UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION POST-TECHNICAL CONFERENCE COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators ) ) ) ) Docket No. RM POST-TECHNICAL CONFERENCE COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY On April 10-11, 2018, the Federal Energy Regulatory Commission ( Commission or FERC ) convened a technical conference to address issues associated with the participation of DERs in Regional Transmission Organization ( RTO ) and Independent System Operator ( ISO ) markets, and to more broadly discuss integration of distributed energy resources. 1 Southern California Edison Company ( SCE ) attended the technical conference and participated on Panel 7. SCE respectfully submits the following comments in response to the questions raised by the Commission in its April 27, 2018 Notice Inviting Post-Technical Conference Comments 2 on the questions raised for discussion on panels focused on DER Aggregation, namely Panels 1-3 and 6-7, during the April 10-11, 2018 technical conference. 1 Participation of Distributed Energy Resource Aggregation in Markets Operated by Regional Transmission Organizations and Independent System Operators and Distributed Energy Resources Technical Considerations for the Bulk Power System, Notice of Technical Conference, Docket Nos. RM and AD (February 15, 2018) ( Notice of Technical Conference ). 2 Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators, Notice Inviting Post Technical Conference Comments, Docket No. AD (April 27, 2018) ( Notice ). 1

2 In June of 2016, this Commission approved an application of the California Independent System Operator Corporation ( CAISO ) to enable DERs less than 1 MW in size, via an aggregation not to exceed 20 MW, to transact in the federally-regulated wholesale market under the CAISO s new Distributed Energy Resources Provider ( DERP ) program reflected in the CAISO Tariff. SCE is currently incorporating the DERP program into its Wholesale Distribution Access Tariff ( WDAT ). DERs (and other resources) 500 kw and larger may already participate in the CAISO market directly, without aggregating. As reflected in these comments, DER aggregation may provide additional market opportunities for small DERs that are unable to reap the benefits of state-jurisdictional tariffs and incentives, but are also too small to access CAISO s market alone. Although the CAISO s DERP program has not generated a lot of interest to date, SCE expects to see greater participation as DERs that cannot access state-jurisdictional programs continue to grow in numbers and offer new services. Some basic principles of DER aggregation need to be reinforced. First, DERs should not be compensated twice for the same service and enforcement of this principle will require careful coordination by and among the DER aggregator, RTOs/ISOs and the associated distribution utility. Additionally, the reliability of the distribution and transmission systems needs to take precedence over economic interests of the DER aggregator or the wholesale market. The distribution utility should not face liability or penalties for economic losses of DERs or DER aggregators due to reliability-related curtailments. Likewise, an agreement between the distribution utility and the aggregator is needed to provide distribution service and memorialize the relationship between the DER aggregator and the distribution utility. Finally, each DER 2

3 in an aggregation must abide by all relevant tariffs and regulations, including interconnection procedures. COMMENTS A. Panel 1: Economic Dispatch, Pricing, and Settlement of DER Aggregations 1. Multi-Node DER Aggregation (Panel 1, Questions 1-6, 8-9) There was a great deal of discussion in the NOPR, at the technical conference, and in the Commission s post-technical conference notice related to whether DER aggregations could cross multiple pricing nodes. The CAISO already allows for DER aggregations across multiple pricing nodes, although aggregations must be contained within a single sub-load aggregation point (sub-lap). SCE agrees with the CAISO s perspective shared at the Technical Conference that transmission constraints in the CAISO do not change frequently and will not create issues for DER aggregation as long as aggregation remains restricted to the sub-lap. 3 The CAISO approach is appropriate and reflects the need for FERC to allow regional variations based on the particular ISO/RTO aggregation program. SCE has raised concerns in the past regarding impacts on the distribution system. The CAISO tariff is narrowly focused on the dispatch of resources at the pricing node level as that is the point of interface for the DER aggregation with the CAISO controlled transmission grid and the point of wholesale market pricing activity. However, much like the CAISO has recognized that an aggregation comprised of resources at several nodes must have Generation Distribution Factors to provide the CAISO with reasonable expectation of how a dispatch of the aggregation will impact flows on the transmission system, a similar concept may be needed with respect to the distribution system. It is possible that even an aggregation that is at a single 3 FERC Distributed Energy Resources Technical Conference Transcript, pp (April 10, 2018). 3

