The Federal Energy Regulatory Commission (FERC) has issued an order denying all requests for rehearing of its rule aimed at clearing away obstacles to participation by electric storage resources in wholesale markets administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).[1] Electric storage resources often complement renewable resources when the sun is not shining and the wind is not blowing. Easing the entry of storage is likely to have a growing impact on electricity markets and the mix of resources used to meet demand in those markets. Accordingly, FERC’s action should be of interest to a wide range of electricity market participants including utilities, generation companies, and investors in storage and other electricity resources and electricity customers.

FERC’s order drew a dissent from one Commissioner with respect to whether applying the rule to storage resources located on distribution systems or behind the retail meters steps on state regulatory jurisdiction. This could portend future disagreements among commissioners with respect to the extent of FERC jurisdiction vis-à-vis the states regarding the integration of distributed technologies and other issues.

Current market rules designed for traditional generation can create barriers to entry for emerging technologies, such as electric storage, and limit the services they can provide. In its order adopting the final rule on storage, FERC found that better integration of electric storage resources into the RTO markets is necessary to enhance competition and ensure that these markets produce just and reasonable rates.

As reported on this blog, FERC’s rule (Order No. 841) requires each RTO to revise its tariff to establish a participation model for storage consisting of market rules that recognize the physical and operational characteristics of electric storage resources. Those rules must do the following:

  • Ensure that electric storage resources are eligible to provide all services that they are technically capable of providing.
  • Ensure that storage resources can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer.
  • Account for the physical and operational characteristics of storage resources through bidding parameters or other means.
  • Set a minimum size requirement not to exceed 100 kW for participation in the organized wholesale markets.
  • Specify that the sale of energy from the market to a storage resource that the resource sells back to the market must be at the wholesale market clearing price.

In it recently issued Order No. 841-A, FERC denied rehearing on all issues. One issue was particularly contentious and drew a dissent from one of the commissioners. The issue was whether FERC has jurisdiction to apply the rule to storage located on the distribution system and “behind the meter” for retail service. FERC defines an electric storage resource as “a resource capable of receiving electric energy from the grid and storing it for later injection of electric energy back to the grid.” According to FERC, resources located on the interstate transmission system, on a distribution system, or behind the meter fall under this definition. FERC noted that various types of traditional generation and demand-side resources that are not connected directly to the transmission system currently participate in RTO markets.

Under the Federal Power Act (FPA), FERC has jurisdiction over, among other things, sales for resale of electric energy (otherwise known as wholesale sales) and the transmission of electricity in interstate commerce. State regulators, utilities and others argued on rehearing that FERC does not have the authority to override state laws or tariff requirements, where they exist, that prohibit or limit a storage resource interconnected with the distribution system or behind a retail meter from directly accessing the wholesale market. These commenters say the FPA reserves to the states the regulation of retail service and specifically excludes local distribution facilities from the Commission’s jurisdiction. The new rule allows distribution-connected and behind-the-meter storage resources to make wholesale sales and purchases, and this fundamentally changes how retail sales occur and, consequently, directly interferes with a state’s ability to regulate retail sales. In addition to jurisdictional issues, these commenters argue that storage resources inject power into the distribution system, thereby creating operational, safety, and reliability concerns for retail customer interconnections and distribution systems. These parties wanted FERC to allow the state and local retail regulatory authorities to “opt-out” of allowing distribution-connected resources from participating in the wholesale market.

FERC was not persuaded, stating that it has exclusive jurisdiction over the wholesale markets and the criteria for participation in those markets, including market rules for participation of resources connected at distribution-level voltages or behind the meter. According to FERC, determining which resources are eligible to participate in the RTO markets is a fundamental component of regulating the RTO wholesale markets. FERC acknowledged that the new rule’s provisions to improve wholesale markets will have impacts beyond those markets, but pointed to the Supreme Court’s holding in FERC v. EPSA[1] that when FERC regulates what takes place on the wholesale market, as part of carrying out its charge to improve how that market runs, then no matter the effect on retail rates.

FERC also acknowledged that states have the authority to include conditions in their own retail distributed energy or storage resource programs that prohibit any participating resources from also selling into the RTO wholesale markets. In that instance, the resource owner may need to choose between participating in the retail market or wholesale market. However, FERC held that the states may not take away that choice by broadly prohibiting all retail customers from participating in RTO markets. The Commission reasoned that it has exclusive jurisdiction over the terms of eligibility for participation in the RTO markets

Commissioner McNamee dissented on the issues of jurisdiction and the refusal to allow an opt-out provision for the states with respect to storage resources located behind-the-meter or connected to distribution facilities. While stating support for efforts to promote storage participation in wholesale markets, the Commissioner said FERC exceeded its jurisdiction in depriving the states of the ability to determine whether distribution-level storage resources may use distribution facilities to access the wholesale market.

Commissioner McNamee agreed that the participation of storage resources behind-the-meter or on the distribution lines can “affect wholesale rates,” but in order to do so they must first have access to the wholesale market, and they can only do that by using distribution facilities. According to the Commissioner, the FPA does not provide FERC with authority to require that distribution utilities permit storage to use those facilities to access wholesale markets. The FPA is explicit in stating that the Commission does not have jurisdiction over facilities used for the generation of electric energy, or over facilities used in local distribution or only for the transmission of electric energy in intrastate commerce. These subjects are reserved to the states.

Regardless of the jurisdictional decision, Commissioner McNamee stated that FERC should have used discretion to allow an opt-out provision for the states, which would have allowed the states to address the operational, safety and reliability concerns highlighted by some commenters.

The storage rule was issued by FERC in February 2018 and has been in effect since then. The RTOs have proposed tariff changes intended to comply with it. FERC is considering those proposals.