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Federal Register / Vol. 86, No. 59 / Tuesday, March 30, 2021 / Rules and Regulations does not affect the ability of RERRAs to prohibit retail customers demand response from being bid into RTO/ISO
markets by aggregators pursuant to Order No. 719.37 The Commission also stated that, because demand response falls under the definition of distributed energy resource, an aggregator of demand response could participate as a distributed energy resource aggregator, but that the final rule does not affect existing demand response rules.38 The Commission further found that the participation of demand response in distributed energy resource aggregations is subject to the opt-out and opt-in requirements of Order Nos. 719 and 719A.39 The Commission therefore clarified that if the RERRA for a demand response resource has either chosen to opt out or has not opted in, then the demand response resource may not participate in a distributed energy resource aggregation.
a. Requests for Clarification or Rehearing
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14. Public Interest Organizations argue that the Commission erred by including an opt-out for distributed energy resource aggregations that contain demand response resources.40
Public Interest Organizations claim that the Commissions decision in Order No.
2222 to allow RERRAs to opt out with respect to demand response is functionally separate from the opt-out provided in Order No. 719.41 They state that there may be demand response resources that, for reasons specific to their business models, choose to continue to be classified as demand response resources participating in wholesale markets pursuant to Order Nos. 719 and 719A.42 They argue, however, that demand response resources that participate in distributed energy resource aggregations under Order No. 2222 are a categorically different class of resource than those not participating as distributed energy resources.43 They assert that the Commission therefore has the discretion to treat these two resource classes differently but explicitly chose to expand the Order No. 719 opt-out to apply to demand response resources acting as distributed energy resources.44
37 Order No. 2222, 172 FERC 61,247 at P 59
citing 18 CFR 35.28g1iii.
38 Id. P 118.
39 Id. P 145.
40 Public Interest Organizations Request for Rehearing at 5.
41 Id. at 6.
42 Id. at 67.
43 Id. at 7.
44 Id. at 78.

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15. Public Interest Organizations argue that the opt-out is unlawful because legal developments have clarified that the Commission has the exclusive authority to set the eligibility and other terms of wholesale market participation of resources that are composed of retail customer actions or that connect at the distribution system.45 They contend that, in upholding Order No. 841, the United States Court of Appeals for the District of Columbia Circuit D.C. Circuit did not conclude that withholding the optout was merely a reasonable choice within the Commissions discretion but rather simply a restatement of the wellestablished principles of federal preemption. 46 Public Interest Organizations therefore argue that a state cannot determine which resources may participate in RTO/ISO markets because such state actions directly aim at wholesale transactions and are field preempted.
16. Public Interest Organizations contend that, even assuming that the Commission had discretion to allow states to prohibit resources from accessing the wholesale market, there is no legally relevant basis to distinguish between categorical state bans on the participation of demand response resources in distributed energy resource aggregations and bans on the participation of electric storage and all other distributed energy resources.47
Public Interest Organizations assert that the Commission wrongly suggested that the fact that demand response falls under its jurisdiction over practices that directly affect Commissionjurisdictional rates, whereas distribution-connected generators are engaged in wholesale sales of energy and may qualify as public utilities under the FPA, is a relevant distinction with regard to the application of an optout.48 They argue that the Commission did not fully explain why such a distinction should affect its decision to extend the opt-out to demand response contained within a distributed energy resource aggregation. Public Interest Organizations assert that other types of technologies also do not necessarily engage in wholesale sales yet are not subject to an opt-out under Order No.
2222, citing the example of a behindthe-meter generator whose function is to reduce the net demand of its host and may never deliver power to the grid, 45 Id. at 8 citing EPSA, 136 S.Ct. at 771; Hughes, 136 S. Ct. at 1288.
46 Id. quoting NARUC, 964 F.3d at 1187.
47 Id. at 910.
48 Id. at 12 citing Order No. 2222, 172 FERC
61,247 at P 60.

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although it has the potential to do so.49
Public Interest Organizations state that the Commission has concluded that such technologies, whether or not they actually deliver power to the grid, are not subject to the opt-out.50 They argue that an opt-out impermissibly targets the wholesale markets and is inconsistent with the FPA, regardless of whether it targets an aggregator that engages in wholesale sales or an aggregator that directly affects wholesale rates and regardless of any legitimate state objectives that may motivate the states action.51
17. Public Interest Organizations further allege that the demand response opt-out adopted in Order No. 2222 is ultra vires because it is an impermissible relinquishment of the Commissions duty under FPA section 206 to ensure just and reasonable rates.52 They assert that the Commission identified the changes necessary to address certain market flaws but failed to ensure that these reforms shall be thereafter observed and in force. 53
Public Interest Organizations elaborate that allowing states to obstruct the expansion of demand response resources frustrates the Commissions responsibility to establish the criteria for participation in RTO/ISO markets, which is essential to the Commissions ability to fulfill its statutory responsibility to ensure that wholesale rates are just and reasonable. 54
18. Public Interest Organizations maintain that the opt-out unduly discriminates against distributed energy resource aggregations containing demand response resources by treating them differently from aggregations that do not contain demand response even though they provide the same grid services.55 Public Interest Organizations argue that, where different technologies appear operationally equivalent from the perspective of the system operator, there is no basis for differentiating eligibility to participate in the market.
They claim that the Commission has previously found that the source of a load reduction, whether it comes from behind-the-meter generation or operational shutdown, is irrelevant to a resources eligibility to participate as 49 Id.

at 1213.
at 13.
51 Id. at 1214 citing Hughes, 136 S.Ct. at 1290
91.
52 Id. at 14.
53 Id. at 15 quoting 16 U.S.C. 824ea.
54 Id. at 16 quoting Order No. 2222, 172 FERC
61,247 at P 57.
55 Id. at 18.
50 Id.

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