4 CAISO pricing node will have multiple resources. While dispatch of any of those resources by the CAISO will have the same impact on the transmission system and the wholesale market, they potentially have very different impacts on the distribution system. This highlights the importance of improved real-time visibility for SCE planners and operators over the distribution system as well as the need for careful collaboration between SCE s operators and the CAISO. 2. Limited Use of DERP Program to Date (Panel 1, Question 7) In its post-technical conference request for comments, the Commission asks why the CAISO s DER aggregation program has seen limited interest. SCE suspects that this is due to the fact that the many customers with DERs who can participate in state-authorized net energy metering ( NEM ) programs are well-compensated (compensation via credits is at retail rates and compensation via payments, if any, at (wholesale) avoided cost rates) and have little incentive to instead participate in a DER aggregation and be compensated at only wholesale rates. Moreover, the combination of the CAISO tariff and current CPUC regulations prevents these NEM resources from participating in the CAISO markets via DERP to prevent double compensation. Going forward, SCE expects to see increased participation in CAISO s DERP from NEM-ineligible DERs such as energy storage that cannot meet the definition of a qualifying facility as their numbers and the market services they provide continue to increase. 4 Also, NEM compensation has been reduced in several states due to cross-subsidy concerns and if reduced in California, DER aggregation may become more attractive. 4 That said, such DERs may have the option of participating in demand response programs that may be more lucrative. 4

5 3. The Minimum Size Requirement for DER Aggregations Should Be Left to the ISO/RTO (Panel 1, Question 10) SCE does not support the suggestion in Question 10 that reducing the total minimum size of an aggregation is a needed solution to any identified problem. Indeed, the aggregation s minimum size should be set by the ISO/RTO, largely for the reason that requiring smaller aggregations than the ISO/RTO proposes as reasonable may require the incurrence of significant costs (e.g., software re-writes) for little or no gain. As already discussed, many DERs have NEM compensation options such that the notion that some DER aggregations will need to be quite small (i.e., below 100 kw) is not supported by the record at this time. B. Panel 2: Operational Implications of DER Aggregations with State and Local Regulators 1. Cost Allocation of Upgrades Needed to Accommodate DER Aggregations (Panel 2, Question 1) Question 1 is posed as if costs related to DER aggregations that use the distribution system are necessarily allocated under retail rate structures. Actually, either the state or FERC will have jurisdiction over cost allocations, depending on the circumstances. Many of the grid modernization upgrades required to improve distribution operator visibility and situational awareness have multiple benefit streams, such that state commissions may recognize the benefits of socializing such grid modernization costs in distribution rates. In the short-term, grid modernization will also improve system reliability and safety, benefitting all distribution customers. That said, as to SCE, upgrades needed to interconnect individual DERs (other than NEM under 1 MW) to the distribution system are paid for by the interconnecting DERs under either the CPUC s Rule 21 or the FERC-jurisdictional WDAT. DERs in aggregations are likely to interconnect under the WDAT. Both the CPUC and FERC generally allocate costs related to 5

6 facilities that are deemed to have broader benefits to the system, not just to the interconnecting generator, such as network upgrades, to all utility customers or all CAISO customers, depending on the voltage level of the upgrades. Upgrades to the distribution system identified by the utility as part of SCE s distribution planning process and not triggered by a specific generator are socialized among all SCE distribution customers by the CPUC. Again, cost allocation depends on the situation, the service, and who has jurisdiction over the service. For example, in some states, where the state has interconnection jurisdiction over a DER, the state may have a policy of directly assigning to DERs the costs of network upgrade costs caused by DERs. Whether or not the individual DERs triggered upgrades at the time they interconnected, a DER aggregation might still trigger upgrades. Accordingly, the distribution utility needs to be able to study DER aggregations before they are allowed to operate. In the somewhat unlikely event that the distribution utility determines that additional upgrades are required, the distribution utility should be allowed to allocate to the DER aggregator the costs of distribution upgrades triggered by the DER aggregation. Such cost allocation, however, would fall under FERC, not state, jurisdiction as the DER aggregator, i.e., a wholesale entity, is the one using the distribution system to engage in FERC-jurisdictional transactions. As made clear in Order No. 888 and Detroit Edison Co., 334 F.3d 48 (D.C. Cir. 2003), wholesale usage of the distribution system, such as to send aggregated power to the wholesale market, is a service subject to FERC jurisdiction. 2. Protections and Policies to Ensure That DER Aggregations Will Not Negatively Affect Efficient Outcomes on the Distribution System (Panel 2, Question 5) Safety and reliability needs must take precedence over wholesale market dispatch. This construct exists presently for resources interconnected to the transmission system. For example, 6

