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FERC reaffirms order to boost energy storage participation in wholesale markets

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FERC reaffirms order to boost energy storage participation in wholesale markets

The Federal Energy Regulatory Commission on May 16 reaffirmed a regulation requiring grid operators to adopt rules that permit energy storage resources to participate in wholesale electricity markets.

In denying requests to revisit Order 841, the commission refused to create an opt-out provision for states and utilities concerned about how the order could affect the reliability and safety of their electric distribution systems.

The FERC majority reasoned that the benefits of the rule, such as increased market competition, outweigh any potential concerns that the states raised. The majority also said FERC's jurisdiction in the matter was solidly supported by relevant case law, including a 2016 U.S. Supreme Court decision upholding the commission's landmark demand response rule.

While acknowledging that storage resources fueled by intermittent generators such as wind and solar facilities have the potential to transform the electricity industry, Commissioner Bernard McNamee argued in a partial dissent that the Federal Power Act does not give FERC authority over storage resources connecting to the electric grid at the distribution level.

The law "grants states the authority over their distribution systems," McNamee maintained during the agency's May 16 open monthly meeting where the order was approved. "We should preserve that."

However, Commissioner Richard Glick argued the commission's decision is on solid legal ground because the plain language of the Federal Power Act gives FERC jurisdiction over all wholesale markets. "I simply disagree with those who argue the commission does not have the jurisdiction to do what it has done," he said.

State jurisdiction, opt-out option

FERC in February 2018 issued Order 841, a long-awaited final rule aimed at removing barriers that keep energy storage resources, such as batteries and flywheels, from more fully participating in markets run by the nation's regional transmission organizations and independent system operators.

The rule directed each RTO and ISO to establish market rules that accommodate the participation of storage resources in their capacity, energy and ancillary services markets to the extent possible based on those resources' physical and operational characteristics. The order specified that the market rules must apply to storage resources over 100 kW that supply energy to the grid.

In petitions for rehearing or clarification, several companies, trade associations and state utility regulator groups applauded the commission's effort to help integrate storage resources into the grid but worried that the rule, as written, may intrude into states' jurisdiction over retail markets.

Xcel Energy Services Inc., for example, accused FERC of interfering in state jurisdiction over retail sales and adversely impacting the preservation of distribution system reliability. In addition, Pacific Gas and Electric Co. asked FERC to clarify that the storage rule does not "suggest that the state no longer has jurisdiction to determine how power flowing from the distribution grid, through the customer meter and then into the storage resource located behind the customer meter is to be split between retail consumption, and wholesale charging for later discharge into the wholesale markets."

The Edison Electric Institute; Transmission Access Policy Study Group; American Municipal Power; American Public Power Association; and National Rural Electric Cooperative Association, or NRECA, called on FERC to incorporate an opt-in/opt-out mechanism modeled after the commission's treatment of demand response resources. Doing so would allow the relevant regulators to decide whether distribution-connected and behind-the-meter resources could participate in the wholesale markets, the groups said.

In a joint filing, American Municipal Power, the American Public Power Association and NRECA also contended that FERC should "unequivocally state that the commission's regulations for [storage resource] participation in RTO/ISO wholesale markets are limited to the RTO's or ISO's wholesale market rules and do not authorize [a storage resource] to violate state or local laws or regulations or contract rights governing retail electric service or the local distribution of electric energy."

Order 841-A

Responding to the power industry groups' concerns, FERC clarified on rehearing that the commission is not specifying any terms of sale at the retail level. Rather, it is merely exercising its authority under the Federal Power Act "to regulate what takes place in the wholesale market by ensuring that technically capable resources are eligible and able to participate in those markets."

Nevertheless, NRECA CEO Jim Matheson asserted in a May 16 statement that the commission "side-stepped the Federal Power Act" with its order.

"The commission has dealt a blow to consumers and dramatically expanded its authority by giving itself the discretion to decide which distributed and behind-the-meter energy storage resources can participate in wholesale electricity markets," Matheson said. "In doing so, FERC has undermined the ability of local utilities and regulatory authorities to manage these resources for the benefit of consumers."

Glick during the May 16 meeting disagreed with that line of reasoning, noting that "nothing in the statute limits [FERC's] jurisdiction based on the location of the resource making wholesale sales." Glick added that authorizing an opt-out provision would "perpetuate barriers to competition that the commission found to be unjust and unreasonable."

The commission's order also cited the Supreme Court's 2016 decision in FERC v. EPSA, in which the Electric Power Supply Association argued that regulating power consumption by retail electricity customers falls under the states' jurisdiction and therefore FERC cannot "lure" retail customers into the wholesale markets by paying them not to make retail purchases. The high court disagreed with that argument, recognizing that because the wholesale and retail markets are not "hermetically sealed," FERC regulation of the wholesale market has natural consequences at the retail level.

McNamee in his partial dissent contended that the commission's position goes beyond the precedent in EPSA, which he said involved determining "how" resources will participate in the wholesale market. "The issue has been expanded by the majority in this matter to include 'whether' [electric storage resources] must be permitted to participate in the wholesale market by effectively mandating access to distribution facilities," he said.

In other clarifications, FERC explained that Order 841 does not require an RTO or ISO to create and provide a capacity product it does not otherwise offer. FERC further clarified that grid operators have flexibility with respect to how they account for the physical and operational characteristics of storage resources, including what is known as "state of charge" — the equivalent of a fuel gauge for the battery pack.

Additionally, the commission said it would not dismiss as "per se unreasonable" any proposal to establish a non-facility-specific rate for wholesale distribution service to an electric storage resource for its charging. And the commission clarified that an RTO or ISO can require verification from a host distribution utility that is unable or unwilling to net wholesale demand from retail settlement before the grid operator ceases to settle an electric storage resource's wholesale demand at the wholesale locational marginal price. Finally, among other things, the commission reiterated that applicable transmission charges should apply when an electric storage resource is charging to resell energy at a later time.

While FERC's rulings will most likely be appealed to a federal appeals court, Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School, said May 17 that the bulk of the order is safe from legal risk. "If FERC loses, presumably the storage rule remains intact, except that FERC has to grant an opt-out," he wrote on Twitter.

As part of a broader notice of proposed rulemaking, FERC is also considering a proposal designed to facilitate market participation by distributed energy resource aggregations. That proposal remains pending nearly two-and-a-half years after it was issued and more than a year after FERC held a technical conference on its details. "I hope we can proceed to finalize the [distributed energy resource] rules soon," Glick said. (FERC dockets RM16-23; AD16-20)