United States: The NYISO Sues The FERC Over Participation Of Aggregated Distributed Energy Resources In New York's Wholesale Markets

The long saga of how small-scale, "distributed" energy resources like energy storage, solar, energy efficiency assets and even electric vehicle charging equipment can participate in the New York State's wholesale energy markets, if they "aggregate" their resources and bid together, has now landed in federal court. On October 4, 2022, the New York Independent System Operator, Inc. ("NYISO") filed a petition in DC Circuit Court of Appeals seeking review of a Federal Energy Regulatory Commission ("FERC") order pertaining to the NYISO's compliance with FERC Order 2222. Order 2222, issued in September 2020, directed regional transmission organizations ("RTOs") and independent system operators ("ISOs") to remove market barriers for distributed energy resource ("DER") aggregations to participate in the wholesale markets, potentially opening up new markets for resources that are policy priorities for New York State.

Background

The NYISO, along with other RTOs and ISOs, has made a series of compliance filings in response to Order 2222 since its promulgation. Most recently, in July 2021, the NYISO made a compliance filing that the FERC found only partially compliant with Order 2222 (See Docket Nos. ER21-2460-000 and ER21-2460-001). In relevant part, the FERC determined that the NYISO's proposed market design to disallow an aggregation from participating in the markets as a reliability resource where any of its DERs had a duration of under one hour unfairly limited the aggregation's ability to participate in the markets. The FERC directed the NYISO to revise its tariff to reflect that, as long as some of the DERs in the aggregation meet the requirements to provide ancillary services, then any DER in that aggregation is free to do so.

The NYISO subsequently filed a petition for clarification and rehearing with the FERC. In its request for clarification, the NYISO requested the FERC specify whether it was requiring the NYISO to afford individual DERs in an aggregation Real Time Commitment and Real Time Dispatch opportunities. The NYISO argued that if that was the case, the NYISO would need to invest significant resources into developing such functionality, but it was "not clear if the investment. . . would provide equivalent benefits or market efficiency." The NYISO also pointed out that this would require significantly more data collection from individual DERs, which would add costs to DERs and Aggregators. Importantly, the NYISO also argued this requirement could cause violations of reliability standards in the event that the NYISO assigned unavailable DERs in an aggregation an operating reserve schedule.

The NYISO's rehearing request sought alternative relief in the form of asking the FERC to reconsider its directive to the NYISO on the grounds that it is, " overly prescriptive, fundamentally inconsistent with the NYISO's market design, practically impossible to implement in the near future, and could threaten reliability." The NYISO argued that the FERC acted arbitrarily and capriciously when it failed to articulate why such a market change is required, and accused the FERC of "ignoring record evidence" of the NYISO's limitations.

The FERC denied the rehearing and did not issue any clarifications pertaining to the NYISO's request, and thus the NYISO sought judicial review pursuant to the Federal Power Act.

Potential Impact

The Court has the authority under the Federal Power Act to affirm, modify, or set aside the FERC's order in whole or in part. If the Court upholds the FERC's order, it could significantly delay the ability of DER aggregations to participate in the NYISO's markets while the NYISO works to modify its software and market rules to reflect the directive. An affirmation could also impact the market designs of other RTO and ISOs, which have already struggled to appease the FERC in their Order 2222 compliance filings. If the FERC sets a precedent for allowing individual DERs in an aggregation to be able to participate in the markets, it could have an unintended chilling effect on the markets if DERs are unwilling to take on the additional costs associated with the increased data collection efforts, and also if RTOs and ISOs need to significantly delay implementing their market designs to accommodate such a requirement.

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