Transmission rate incentives for battery storage devices were approved by FERC to help improve the operation and reliability of the California Independent System Operator (CAISO) grid. Western Grid Development LLC filed a petition for declaratory order that its proposed battery storage devices constituted “wholesale transmission facilities” and were eligible for FERC rate incentives under Section 219 of the Federal Power Act (FPA) and Order No. 679. Western Grid proposes to install and operate the battery storage devices in strategic locations along the CAISO grid. The 10 to 50 MW batteries would then be used to provide voltage support and to address thermal overload situations.
Though clarifying that Western Grid had not yet made the necessary FPA Section 219 demonstration that the proposed batteries would ensure reliability and/or reduce the price of delivered power by reducing congestion, FERC agreed to classify the batteries as transmission facilities. In part, this was because Western Grid agreed only to operate the batteries to enhance transmission reliability, not to provide electricity for commercial sale.
Some have argued that battery storage should be considered generation facilities. But FERC noted that “storage devices do not fit neatly into a traditional category of assets, be it transmission, generation, or distribution, given their ability to perform multiple functions. However, the Projects as Western Grid proposes to operate them do share some important characteristics with capacitors.” FERC's ruling is analogous to its longstanding treatment of natural gas storage as part of the “transportation” subject to its jurisdiction under the Natural Gas Act.
FERC found that Western Grid's proposal met the Order No. 679-A “nexus test” because Western Grid demonstrated that the total package of incentives requested was “tailored to address the demonstrable risks or challenges faced by the applicant.” Accordingly, FERC granted Western Grid the following incentives:
- 100 percent of construction work in progress for the projects in rate base
- A combined return-on-equity adder of 195 basis points for the projects, which includes 50 basis points for participation in an organized market, 100 basis points for independent transmission company status, and 45 basis points for use of advanced transmission technology
- Deferred cost recovery through creation of a regulatory asset for pre-commercial costs, amortized over five years
- A hypothetical capital structure of 50-percent equity and 50-percent debt until the projects are placed into service
While paving the way for additional battery storage “transmission” proposals, the order does not definitively classify such devices as transmission assets for all purposes.