The Federal Energy Regulatory Commission (“Commission,” or “FERC”) recently issued a rule intended to harness the potential of electric storage infrastructure and spur investment in the technology.[1] Under the Storage Rule, the Commission will require each Regional Transmission Organization (“RTO”) and Independent System Operator (“ISO”) to develop a participation model and market rules that facilitate the participation of electric storage resources in wholesale energy markets. FERC will require the RTOs/ISOs to implement tariff revisions that will:

  • Ensure that storage resources be “eligible to provide all capacity, energy, and ancillary services that the resource is technically capable of providing…”[2]
  • Ensure that storage resources can set the market clearing price, both as wholesale buyers and wholesale sellers.[3]
  • Include bidding parameters or other means to account for the physical and operational characteristics of electric storage resources.[4]
  • Establish a minimum size requirement for participation in RTO/ISO markets that does not exceed 100 kW.[5]
  • Specify that the sale of electric energy from the RTO/ISO markets to an electric storage resource that the resource then resells back to those markets must be at wholesale locational marginal pricing.[6]

As to timing, RTOs/ISOs must file the tariff changes to implement the new requirements of the Storage Rule within 270 days of the publication date of the rule in the Federal Register (i.e., March 6 , 2018), which means the tariff changes must be filed by Monday, December 3, 2018 (the actual date falls on Saturday, December 1). RTOs/ISOs then have another 365 days from that date, or Tuesday, December 3, 2019, to implement the new rules (though the Midcontinent Independent System Operator has sought a six month extension for implementation of complex aspects of the rule regarding storage connected to the distribution system).

Electric storage developers have championed the new rule, as they claim it removes significant barriers to electric storage participation in the markets and requires the RTOs/ISOs to make a space for them in the generation mix. The new rule is intended to ensure that electric storage can be compensated on a technology-neutral basis for any grid service that storage can provide.

The Storage Rule responds to concerns voiced by storage developers and owners and other industry participants that RTO/ISO tariff rules were lagging behind advancing technologies and did not recognize the characteristics of electric storage resources that distinguish them from traditional generation.[7] At the Commission meeting introducing the rule, Commissioner LaFleur likened electric storage to a “Swiss army knife” because of its ability to provide numerous grid services in one investment. With the exception of certain operational parameters and issues each RTO/ISO must address, RTOs/ISOs have flexibility with respect to how they will design their rules.[8]

Reflecting some of the same policy undercurrents referenced in the Commission’s recent order addressing the Department of Energy’s proposed rule on grid resiliency,[9] the Storage Rule reinforces the Commission’s stated efforts in creating fuel and technology-neutral, market-based solutions to grid challenges; and allowing RTOs/ISOs, within certain parameters, to develop tailored models that work in their respective markets.[10]

Storage facilities can both inject power into the grid and also withdraw it, which means they can be both buyers and sellers in RTO/ISO markets. Recognizing the value of such flexibility, the Commission’s new Storage Rule is designed to enable storage providers to participate in capacity, energy, ancillary, and any other RTO/ISO markets. Over the objections of some commenters who wanted to limit the definition of “storage facilities” that would be covered by the Commission’s new rule to only facilities that interconnect directly to the interstate transmission system, the Commission clarified that storage resources connected to the interstate transmission system, distribution systems or behind the meter will be covered by the definition of storage facilities under the Storage Rule (subject to certain clarifications noted in the rule).

While the original Notice of Proposed Rulemaking (“NOPR”) that led to the Storage Rule had proposed certain reforms regarding distributed energy resource (“DERs”) aggregators, the Commission opted to engage in further fact-finding as to how to incorporate these resources into competitive markets. In the NOPR, the Commission had proposed to require reforms similar to those in the Rule with respect to DER aggregators to allow for their participation in RTOs/ISOs under a model that would accommodate their physical and operational characteristics.[11] The Commission will solicit comments and convene a technical conference with an industry panel on April 10th and 11th, 2018 for further fact-finding.

The Storage Rule drew a number of requests for rehearing and/or clarification from RTOs/ISOs, utilities, market participants, and trade associations. The RTO/ISO comments focused primarily on implementation and sought to secure flexibility for the RTOs/ISOs in incorporating the rule into existing markets. For example, the California Independent System Operator, which already has a relatively accommodating market design for electric storage, asked FERC to clarify that it would allow the RTOs/ISOs to determine when it is appropriate to assess transmission charges to storage resources—CAISO wants to ensure that resources that are directed to charge pursuant to dispatch as a grid service are not assessed transmission costs. MISO sought clarification with respect to bid parameter, state of charge, and minimum size requirement implementation issues. A number of trade associations and utilities criticized the rule on federalism grounds. For example, the requests of the National Association of Regulatory Utility Commissioners, Transmission Access Policy Study Group, Xcel Energy, and the National Rural Electric Cooperative Association asked FERC to clarify, reverse course, or carve out exceptions to the rule’s application to behind-the-meter and retail-connected storage, which has generally been under the purview of the states.

Also worth noting, on the same day the Commission issued the Storage Rule, the Commission released a more broadly applicable rule revising the pro forma Large Generator Interconnection Agreement (“LGIA”) and pro forma Small Generator Interconnection Agreement (“SGIA”) to require that all new interconnectors be required to provide primary frequency response as a condition to interconnection.[12] The Primary Frequency Response Rule will only apply to new interconnections, and will require large and small generating facilities “to install, maintain, and operate a functioning governor or equivalent controls.”[13] Like the Storage Rule, the Primary Frequency Response Rule recognizes the limitations of certain resources to provide this service, and includes certain exceptions to accommodate the participation of these resources, including electric storage.[14]

Industry participants will have opportunities to comment on the tariff changes proposed by the RTOs/ISOs, who likely will vet proposals through their respective stakeholder review processes. Storage owners and developers will want to ensure that the practicalities of storage operations are accounted for in the tariff changes proposed by the RTOs/ISOs, and utilities will want to assess the potential impacts on their systems of the various proposed changes.