By Rich Heidorn Jr.

WASHINGTON — Energy storage facilities should be permitted to provide multiple services and earn both cost- and market-based revenue streams, FERC said last week in a policy statement clarifying its prior rulings on the issue.

“Enabling electric storage resources to provide multiple services (including both cost-based and market-based services) ensures that the full capabilities of these resources can be realized, thereby maximizing their efficiency and value for the system and to consumers,” the commission said in the statement, which was approved on a 2-1 vote (PL17-2).

The commission said that storage resources, which can switch from providing one service to another almost instantaneously, may not be cost competitive without multiple revenue streams.

Chairman Norman Bay and Commissioner Colette Honorable said their position is supported by most of those who testified at the commission’s technical conference Nov. 9 or provided comments afterward. “Commenters believe that the key question is not whether to allow multiple-use applications for electric storage resources but how to allow and enable such applications,” they said. (See FERC Panelists Debate Storage Uses, Compensation.)

Bay and Honorable said the statement was needed to address “potential confusion” over FERC precedent in two previous rulings.

Commissioner Cheryl LaFleur dissented. LaFleur wrote that she agreed that the “commission should be flexible and open to proposals that go beyond the model contemplated” in the prior orders but said the issue should have been considered as part of the Notice of Proposed Rulemaking the commission issued Nov. 14. (See FERC Rule Would Boost Energy Storage, DER.)

Precedents

In the 2008 Nevada Hydro case, the commission rejected a request by the owner of the Lake Elsinore Advanced Pumped Storage project that its resource be classified as a transmission facility under CAISO’s control, with its costs recovered through the ISO’s transmission access charge (ER06-278, et al.).

The commission sided with the ISO, which said that its independence would be compromised because it would have to decide when the facility would operate, how much energy it would produce and when it would operate the pumps to store water.

In the 2010 Western Grid ruling, the commission allowed storage facilities to be classified as transmission assets receiving cost-based rates for providing CAISO voltage support and thermal overload protection. The ruling was conditioned on the operator’s promise to forego any sales into the ISO’s wholesale electric markets (EL10-19).

The commission noted in its ruling that Western Grid would be responsible for maintaining the state-of-charge on the projects. CAISO’s independence would be maintained because it would not be responsible for buying power to energize the projects or for operating the charge and discharge of the batteries, the commission ruled.

“That order was limited to the facts that Western Grid presented to the commission,” FERC said last week. “Thus, that order should not be read to require other entities to forgo market sales as Western Grid proposed. We clarify 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 that may address these concerns.”

Implementation Issues

This commission said the policy statement “is not intended to resolve the detailed implementation issues surrounding how an electric storage resource may concurrently provide services at cost- and market-based rates. Rather, it 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.”

It said future requests by storage operators must ensure that:

• Storage resources receiving cost- and market-based rates do not over-recover their costs at the expense of ratepayers;
• Storage resources earning cost-based rates do not suppress competitive prices in the wholesale markets, which could harm competitors without cost-based revenues; and
• The RTO/ISO’s level of control of the storage resource does not jeopardize its independence from market participants.

Double Recovery

The commission said concerns over double recovery can be addressed by crediting cost-based ratepayers for market-based revenues. It said the commission’s accounting rule in Order 784 and the requirement to submit Electric Quarterly Reports “provide sufficient transparency to allow effective oversight for any needed revenue crediting.”

As an alternative, the commission said, a resource’s market-based revenues could reduce the revenue requirement used in its cost-based rate.

Protecting Competition

Bay and Honorable said they did not share the concern of commenters who fear that allowing storage to receive multiple revenue streams could suppress market prices and undermine competition. They noted that some generators with market-based rates also receive cost-based rates for providing reactive service.

“Similarly, some vertically integrated public utilities make cost-based rate sales to captive wholesale requirements customers such as transmission-dependent utilities while also making off-system market-based rate sales to others,” the commission 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.”

In her dissent, LaFleur said she disagreed with Bay and Honorable’s “sweeping conclusions.”

“The policy statement summarily dismisses concerns regarding the impact of such arrangements on market competition and leaves far more than just ‘implementation details’ to be worked out,” she wrote. “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.”

RTO Independence

The commissioners acknowledged that storage resources must maintain the necessary state of charge to provide their cost-based services when called on by the RTO.

“But, assuming this priority need is reasonably predictable as to size and the time it will arise each day, the electric storage resource should be permitted to deviate from this state of charge at other times of the day in order to provide other, market-based rate services,” the statement said. “In situations where this premise does not hold … the cost-based rate service may be the only service that the electric storage resource could provide.”

The statement also said that RTO dispatch of storage resources to provide cost-based service should take priority over the resource’s provision of market-based services. Performance penalties could be imposed on resources that fail to deliver when called on, it said.

“We further provide guidance that the provision of market-based rate services should be under the control of the electric storage resource owner or operator, rather than the RTO/ISO, to ensure RTO/ISO independence. In other words, while the RTO/ISO always performs the actual optimization of resources participating in the organized wholesale electric markets, during periods when the electric storage resource is not needed for the separate service compensated at cost-based rates, the RTO/ISO would rely on offer parameters provided by the electric storage resource owner or operator for such operation, just as the RTO/ISO does with other market participants.”

LaFleur’s Concerns

In addition to her procedural concerns, LaFleur said she worried that the policy statement “could be read to reflect the commission’s views about the impact of multiple payment streams on market pricing more generally, thus implicating broader regional discussions on state policy initiatives and their interaction with competitive markets.”

“These issues, which are currently being discussed by several RTO/ISOs and their stakeholders, will require careful and holistic consideration to ensure that policy advancements can be achieved while the benefits of competition are preserved for customers,” she said.

“Storage is an important and promising resource that warrants commission attention to ensure that our markets are appropriately adapted to recognize storage’s unique characteristics and contributions. However, efforts to accommodate these resources should not come at the expense of careful market design after full public participation.”