Electric storage resources such as batteries and flywheels are shaping the grid of the future. The ability of these resources to absorb and discharge electricity gives the resources operational flexibility that allows them to provide a variety of services to help keep the power grid in balance.  Energy storage installations in the U.S. grew 100% in 2016.  Most of the new resources were utility scale but 25% were commercial and residential systems.

As discussed previously in this blog, FERC issued a Notice of Proposed Rulemaking (NOPR) intended to knock down barriers to storage resource participation in the organized wholesale electricity markets administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).^[1]  FERC’s proposal would require each RTO to revise its tariff in two ways:

• Establish market rules that recognize the physical and operational characteristics of storage resources and accommodate their participation. Storage resources that participate in wholesale markets must do so under rules designed for other types of resources.

• Allow distributed energy resource aggregators to participate in the markets. Individual distributed energy resources may be too small to meet minimum size requirements or have difficulty satisfying operational performance requirements of the markets. Allowing these resources to participate through aggregations can enable them to satisfy requirements that they could not meet on a stand-alone basis.

FERC received comments on its proposal from more than seventy entities across a broad  spectrum of the industry.  This post summarizes the major issues raised in the comments.

Federal-state jurisdiction

Storage and other distributed resources may be located on the local distribution system and sometimes “behind” a retail customer’s meter for service from the local utility.  Local distribution systems and service to retail customers are regulated by state authorities.  Comments on FERC’s proposal raised the following questions that FERC should resolve regarding federal-state jurisdiction over storage and other distributed resources:

• May FERC force states to allow retail customers to bypass retail programs and participate directly in the wholesale market?

• Should states be allowed to opt-out of allowing wholesale market participation of electric storage resources located on the distribution system where state laws or regulations prohibit such participation?

• Given FERC’s exclusive jurisdiction over wholesale sales, will states lose jurisdiction over storage resources participating in wholesale markets?

• Given that FERC does not have jurisdiction to regulate local distribution systems, how will local distribution system reliability be maintained?

• With respect to aggregations of storage resources, should FERC defer to regional stakeholder processes and coordination with state-jurisdictional entities?

• How should FERC address cost allocation issues regarding investments made to distribution systems that help storage resources participate in wholesale markets?

Participation of aggregation resources in both wholesale and retail electricity markets

Resources that are part of an aggregation will often be located on the local distribution system and thus may be eligible to participate in retail compensation programs, such as net metering or demand response programs.  This raises a concern that such resources could be compensated twice for the same service: once in the retail market and again in the wholesale market.  To ensure that there is no duplication of compensation, FERC proposed that distributed resources participating in a retail compensation program or another wholesale market participation program are not eligible to participate in the wholesale market as part of aggregation.

Some comments support this proposal as a straightforward and practical way to prevent double payments and maintain reasonable retail rate protections from inappropriate cost shifts.  Critics, however, said the NOPR proposal is too broad and advanced the following arguments and suggestions:

• FERC should base its determination of duplicate compensation on whether a distributed resource provides distinct values. For example, an aggregation of solar plus storage resources may be contracted to provide peak capacity to the distribution utility as well as to provide capacity in the wholesale market.

• Resources should receive compensation for all distinct values they provide. FERC should adopt an analytical approach to address its double compensation concerns.

• Under the current proposal, RTOs would be unable to access the unused capabilities of distributed resources, and customers that install them would lose out on incremental revenue streams from the wholesale market.

• There are existing RTO programs where distributed resources participate in wholesale and retail programs without causing harm to either market

At least one commenter said that allowing storage resources to participate in both wholesale and retail markets presents operational and regulatory challenges that require more discussion.

Operational considerations

Storage resources may have physical and operating characteristics that differ significantly from those of traditional generators, for which many of the current market rules were written.  Accordingly, issues arose regarding how to implement FERC’s charge that market rules must recognize the characteristics of storage resources and accommodate their participation.

For example, market rules for some services require resources to submit energy schedules in advance or require some resources to offer energy.

• Some commenters said there is no operational or technical need for some of these rules and the rules fail to account for the unique attributes of distributed resources. Accordingly, the rules arbitrarily exclude storage resources from providing services they are technically capable of providing.

• Other commenters cautioned FERC not to exempt storage resource or other resources from standard market participation rules. Creating rules for a specific class of resources will constrain the ability of RTOs to achieve optimal dispatch and likely result in undue advantages.

Aggregation rules

The rules regarding aggregations will likely determine whether some storage and other distributed resources are able to participate in the RTO markets.  Commenters sharply disagreed on some aspects of aggregation rules.

Locational requirements. Developers want aggregations to include resources over wide areas and as many pricing nodes as possible because that provides for flexibility in portfolio and resource design and thus more participation.  FERC proposed that aggregations be as geographically broad as technically feasible.  But some commenters are concerned about the operational and price formation impacts of  broad aggregations.  For example, if an aggregation consists of resources located on either side of a transmission constraint, dispatching the aggregation would further aggravate the constraint.

Review and approval of resources in aggregations.  As part of the rules regarding coordination among the RTOs, the distribution utilities and aggregators, FERC proposed that information on an aggregation’s individual resources be provided to the RTOs and to distribution utilities, and that utilities may review the list of individual resources located on their distribution system before those resources may participate in the wholesale markets.  Some commenters raised the following concerns:

• The proposal gives distribution utilities a broad “gatekeeper” role and FERC should adopt targeted procedures that require utilities to demonstrate specific reliability concerns.

• It is not necessary for aggregators to provide lists of individual resources to RTOs. RTOs should consider the aggregation as the relevant resource and measure its impact on the system by using the aggregation’s distribution factor, which indicates how much of the total response from an aggregation will come from each pricing node where an individual resource is located.

State of charge management

The state-of-charge of a storage resource is important to its ability to reliably provide the services the RTO selects it to provide.  An issue is whether the resource or the RTO should manage the state of charge.

With significant penetrations of energy storage resources, poor management of state-of-charge by multiple resources could lead to deviations from scheduled energy and cause problems on the grid.  From this perspective, a RTO is in the best position to manage energy storage scheduling and the state of charge of resources in order to minimize system costs.  But RTO scheduling software is not likely to reflect all technical and economic characteristics of storage technologies of concern to the asset owners.  From this perspective, resource owners are in the best position to manage their state of charge.

FERC proposed that RTOs allow storage resources to self-manage their state of charge and observed that resources that do so would keep their state of charge at an optimal level through their own bidding strategy, rather than the RTO market processes ensuring that dispatch does not violate the resource’s physical constraints.  Commenters made the following suggestions:

• Require RTOs to continuously monitor a resource’s state of charge so that the information will result in increased utilization of the resource.

• Require RTOs to provide optional state of charge management.

• RTOs may need to include anticipated state of charge management in the unit commitment processes.

Flexibility versus prescription and standardization

One tension that arose across quite a few issues in the comments was whether the final rule should be fairly specific and uniform across regions or whether regions should have some flexibility, especially on issues where work is already underway and some decisions have already been made.

^{[1] For brevity, this post will use the term RTO to refer to both RTOs and ISOs.}