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FERC storage rule raises questions of cooperative federalism

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Essential Energy Insights - October 2021


FERC storage rule raises questions of cooperative federalism

Power industry groups are raising concerns about cooperative federalism, namely the lack thereof they see in the Federal Energy Regulatory Commission's long-anticipated electric storage order intended to remove barriers to market participation.

The new electric storage participation rule was issued Feb. 15 and will take effect June 4. It gives each regional transmission organization and independent system operator 270 days from the rule's March 6 publication in the Federal Register to file tariff changes creating market participation rules that recognize the physical and operational characteristics of storage and accommodate its participation in the wholesale power markets. Grid operators would then have another 365 days to implement the participation models for storage laid out in those tariff provisions.

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 said that the rule, as written, may intrude into states' jurisdiction over retail markets.

Concerns stem from electric storage resources' ability to operate on the interstate transmission grid as well as on local distribution systems. Entities are therefore seeking either clarification or rehearing on the participation of distribution-connected and behind-the-meter storage resources in the wholesale markets.

Xcel Energy Services Inc., for instance, said FERC 's decision "to let an individual distribution-connected or behind-the meter electric storage resource participate in both wholesale and retail markets as a buyer and/or seller of electricity at the same time … creates significant metering problems, and the final rule provides no record support for the commission’s conclusion that separating wholesale and retail activity by individual resources is possible."

The company accused FERC of interfering in state jurisdiction over retail sales and adversely impacting the preservation of distribution system reliability. Without metering technology and protocols to differentiate between wholesale and retail market participation, FERC's order could "significantly disrupt the state-regulated retail market that depends on accurate metering of retail energy consumption and production," the company said.

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."

Stripping states of this authority would allow a retail customer to "use its behind-the-retail-meter storage resource as a means to completely bypass retail rates for its on-site electricity consumption," PG&E asserted. "The customer could simply claim that all electricity flowing through his/her retail meter went into the storage device for later discharge into the wholesale markets, even if the power were never returned to the wholesale market but instead used to meet on-site electricity demand."

Groups recommend opt-out option for states

Several groups called on FERC to incorporate an opt-in/opt-out mechanism, patterned on the commission's treatment of demand response resources, that would allow relevant electric retail regulatory authorities to decide whether distribution-connected and behind-the-meter resources could participate in 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 were among those advocating for such a mechanism.

A joint filing from American Municipal Power, American Public Power Association and the National Rural Electric Cooperative Association 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."

Such a regulatory framework would be in line with the principles of cooperative federalism, the joint filing added.

Edison Electric Institute noted that adhering to the fundamentals of cooperative federalism would prove more important as the number of distribution-connected storage resources participating in the wholesale markets increases, given the reliability, operational and cost allocation issues such participation raises.

The Organization of MISO States and the National Association of Regulatory Utility Commissioners separately chimed in on the importance of not impeding on state and local regulators' turf.

The National Association of Regulatory Utility Commissioners said failing to recognize states' jurisdiction over distribution-connected storage resources could inhibit ongoing state storage deployment initiatives. The Organization of MISO States cautioned about the potential for operational impacts and resource over-procurement if state and local regulators have no means to influence what storage resources are interconnected. (FERC docket AD16-20, RM16-23)

Jasmin Melvin is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.