The Federal Energy Regulatory Commission (FERC), in an order dated Jan. 21, 2010, for the first time held that batteries used to store electricity to support the transmission system are themselves transmission facilities that could receive special rate incentives. Although this decision was limited to the facts of the case before it, it may open the door to other types of storage to receive favorable financial treatment if they satisfy the relatively narrow set of circumstances present in this case. At a minimum, the order is likely to trigger a much broader debate across the country regarding the role of electricity storage and when it should be treated as generation, transmission or some combination of the two.
Western Grid Development, LLC proposed to build batteries of 10 to 50 MW capacity along transmission lines within the California Independent System Operator system (CAISO). The developer claimed the batteries, with their nearly instantaneous response time, could provide reliability benefits by mitigating transmission overloads, responding to line trips, backing up line maintenance outages, and reacting to voltage dips.
Western Grid wants the storage devices to be declared transmission because FERC awards financial incentives for certain transmission facilities that provide benefits to the system. Without the transmission designation, the storage devices would likely be considered to be generation facilities, which cannot receive financial guarantees, and developers would have to bear higher risks. However, if the developer can convince the CAISO that the facilities provide certain benefits to the transmission system, it would be entitled to develop cost-of-service rates that the CAISO will pay, thus ensuring a steady income stream with attractive returns and reducing development risks.
The proposed designation of battery storage as transmission facilities attracted considerable opposition, including from the CAISO. Most argued that the battery storage was more akin to generation that could affect markets and that FERC had rejected a similar request by Nevada Hydro Company for its Lake Elsinore Advanced Pump Storage project.
FERC ruled that due to the unique way in which the battery storage was intended to be used, it could be considered to be providing a wholesale transmission service. FERC observed that depending on the circumstances, electricity storage devices could be considered to be a transmission, generation, distribution, or even a load function.
The facts FERC found relevant to finding that the Western Grid proposal represented a transmission function were:
- The operation of the devices would be under the direction of the CAISO, just as other transmission assets;
- The CAISO would not be responsible for keeping the batteries charged, thus removing the possibility that the CAISO would get involved in energy markets;
- Western Grid would not participate in wholesale energy markets and would earn no revenues other than from the transmission rate; rather energy would be purchased at retail rates and discharged energy would be credited against retail purchases;
- The battery storage would be similar to capacitors which FERC has found provides a transmission function; and
- The operation of the batteries to provide voltage support and to address thermal overload situations will only occur if there is no other competitive bid to provide that service through the markets, thus assuring that the projects will not be undercutting competitive bids by market participants. Further, the proposed project would need to pass cost-benefit tests by the CAISO to ensure that it is the most efficient way to provide the services it can provide.
After finding the battery storage proposal to be a transmission function, FERC conditionally granted Western Grid most of the usual rate incentives granted for new transmission projects, including a 195 basis point adder to the rate-of-return to be determined in a separate proceeding. The condition was that the CAISO approve the project and that there be a showing that the project will ensure reliability or reduce the cost of delivered power by mitigating congestion, which showing had not yet been made.
The determination that battery storage is transmission is significant and provocative. However, this case is also very limited in its application due to reliance on a very specific set of facts. The 2006 Nevada Hydro order denying a request that its pumped storage project be treated as transmission is distinguished by FERC, not on the grounds that pumped storage is different than battery storage, but on the grounds that the way Nevada Hydro proposed to operate the project would get the CAISO more involved in energy markets and that Nevada Hydro did not commit to be revenue-neutral with respect to energy sales. Indeed, even the Nevada Hydro order recognized that pumped storage can be an advanced transmission technology under the appropriate circumstances, and this case fleshes out some of those circumstances.
The order raises as many questions as it answers because it does not address the broader policy questions surrounding the appropriate role of electricity storage. Now that attention to storage is growing dramatically--in part due to new storage technologies, the focus on Smart Grid, and increased reliance on variable renewable resources such as wind power--it may force FERC to consider how all storage devices, including pumped hydro storage facilities, should be treated as part of the national electricity system.