, 59-60.
    \162\ NRECA Comments (2019 RM18-9) at 4-5; TAPS Comments (RM16-
23) at 16-17; TAPS Comments (2018 RM18-9) at 19 & n.27.
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3. Interconnection
    68. The NOPR did not propose any changes to RTO/ISO policies and
procedures for the interconnection of distributed energy resources.
However, the Commission stated that comments demonstrated that current
RTO/ISO market rules often limit the services that distributed energy
resources are eligible to provide, including by imposing prohibitively
expensive or otherwise burdensome interconnection requirements.\163\
The Commission also recognized that RTO/ISO demand response models
often prohibit distributed energy resources from injecting power back
onto the grid in

part because they are not studied in the interconnection process.\164\
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    \163\ See NOPR, 157 FERC ] 61,121 at P 13 & n.30 (citing Energy
Storage Association's comment that interconnection processes can
pose prohibitively high transaction costs for the small project
sizes that characterize behind-the-meter storage, which creates
undue burdens on behind-the-meter storage participation in most
RTOs/ISOs).
    \164\ See id. P 15 & n.32 (citing PJM's response that demand-
side resources are not studied by PJM through the generation
interconnection process and are not allowed to inject energy beyond
the customer's meter and onto the distribution or transmission
system).
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    69. On September 5, 2019, Commission staff issued data requests to
each of the six RTOs/ISOs seeking information regarding their policies
and procedures that affect the interconnection of distributed energy
resources. The RTOs/ISOs filed their responses in October 2019, and
several commenters subsequently submitted reply comments.
a. Comments and Data Request Responses
    70. Several commenters state that any final rule should make clear
that the interconnection of resources on a state-jurisdictional
distribution system remains the responsibility of the distribution
utilities and the states.\165\ The Maryland and New Jersey Commissions
seek confirmation that state jurisdiction would remain unchanged as to
the siting and costs associated with interconnecting resources to the
distribution system, and would apply to all resources, including
distributed energy resources, having or seeking interconnection or
access to the wholesale market.\166\ The Maryland and New Jersey
Commissions request that the Commission confirm that, in the context of
interconnection requests for wholesale market access, states will
continue to have discretion to review distribution utility company
tariffs to justify how costs are allocated or how the resources and
their proposed interconnection locations benefit ultimate
ratepayers.\167\ The Massachusetts Commission makes similar
arguments.\168\
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    \165\ See, e.g., IRC Comments (RM16-23) at 9-10; Massachusetts
Municipal Electric Comments (RM16-23) at 4; Massachusetts State
Entities Comments (2019 RM18-9) at 11; NESCOE Comments (RM16-23) at
16; TAPS Comments (RM16-23) at 15.
    \166\ Maryland and New Jersey Commissions Comments (RM16-23) at
2-3.
    \167\ Id. at 3.
    \168\ Massachusetts Commission Comments (RM16-23) at 11.
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    71. In order to avoid uncertainty and litigation, Duke Energy and
EEI ask for additional clarity with respect to state-versus-Commission
jurisdiction affecting interconnection, distribution planning, and
investments to enable distributed energy resource aggregation.\169\
TAPS asks that any final rule make clear that, absent proper
application of a Commission-jurisdictional Generator Interconnection
Agreement, the Commission does not seek to alter or preempt local and
state rules governing interconnection to the distribution system.\170\
Furthermore, TAPS asserts that, given the limited circumstances in
which the Commission has the authority to require interconnection to,
or deliveries over, distribution facilities, the NOPR appropriately
does not attempt to establish new rules or requirements governing the
details of interconnection of distributed energy resources.\171\
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    \169\ Duke Energy Comments (RM16-23) at 4; EEI Comments (RM16-
23) at 25.
    \170\ TAPS Comments (RM16-23) at 15.
    \171\ Id. at 5-9.
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    72. As to their own interconnection procedures and experience with
distributed energy resources, ISO-NE, NYISO, and PJM's data request
responses reference Order Nos. 2003 and 2006 and indicate that they
apply the jurisdictional test for dual-use facilities established in
those orders.\172\ As explained in more detail below, Order Nos. 2003
and 2006 established what some RTOs/ISOs have labeled the ``first use''
test, under which the first interconnection to a distribution facility
for the purpose of making wholesale sales is not subject to Commission
jurisdiction, but triggers jurisdiction for any subsequent wholesale
interconnection requests to the same distribution facility.\173\ MISO
explains that no distributed energy resources have requested to
interconnect to distribution facilities subject to the MISO tariff but
indicates that it would apply the jurisdictional test in Order Nos.
2003 and 2006 in processing subsequent interconnection requests to such
facilities.\174\ SPP states that it would consider an interconnection
to be Commission jurisdictional only if the relevant distribution
facilities were under SPP's functional control, and SPP's data request
response appears to indicate that, even after the first wholesale use,
such distribution facilities would not be subject to its tariff.\175\
CAISO states that, if a distributed energy resource plans to
participate in CAISO's markets, the interconnection is Commission
jurisdictional pursuant to the utility distribution company's Wholesale
Distribution Access Tariff.\176\
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    \172\ ISO-NE Data Request Response (2019 RM18-9) at 3-4, 9-10;
NYISO Data Request Response (2019 RM18-9) at 1-2; PJM Data Request
Response (2019 RM18-9) at 2, 5.
