The Game-Changing Electric Grid Ruling You Need to Know About
An order handed down by an independent federal agency last week has the potential to dramatically reshape America’s electricity grid for the better. The change agent in the spotlight is the Federal Energy Regulatory Commission, or FERC, an agency tasked with regulating the interstate transmission of energy. Among FERC’s most important responsibilities is the oversight of the wholesale markets of electricity and the criteria for participating in them. On September 17th, FERC issued Order 2222, a landmark ruling that will enable solar energy to compete in these very markets, an auspicious step towards enhancing grid reliability, market competition, and reduced consumer electric costs. There is much room for excitement, and this Powered by Facts report is here to walk you through what you need to know about Order 2222.
Before diving into the substance of the order, it’s important to review some key terms, starting with the electricity grid. In essence, “the grid” enables electricity to get from its source to where it’s used. Every electricity grid is composed of the following three elements, and they must be in balance at all times:
1. Generation - think nuclear plants, coal plants, hydroelectric plants, etc. Power plants like these generate electricity at a large scale. This is where wholesale electricity markets begin.
2. Transmission - think towering high-voltage transmission lines that cut through a valley. These conduits transfer purchased bulk electricity over long distances.
3. Distribution - think local power lines, transformers, and other equipment you see everyday in your neighborhood. These power lines deliver electricity to you, the consumer - in your home, your supermarket, and your workplace.
An electricity grid’s reach often expands across state lines. Electricity, like most commodities, is first produced and sold on the wholesale bulk level before being sold and distributed to consumers on a retail level. Moreover, the transfer of electricity between states by means of electricity grids is considered a form of interstate commerce. For example, if one state needs more energy for whatever reason, wholesale energy producers in one state can sell their energy to retail distributors, like a utility, in the state that needs it. That’s where a federal regulatory body like FERC comes into play - they write the rules of this energy market.
The Electricity Market | Courtesy of PJM
Regional electricity grids covering large swaths of the country are monitored 24/7 by entities called regional transmission organizations, or RTOs, and independent service operators, or ISOs. The unsung gatekeepers of America’s electricity grids, RTOs and ISOs work behind the scenes to make sure that the supply of electricity (generation) is balanced with the demand for electricity (distribution) by monitoring the movement (transmission) of wholesale electricity, all the while abiding by FERC’s regulations. RTOs typically perform the same functions as ISOs but cover a larger geographic area. Virginia’s electricity grids are managed by an RTO called PJM Interconnection, whose scope is huge: more than 1,000 companies across twelve states (including D.C.) are members of PJM, which collectively serve 65 million customers and has 180 gigawatts of generating capacity.
RTOs and ISOs aim to ensure electricity grids are reliable and that the energy you need is there when you need it. However, until FERC stepped in and issued Order 2222, RTOs and ISOs didn’t allow distributed energy resources (DERs) - electric storage, like batteries, and intermittent generation sources, like solar panels, among others - to meaningfully compete at a wholesale level. Wholesale marketplace criteria suited for large, traditional power plants - like coal, natural gas, nuclear, or hydro - practically expelled any opportunity for DERs to participate in this marketplace; at the time of press, solar energy makes up 0.02% of PJM’s total generation fuel mix. Compare that to coal and gas representing 62%, and the stark degree of regulatory inequality speaks for itself. Order 2222 seeks to change that.
Citing a violation of FERC’s responsibility to assure “just and reasonable” rates for electricity consumers, Order 2222 prohibits RTOs and ISOs from broadly excluding DERs from participating in regional markets. In doing so, the decentralized forms of energy that constitute DERs can now aggregate, pooling their energy supply, and compete in all regional organized wholesale electric markets alongside traditional resources. In doing so, multiple DERs can satisfy the size and performance criteria that they might not meet individually. Under the new rule, DERs will be treated as a market participant, allowing them to register their resources under one or more participation models that accommodate the physical and operational characteristics of those resources. In other words, aggregated DERs can be treated as ‘virtual power plants’, entities large enough to effectively compete in wholesale electricity markets.
Once the order is added to the Federal Register - the federal government’s rulebook - RTOs will have less than a year to show FERC they are in compliance with the new rule. While there will certainly be some complexities to be worked out as RTOs adjust to the ruling, Order 2222 carries a promissory regulatory infrastructure for innovation and bulk market opportunities for solar, batteries, and other DERs. America’s electricity grids will likely be more reliable, resilient, and renewable because of it.