- The potential for double-recovery of costs; and
- Regional transmission organization (“RTO”)/independent system operator (“ISO”) independence from market participants.
FERC’s policy statement explains that an electric storage resource receiving cost-based rate recovery for providing one service may also be capable of providing other services for which market-based rates are appropriate. The policy statement provides examples of effective methods to address the concerns that arise when electric storage resources concurrently receive cost- and market-based revenues. Outside of the examples described below, FERC has expressed its willingness to consider other solutions proposed by electric storage resource owners/operators that are shown to be effective.
FERC’s statement largely continues the current regulatory trend of encouraging integration of energy storage resources, such as FERC’s Proposed Rulemaking to better integrate energy storage and distributed resources into organized markets and the California Public Utilities Commission’s consideration of electric vehicle chargers as eligible energy storage technology.
Avoiding Double Recovery of Costs
Public utilities using electric storage resources to recover costs under cost-based rates from captive customers must address the potential for the recovery of those same costs through market-based sales. The policy statement suggests that crediting any market revenues back to the cost-based ratepayers is one possible solution to address the potential for double recovery. Current FERC accounting provisions, coupled with the requirement to submit Electric Quarterly Reports, should provide sufficient transparency to allow effective oversight for any needed revenue crediting.
Alternatively, the policy statement suggests that a market-revenue offset can be used to reduce the amount of the revenue requirement used to develop the cost-based rate. The up-front rate reduction can also ensure that the cost-based rate remains just and reasonable and provides the electric storage resource owner or operator with an incentive to estimate market revenues as accurately as possible.
Coordination between the RTO/ISO and the electric storage resource will be crucial. Among other operational concerns that individual RTOs or ISOs may need to address, the storage resource should be maintained so that the necessary state of charge can be achieved when necessary to provide the service compensated through cost-based rates. But, assuming the storage operator can predict and meet this priority charging need, it should also be permitted to deviate from this state of charge at other times of the day in order to provide other, market-based rate services. In situations where the need for the service compensated through cost-based rates is not reasonably predictable as to size or the time it will arise each day, the cost-based rate service may be the only service that the electric storage resource could provide. Additionally, the policy statement clearly states that RTO/ISO dispatch of the electric storage resource to address that need should receive priority over the electric storage resource’s provision of market-based rate services. To ensure this priority scheme, performance penalties may be implemented.
Control of the energy storage resource is another concern that arises in the context of concurrent cost- and market-based revenues. To ensure RTO/ISO independence, provision of market-based rate services should be under the control of the storage resource, rather than the RTO/ISO. The policy statement explains that there is nothing unreasonable about an RTO/ISO exercising some level of control over the resources it commits or dispatches where it can be shown that the RTO/ISO independence is not at issue. When those resources are dispatched through the organized wholesale electric market clearing process, the level of RTO/ISO control will be lower because such dispatch will be based on offer parameters submitted by resource owners or operators. When resources are operated outside of the organized wholesale electric market clearing process (e.g., to address reliability needs), then the RTO’s/ISO’s control may be greater and concerns regarding RTO/ISO independence may arise.
Other Concerns: Minimizing Adverse Impacts on Wholesale Electric Markets
The policy statement rejects the arguments that electric storage resources concurrently receiving cost- and market-based revenues will adversely impact other market competitors. In particular, denying storage resources the possibility of earning cost-based and market-based revenues on the theory that having dual revenue streams undermines competition would be counter to years of precedent allowing such concurrent cost-based and market-based sales to occur. Additionally, concerns that storage resources would offer in a manner that suppresses market clearing prices could be addressed in the same way in which double recovery is addressed above.
Acting Chairman LaFleur’s Dissent
Since the vote on the policy statement was taken, Commissioner LaFleur has been appointed Acting Chairman of FERC. As stated in her dissent, LaFleur views the policy statement as “both flawed in its conclusions and premature in its timing.”
While LaFleur’s dissent states she is open to potential structures that compensate storage providing transmission service at a cost-based rate while participating in the wholesale markets, LaFleur does not agree with the policy statement’s sweeping conclusions about the potential impacts of multiple payment streams on pricing in wholesale electric markets. In particular, LaFleur is concerned that the policy statement, while nominally limited to storage resources, could be read to reflect FERC’s views about the impact of multiple payment streams on market pricing more generally, thus implicating broader regional discussions on state policy initiatives and their interaction with competitive markets. Additionally, LaFleur disagrees with the decision to separate this issue from its pending Notice of Proposed Rulemaking on storage participation, which is itself directed to enabling greater participation of storage technologies in wholesale markets.
FERC’s policy statement largely continues the current regulatory trend of encouraging integration of energy storage resources. While Commissioner LaFleur’s dissent may cast a shadow on the policy statement’s potential impact, she does not appear to disagree with the statement’s immediate impact, which is to provide a guide to electric storage resources to, under appropriate circumstances, concurrently receive cost- and market-based revenues for providing separate services.