    \173\ Standardization of Generator Interconnection Agreements &
Procedures, Order No. 2003, 104 FERC ] 61,103, at P 804 (2003),
order on reh'g, Order No. 2003-A, 106 FERC ] 61,220, order on reh'g,
Order No. 2003-B, 109 FERC ] 61,287 (2004), order on reh'g, Order
No. 2003-C, 111 FERC ] 61,401 (2005), aff'd sub nom. Nat'l Ass'n of
Regulatory 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,
111 FERC ] 61,220, order on reh'g, Order No. 2006-A, 113 FERC ]
61,195 (2005), order granting clarification, Order No. 2006-B, 116
FERC ] 61,046 (2006), corrected, 71 FR 53,965 (Sept. 13, 2006); see
also Reform of Generator Interconnection Procedures and Agreements,
Order No. 845, 163 FERC ] 61,043 (2018), errata notice, 167 FERC ]
61,123, order on reh'g, Order No. 845-A, 166 FERC ] 61,137 (2019),
errata notice, 167 FERC ] 61,124, order on reh'g, Order No. 845-B,
168 FERC ] 61,092 (2019). We note that Order No. 845 did not make
any changes to the ``first use'' test for distribution
interconnection at issue here.
    \174\ See MISO Data Request Response (2019 RM18-9) at 6-7 (``If
the [distributed energy resource] interconnection customer intends
to connect the [distributed energy resource] unit to facilities
listed on [MISO's list of transmission facilities transferred to its
functional control] or a distribution facility that provides
Wholesale Distribution Service, then the Interconnection Customer is
required to follow the Generator Interconnection Procedures
(Attachment X) of MISO Tariff. If [the distributed energy resource]
is not interconnecting to such facilities, then the interconnection
customer is required to follow the interconnection rules of the Host
Distribution Provider.'').
    \175\ See SPP Data Request Response (2019 RM18-9) at 2-3, 6
(``Such distribution facilities are not subject to the Tariff in
this situation. The Tariff would not apply to non-jurisdictional
facilities; however, there might be an obligation for the utility to
coordinate with SPP regarding potential impacts to the SPP
Transmission System.'').
    \176\ CAISO Data Request Response (2019 RM18-9) at 2-4
(explaining that ``each CAISO transmission owner that is
[Commission] jurisdictional and operates distribution facilities has
a Wholesale Distribution Access Tariff with the express purpose of
enabling [distributed energy resources] to interconnect to the
distribution grid and still participate in the CAISO wholesale
markets'').
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    73. In response to CAISO's data request response, SoCal Edison
clarifies that every SoCal Edison distribution facility with which a
new resource seeks interconnection pursuant to the Wholesale
Distribution Access Tariff is already subject to an OATT for purposes
of making wholesale sales.\177\ Pacific Gas & Electric states that the
Commission-jurisdictional Wholesale Distribution Access Tariff is not
only the primary, but also should be the exclusive, means of
interconnecting certain distributed energy resources that wish to
export energy for purposes of participating in the wholesale
markets.\178\ It states that this is important because California's
Rule 21, a state-jurisdictional tariff, does not currently provide a
methodology to separate wholesale from retail use and

thus could allow bypass of retail rates for behind-the-meter
distributed energy resources that both consume and export electricity
for both retail and wholesale purposes.\179\
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    \177\ SoCal Edison Comments (2019 RM18-9) at 2.
    \178\ Pacific Gas & Electric Comments (2019 RM18-9) at 4. It
states, however, that some wholesale market-participating
distributed energy resources interconnect today under California's
Rule 21, a state-jurisdictional tariff. For instance, it asserts
that Rule 21 applies to Qualifying Facilities (QF) that make net
surplus sales under California's net metering program, which are
considered qualifying sales under the Public Utilities Regulatory
Policy Act (PURPA).
    \179\ Id. at 5.
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    74. Pacific Gas & Electric notes that CAISO's existing Demand
Response Provider participation model allows existing retail loads
interconnected under state-approved tariffs to participate in wholesale
markets as non-exporting Proxy Demand Response resources without the
risk of bypassing retail rates.\180\ Pacific Gas & Electric explains
that it and CAISO can avoid the risk of retail bypass by requiring any
individual distributed energy resources in a distributed energy
resource aggregation that had previously interconnected as non-
exporting resources under California's Rule 21 and that now wish to
export electricity to participate in wholesale markets to seek a new
interconnection pursuant to, or to convert their existing
interconnection to an agreement under, the Wholesale Distribution
Access Tariff. Pacific Gas & Electric states that this framework
complies with the Commission's implementation of the jurisdictional
boundaries set forth in federal law.\181\
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    \180\ Id. at 6.
    \181\ Id. at app. A.
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    75. AMP asserts that some of the RTO/ISO responses erroneously
state that a distribution facility becomes Commission jurisdictional
when a wholesale sale occurs over that distribution facility. AMP
asserts that it is the wholesale transaction, not the distribution line
itself, that is subject to the Commission's jurisdiction.\182\ AMP also
notes that RTO/ISO processes should refer to local jurisdiction and
interconnection processes in addition to state processes because
decision making is often done at the local level pursuant to local
jurisdictional authority separate and distinct from state regulatory
authority.
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    \182\ AMP Comments (2019 RM18-9) at 2.
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    76. Several commenters request that the Commission revise its
interconnection policy as it applies to distributed energy
resources.\183\ Advanced Energy Economy states that the Commission
could work with relevant electric retail regulatory authorities and
distribution utilities to address interconnection requirements through
standard interconnection tariffs in those states where distributed
energy resources are not classified as QFs under PURPA \184\ and for
which no retail tariff exists.\185\
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    \183\ See, e.g., Advanced Energy Economy Comments (2018 RM18-9)
at 19-21; Eversource Comments (2018 RM18-9) at 9-10; Icetec Comments
(2018 RM18-9) at 2-3, 11.
    \184\ 16 U.S.C. 796(17)-(18), 824a-3.
    \185\ Advanced Energy Economy Comments (2018 RM18-9) at 20-21
(asserting that resources in such states have no clear path to
interconnection to the distribution system and a limited ability to
participate in any wholesale distributed energy resource aggregation
program).