New York's new DER program isn't FERC 2222-compliant — and for now that's okay

This month, CPower was announced as the first participating aggregator in the New York ISO’s DER aggregation plan. The plan offers a unique opportunity for DER aggregations to participate in the wholesale market in ways that were previously unavailable. 

There’s just one problem: the program was not designed to meet FERC 2222 compliance. NYISO’s persistence in finalizing it reveals more about the market conditions and steps that will be required to align operators’ interests with FERC’s guidelines. 

• In what ways doesn’t the policy comply? The NYISO DER participation model sets an individual capacity minimum below what FERC regulators are looking for in compliance.
• Why doesn’t it comply? NYISO operates in a progressive market that had begun working on DER participation ahead of FERC 2222. Now, it’s tasked with balancing state reduction goals and day-to-day grid services — as well as meeting FERC 2222 guidelines.
• Will it comply in the future? Either by revising this program or creating a new one, NYISO will have to become FERC 2222 compliant. That will mean navigating the policy and operational DER valuation challenges to create an aggregation model that includes devices with capacities under 10 kilowatts.

In April, FERC approved NYISO’s DER Aggregation Manual — and ushered in a new program structure for DER valuation in the process. 

While many programs value assets for emergency responses or select a service between the ancillary, capacity, and energy markets, this program allows aggregators to choose between multiple services to enroll assets. 

Aaron Breidenbaugh is senior director of government and regulatory affairs at CPower, but formerly worked in program management at NYISO. He told Latitude Media that New York represents a test case for FERC: “We're going to get a sense first from New York as to whether or not FERC’s vision of Order 2222 — and the idea of incorporating these virtual power plants into the wholesale markets — is going to work out the way people hoped it [would].”

So far, the program design suggests that connecting DER aggregations to the wholesale market is valuable to grid operators, but that smaller residential aggregations participating at this level may result in more complications than benefits, at least in the short-term. 

FERC intentionally refrains from establishing an individual asset minimum to include DERs of many different sizes in a given area, and instead sets an aggregation minimum of 100 kW per pricing node. NYISO sets the asset minimum at 10 kW to reach the state’s goals, which significantly increases the opportunity for participation for commercial and industrial customers, but shuts out the possibility for almost all residential customers. 

With this policy, Breidenbaugh said the program is “95% of the way to 2222 compliance.” Reaching full compliance will ultimately require addressing how smaller devices will be included in DER aggregation programs. 

NYISO declined two requests from FERC to lower the capacity threshold to be accessible to residential DER assets — and fielded countless arguments from aggregators to change it. Now, the operator’s task is to address the following issues ahead of its FERC 2222 implementation deadline of December 2026.

Competing policy priorities create preference for larger scale resources

The main challenge before NYISO is managing conflicting policy requirements. 

The DER participation plan was originally filed to FERC in 2019 — ahead of Order 2222 — to support New York’s Reforming the Energy Vision energy plan. That plan requires that renewable resources provide 70% of the state's electricity by 2030. NYISO stated that meeting it would require immediate load reduction from large scale resources. 

To NYISO, accommodating sub-10kW devices would require an almost complete overhaul of a model that they have been developing since 2015, and delay adding over 400 megawatts in load reduction. Already, the rollout of this policy has been delayed for a year and a half as state advocates, vendors, and policymakers have contended over its implementation.

This conflict of priorities echoes what we’ve seen in cases like California’s Demand Side Grid Support Program, which is operated by the California Energy Commission and beholden to the timeline and budget of the state energy plan. That program has a VPP arm that connects 1-kW stationary batteries and more recently EV-charging stations as well. But it has been under fire from participating aggregators for not opening VPP services to other smart home devices that fall below that threshold. Similar to New York, the CEC has said it is coping with challenges associated with tariff timelines and staffing for connecting smaller loads as it aims to reach filing compliance with state energy goals. 

As states set more stringent energy goals and 2030 grows closer, they will have to balance making larger energy reductions in shorter timelines. This will make it more difficult to include smaller resources as efficiently as required by 2222.

Current resources employed to reach near term reduction goals don’t scale to 2222 standards

In the second deficiency response that NYISO filed to FERC, the operator said that it did not have the staff, processes, and software needed to both make on-time emissions reductions, and manage thousands of enrolled devices for the foreseeable future.

This process is overwhelming largely because NYISO currently handles DER enrollment manually. Breidenbaugh said that, given the size of smaller residential resources, enrolling the number needed to equal the capacity of existing commercial and industrial customers would push the operator’s existing resources and staff to the limits.

To reach FERC 2222 compliance, NYISO and other markets will likely have to invest in more staff — and eventually move towards automating the enrollment process either through internal software or an external third-party partner. 

(In theory, NYISO could also consider reforming their review process to have a longer turnaround, but it is unlikely to go with this option in light of the timeline that FERC suggests, as well as the wave of aggregators pushing for efficient resource management.) 

Smaller residential assets can receive more effective valuation through different programs

NYISO’s decision to move forward with the current DER aggregation model was due in part to the fact that smaller resources receive little benefit from participating, given the current market conditions. 

In NYISO’s territory, there are programs both at the distribution level, like the VDER tariff, and at the wholesale level, like the Small Customer Resources model, that introduce incentives specifically for residential DER aggregation. As of July 2023, NYISO had 6,475 individual facilities between one and nine kW participating in market programs, contributing a total of 7.3 MW of capacity to the grid. In its deficiency response to FERC, NYISO stated that it does not envision participants moving away from these current programs explicitly suited to residential devices — though they will have to ultimately be incorporated ahead of the compliance deadline. 

The Michigan Public Service Commission encountered a similar resource size issue when partially lifting their DR aggregation ban to allow aggregations of one MW to participate. In a parallel decision, the Commission filed to first open aggregations for commercial and industrial resources, to “gain experience” before connecting smaller assets. 

Other grid operators may face these conflicting value models and choose to enable competition between resource sizes, allow dual enrollment with programs that specifically credit residential resources, or some combination of the two. 

The takeaway: It’s better for the market that NYISO avoided compliance for compliance’s sake

In NYISO’s case, shoehorning DER aggregation policy into an Order 2222-compliant model would have been a mistake. 

When FERC started pushing NYISO to incorporate Order 2222 into the DER aggregation plan in 2020, it essentially had three options: stay the course and end up with a non-compliant program that better valued for DERs; rush to wedge the program into compliance, ultimately undervaluing residential DERs and hampering program efficiency; or delay even further, likely complicating future implementation and missing tariff deadlines. It is to the state’s benefit that they settled on the first option.

Fitting sub-10 kW devices into this program would likely have been counterproductive, as it would have delayed the state from reaching its energy goals; expensively and inefficiently processed device enrollment and management; and inadequately valued residential DER services compared to existing participation opportunities. 

Ultimately, the goal of FERC 2222 is to open up markets to DER aggregations — but in this case, an attempt at compliance would have slowed down their inclusion. 

Now, the task at hand is to spend the next year and a half addressing the issues that remain, either with this policy or a new one. And, with New York’s experience as a model, future operators will be better prepared to consider how the guidelines impact their individual market conditions — and craft policies that can most effectively empower rather than counter them.

Daisy Dunlap is an analyst with Latitude Intelligence, the research arm of Latitude Media. She has research coming on virtual power plant deployment.