7 ISOs/RTOs, as a matter of course, dispatch their systems on a least cost basis subject to constraints. Those constraints reflect the limits of the grid to operate reliably (e.g., congestion management, minimum on-line constraints of generation in load pockets, etc.). In addition to these constraints, for DERs, there can be similar constraints on the distribution system over which the ISO/RTO does not presently have visibility. Therefore, in order to reliably operate the distribution system, the distribution utility must have the ability to instruct (or even limit operation) of the aggregation or the DERs participating within the aggregation, if and as necessary to maintain distribution safety or reliability. As SCE has noted in comments to the CPUC, 5 dispatch priority is a key concern. System visibility and defined rules regarding prioritization of control will be required in order to effectively manage multiple-use applications of DERs, especially when these uses include reliability services. Any wholesale generator interconnected to the distribution grid may face a situation in which a local distribution safety or reliability condition a situation invisible to a transmission system operator may require the generator to reduce output, potentially contradicting a dispatch signal from an ISO/RTO. Today, SCE s WDAT provides that the distribution utility may curtail generation as necessary to address a distribution reliability concern, and the WDAT further delineates responsibility for any financial penalties resulting from CAISO actions. In the future, interconnection agreements and contracts with DER aggregators should provide the specific requirements governing priority and control (and associated implications). In the case of today s WDAT-connected resources, distribution reliability events are relatively rare. As DER aggregations are contracted to provide a CAISO market service, the conflict between distribution utility instructions and CAISO dispatches 5 See SCE Comments on R ; Administrative Law Judge s Ruling Noticing Workshop and Setting a Comment Schedule; May, 13,

8 may become more frequent. In the event of such conflicts, safety and reliability must always remain the highest priority. C. Panel 3: Participation of DERs in RTO/ISO Markets The Panel 3 Questions focus on DERs seeking to provide multiple services and avoiding duplication of compensation. In general, the CAISO s approach currently a prohibition on participation of NEM customers and customers in other retail programs under which the DER has already been fully compensated for any service it could provide (such as certain DR programs) is appropriate and necessary to avoid double-compensation. As markets and technology evolve, additional options may become viable. As discussed in Section D.2 below, there needs to a process whereby the distribution utility reviews the DERs included in each aggregation to verify that none of these resources participate in excluded programs. This verification should be handled by the distribution utility within a reasonable timeframe (e.g., 30 days) and any DERs that do not pass this initial screen should be prevented from participating in the aggregation. Moreover, the DER aggregation should not be allowed to operate until the ineligible DERs are removed. Finally, the distribution utility should not be the only gatekeeper; the DER aggregator should be required to certify that the DERs participating in its aggregation will not participate in these programs while participating in the DER aggregation. Other situations may have to be dealt with on a case-by-case basis, but should be able to be addressed. For example, a DER being compensated for its full cost of service as a distribution reliability service provider could be required to credit back any revenues earned from being in a DER aggregation to distribution customers through distribution rates. Question 3 mentions a DER in another wholesale market participation program at the same time as it participates in a wholesale DER aggregation. Such dual participation may not be 8

