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FERC's LaFleur: New electric storage cost recovery policy flawed, premature

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FERC's LaFleur: New electric storage cost recovery policy flawed, premature

Calling the issuance "flawed in its conclusions and premature in its timing," FERC Commissioner Cheryl LaFleur dissented from a new policy statement aimed at ensuring that the full capabilities of electric storage resources can be realized.

The policy statement clarifies that storage resources can concurrently recover their costs through cost-based and market-based rates in recognition of their unique ability to act as traditional generation and transmission assets under certain circumstances.

But before voting on the policy statement during the agency's Jan. 19 regular monthly meeting, LaFleur said she is "particularly troubled" that the majority said it was unconvinced that allowing storage resources multiple payment streams could adversely impact other market competitors.

LaFleur said she is concerned that the policy statement, "while nominally limited to storage resources, might be read to reflect on the commission's views on the impact of multiple payment streams on market pricing more generally, which could implicate broader regional discussions on integrating state policy initiatives and competitive markets."

Until relatively recently, pumped storage hydropower was the only type of energy storage technology that had been used extensively, generally by vertically integrated utilities that had the ability to pass their costs on to their retail ratepayers. But newer technologies like flywheels and chemical batteries have now become viable on a commercial scale, which has led FERC to explore ways to incorporate them into the nation's wholesale electricity markets.

For instance, FERC staff in 2010 sought comments on how storage devices could be used more effectively and extensively by the electric utility industry, and responses to that initiative were as varied as the entities submitting them. In April 2016, staff again asked for stakeholders' help in identifying, and finding ways to eliminate, barriers to those resources' participation in organized capacity, energy and ancillary markets.

Based largely on that feedback, the commission proposed a new rule (FERC docket RM16-23, AD16-20) the following November requiring RTOs and ISOs to establish market rules that accommodate storage resources' direct participation in the markets based on their physical and operational characteristics.

But the instant policy statement was prompted by a November 2016 technical conference that highlighted the different ways the industry foresees using storage resources, according to FERC. During that event, participants discussed a wide range of issues, including how allowing energy storage resources to recover their costs through transmission rates would impact competition in wholesale power markets, considering storage can also sell ancillary and other services.

When presenting the draft policy statement at FERC's Jan. 19 meeting, staff recalled that FERC previously addressed the issue in 2010 when it accepted Western Grid Development's proposal to classify energy storage devices selling into the California ISO as wholesale transmission facilities. In that case, staff noted, the applicant agreed not to participate in organized wholesale electric markets.

"The draft policy statement clarifies that there may be approaches different from Western Grid's approach under which an electric storage resource may receive cost-based rate recovery and, if technically capable, provide market-based services concurrently," staff said.

Staff stressed that the policy statement is not meant to provide details about how storage resources can provide services at both cost-based and market-based rates. It instead is intended "to clarify that providing services at both cost- and market-based rates is permissible as a matter of policy, provide guidance on some of the details, and allow entities to address these issues through stakeholder processes and in filings before the commission," staff said.

Among other things, the policy statement addressed concerns about potential double-recovery by suggesting that market revenues be credited back to cost-based ratepayers, although other solutions may be acceptable so long as they prevent the subsidization of public utility shareholders at the expense of captive customers.

FERC also concluded that allowing electric storage resources to concurrently receive cost- and market-based revenues for providing separate services will not adversely impact other market competitors. Other types of resources already do so, such as generators that make market-based sales into organized wholesale electric markets while also being paid a cost-based rate for providing reactive supply, or vertically integrated utilities that sell to captive wholesale requirements customers at cost-based rates and make off-system market-based rate sales to others, FERC noted.

"It is also true that there are many public utilities in restructured states that have transmission assets with cost-based recovery and generation assets that receive market-based revenues," FERC said. "If we were to deny electric storage resources the possibility of earning cost-based and market-based revenues on the theory that having dual revenue streams undermines competition, we would need to revisit years of precedent allowing such concurrent cost-based and market-based sales to occur."

The policy statement also addressed concerns that the degree of control RTOs and ISOs would need to have over energizing storage resources would compromise the grid operators' independence from market participants. Among other things, the commission said RTOs and ISOs should give priority when dispatching an electric storage resource to services compensated through cost-based rates over those compensated through market-based rates.

In her dissent, however, LaFleur said that contrary to the majority's assertions, the policy statement "leaves far more than just 'implementation details' to be worked out."

"Indeed, the policy statement provides no guidance on how the commission could evaluate whether a particular filing under Section 205 of the Federal Power Act successfully avoids adverse market impacts," she noted.

LaFleur also said she believes the issue should have been addressed more holistically as part of the commission's ongoing rulemaking proceeding on storage participation. "The conclusions of this policy statement regarding market participation of storage resources would benefit from being considered and commented on as part of that broader discussion," LaFleur said.

Chairman Norman Bay disagreed, telling reporters after the meeting that the pending rulemaking is not meant to address the kinds of revenue a storage resource can receive but rather is looking at issues such as those resources require a separate participation model.

Commissioner Colette Honorable during the meeting disagreed with LaFleur's assertion that the policy statement is premature, insisting that it "is important that we act now because prior commission orders have, in fact, been perceived as a barrier to participation by storage resources."

Quoting Dr. Martin Luther King Jr., Honorable said, "The time is always right to do what is right." (FERC docket PL17-2)