FERC Proposes New Rules to Make Room for Storage in Wholesale Electricity Markets

Nov 21 2016

On November 17, 2016, the Federal Energy Regulatory Commission (“FERC”) issued a Notice of Proposed Rulemaking (“NOPR”) to amend Section 35.28 of its regulations. The proposed amendment would remove barriers to the participation by electric storage resources and distributed energy resource aggregations in the capacity, energy, and ancillary service markets operated by regional transmission organizations (“RTOs”) and independent system operators (“ISOs”). FERC defines “electric storages resources” as resources capable of receiving electric energy from the from the grid and storing it for later injection back to the grid regardless of where the resource is located on the electrical system. Electric storage resources include all types of electric storage technologies, such as batteries, flywheel, compressed air and hydro-pump. “Distributed energy resource aggregators” are defined as entities that aggregate one or more distributed energy resources (including electric storage resources, distributed generation, thermal storage and electric vehicles) for participation in the RTO/ISO wholesale markets.

Specifically, FERC proposes in the NOPR that each RTO and ISO revise its tariff to (1) establish market rules that accommodate the participation of electric storage resources in the organized wholesale electric markets and (2) define distributed energy resource aggregators as a type of market participant that can transact in the organized wholesale electric markets.

The NOPR includes a number of high-level proposals, and FERC requests comment from interested stakeholders on specific issues related to development and implementation of these proposals. An overview of the NOPR and FERC’s key areas of interest for comment are summarized below.

Comments on the NOPR will be due 60 days from publication in the Federal Register. A copy of the NOPR is available here.

FERC’s high-level proposals in the NOPR include the following:

Each RTO/ISO would be required to revise its tariff to establish a “participation model” that recognizes the physical and operational characteristics of electric storage resources and accommodates their market participation. The participation model must:
- Ensure electric storage resources are eligible to provide all capacity, energy and ancillary services that they are technically capable of providing in the wholesale electric markets;
- Incorporate bidding parameters that reflect and account for the physical and operational characteristics of electric storage resources;
- Ensure that electric storage resources can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer;
- Establish a minimum size requirement for participation in the wholesale electric markets that does not exceed 100 kW; and
- Specify that the sale of energy from wholesale electric markets to an electric storage resource that the resource then sells back to those markets must be at the wholesale Locational Marginal Price (“LMP”).
Each RTO/ISO would be required to revise its tariff to allow “distributed energy resource aggregators,” including electric storage resources, to participate directly in the wholesale electric markets. As noted in the statement of FERC Commissioner Cheryl A. LaFleur, the California ISO has already begun implementing rules for distributed energy resource aggregations, and FERC is awaiting an informational report on its efforts. To accommodate market participation for distributed energy resource aggregations, each RTO/ISO would be required to establish market rules on:
- Eligibility to participate through a distributed energy resource aggregator;
- Locational requirements for distributed energy resource aggregations;
- Distribution factors and bidding parameters for distributed energy resource aggregations;
- Information and data requirements for distributed energy resource aggregations;
- Modifications to the list of resources in a distributed energy resource aggregation;
- Metering and telemetry system requirements for distributed energy resource aggregations;
- Coordination between the RTO/ISO, distributed energy resource aggregator, and the distribution utility; and
- Market participation agreements for distributed energy resource aggregators.
Each RTO/ISO would be required to submit a compliance filing demonstrating that it satisfies the proposed requirements within six months of the date a Final Rule in this proceeding is published in the Federal Register.

Although interested parties are invited to offer comments on any of the NOPR’s proposals, FERC also identified specific areas of interest that it would like commenters to address. Some of FERC’s key areas of interest include the following:

Whether FERC should establish qualification criteria to ensure that RTOs/ISOs develop participation models that are inclusive of all types of electric storage resources and optimize dispatch of these technologies or leave flexibility for the RTOs/ISOs to develop qualification criteria;
The extent of software changes, and the associated costs, that would be required for RTOs/ISOs to model and dispatch electric storage resources when they participate in the wholesale markets;
Whether the proposed participation model should allow make-whole payments when an electric storage resource is dispatched as load and the price of energy is higher than the resource’s bid price;
Whether FERC should establish a minimum or maximum capacity limit for individual resources seeking to participate in the wholesale electric markets through a distributed energy resource aggregator;
Potential concerns about dispatch, pricing or settlement that RTOs/ISOs must address if the distributed energy resources in a particular aggregation are not limited to the same pricing node or behind the same point of interconnection; and
The level of detail necessary to establish a framework for ongoing coordination between the ISO/RTO, a distributed energy resource aggregator, and the relevant distribution utility to ensure safe, reliable operations.

This NOPR is yet another example of FERC’s increased attention to electric storage resources and potential barriers to entry that such resources face. Stay tuned for further blog posts tracking FERC’s multiple energy storage initiatives.