9 possible in some ISOs/RTOs and is not likely possible in CAISO because a resource may have only one Scheduling Coordinator. It could be quite expensive for the CAISO to have to develop systems (whether electronic or manual) such that settlements for services provided to the CAISO could be reconciled among multiple Scheduling Coordinators. In no case should multiple wholesale participations be permitted by a DER that would involve significant administrative expenses unless that expense is borne by the DER. D. Panel 6: Coordination of DER Aggregations Participating in RTO/ISO Markets 1. Distribution Utilities Must Be Included in the Coordination Process Used to Facilitate the Participation of DER Aggregations in RTO/ISO Markets While the relevant state regulatory authority(ies) and the ISO/RTO may need to coordinate to set the ground rules for participation in the wholesale market, it is critical that the distribution utility serve as the gatekeeper of DER and DER aggregation participation, from an operational and commercial standpoint. The distribution utility will perform necessary studies of the DER aggregation and will therefore be the only entity that knows whether there will be reliability impacts. Moreover, the distribution system operator is the only one with the visibility over the DERs and DER aggregation to assess the real-time operational impacts on the distribution system. As discussed further below, DER aggregators will be receiving wholesale distribution service a service which is FERC jurisdictional if the distribution utility is subject to FERC s jurisdiction. Thus, a FERC-jurisdictional distribution utility will be setting the rates, terms and conditions for the activity, subject to FERC s just and reasonable standard. Finally, the distribution utility will know whether there are commercial barriers to a particular DER s participation, such as the DER having already committed its energy and capacity to the distribution utility or having entered into an interconnection agreement that would not permit 9

10 participation absent a change to such agreement. Neither the state commission nor the ISO/RTO would be in possession of such information in most cases. In the CAISO DERP program, there are protocols in place to ensure that the distribution utility performs this gatekeeping function in a transparent, non-discriminatory and efficient manner. In particular, the CAISO is establishing a timeline for processing DER aggregation requests and each distribution utility plans to file with this Commission a pro forma version of the agreement between the distribution utility and DER aggregator that would provide timelines for studies, if needed, and address the much-needed coordination between the aggregator and the distribution utility. 2. In the CAISO, an Agreement Between the DER Aggregator and Distribution Utility Is Needed An agreement between the distribution utility and the DER aggregator would be needed in the CAISO, particularly in light of existing tariffs such as SCE s WDAT, which would govern a DER aggregator s wholesale use of the SCE distribution system to transmit power to the CAISO grid. More generally, such an agreement is the only way to ensure that the DER aggregator complies with the distribution utility s tariff requirements (if any), operating parameters, and applicable laws. Some of the terms of such an agreement might include: Utility provision of distribution service, as applicable; Pre-approval from distribution utility prior to changing the composition of the DER aggregation; Adherence to the distribution utilities operating parameters; Limitation on liability to the extent the distribution utility needs to override the instructions of the CAISO for distribution system reliability; 10

11 Certification from the DER aggregator that no DER within the aggregation is participating in excluded programs (NEM, certain demand response programs) or other programs for the same product (e.g., ancillary services or energy programs); Certification that the DERs are in compliance with applicable laws and tariffs; and Certification that the DER will make appropriate smart inverter data available. The generator (i.e., DER) interconnection process and resulting interconnection agreement only addresses the interconnection of an individual DER. Also, such process only addresses and studies the DER acting alone, not in concert with others. Additionally, this interconnection agreement is insufficient to address matters such as those aggregator-distribution utility matters listed above, as the aggregator would not even be a party to the DER s interconnection agreement. Moreover, a DER aggregator may need to obtain wholesale distribution service to deliver power to an ISO/RTO; such an aggregator would need that service under SCE s WDAT terms and conditions. Thus, SCE currently intends to use a wholesale distribution service agreement under its WDAT and the WDAT itself as a vehicle for evaluating a DER aggregation and addressing the issues listed above. The DER aggregator would be required to submit an application for distribution service, be reviewed for potential upgrades needed to accommodate the aggregate impacts of the identified DERs on the distribution system, execute a distribution service agreement specific to its DERs (committing to abide by the WDAT), and would ensure that the DERs participating in the aggregation address any individual distribution service agreements contemporaneously therewith. 11

12 SCE does not currently see a need for the CPUC to be involved in the registration of a DER aggregation, and such registration has not been contemplated by the CAISO. Respectfully submitted, CLAIRE TORCHIA /s/ Claire Torchia By: Claire Torchia Attorney for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: (626) Claire.Torchia@sce.com Dated: June 26,

13 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing POST-TECHNICAL CONFERENCE COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Rosemead, California, this 26 th day of June, /s/ Norman Goss Norman Goss, Legal Administrative Assistant SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770