How Should Electricity Storage Costs Be Recovered?
February 10, 2017
Although electricity storage resources (a/k/a large “batteries”) are growing in importance to the power markets, this growth may be threatened by regulatory uncertainty over how the costs for such facilities can be equitably recovered. The Federal Energy Regulatory Commission (“FERC”) issued a “Policy Statement on Cost Recover by Electric Storage Resources” on January 19, 2017 (“Policy Statement”). There is considerable uncertainty, however, over how FERC will treat such resources, in part, due to a dissenting opinion filed by Commissioner LaFleur (the current Acting FERC Chair).
Batteries are unique energy resources, in part, because they behave differently when they are being charged than when they are being discharged. When batteries are being charged, they act as a load by consuming electricity; when they are being discharged, they act as a generation resource by producing energy and, sometimes, ancillary services. Moreover, FERC has also concluded that batteries can even provide grid reliability as a transmission asset under certain conditions. (See, e.g., Western Grid Development, 130 FERC ¶ 61,056 (2010), where FERC issued a declaratory order that large energy storage devices could qualify as jurisdictional wholesale transmission facilities and may be entitled to favorable transmission incentive rates.)
The recent Policy Statement recognized some of the challenges facing batteries, as well as the need to recognize the varied nature of energy storage resources, in part, as follows:
The Commission provides guidance in this policy statement as to how electric storage resources seeking to receive cost-based rate recovery for certain services (such as transmission or grid support services or to address other needs identified by an RTO/ISO) while also receiving market-based revenues for providing separate market-based rate services could address these concerns and also clarifies some past precedent on these issues. Policy, pp 1-2.
Commissioner LaFleur, however, wrote a dissenting opinion and described her disagreement with “the Policy Statement’s sweeping conclusions about the potential impacts of multiple payment streams on pricing in wholesale electric markets.” She also expressed concern that “the Policy Statement, while nominally limited to storage resources, could be read to reflect the Commission’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.” In other words, the current Acting FERC Chair believes that it is premature for the Policy Statement to discuss potential multiple payment streams for batteries, at least until more regulatory analysis is completed.
On February 1, 2017, FERC issued an order regarding the Midcontinent ISO’s (“MISO”) treatment of energy storage facilities. Indianapolis Power & Light (“IPL”) had filed a complaint alleging that the MISO tariff: (1) failed to compensate providers of primary frequency response; (2) did not allow the equitable dispatch of fast-responding resources (e.g., batteries); and (3) did not allow batteries to provide all of the products that batteries are technically capable of providing. FERC concluded that MISO’s tariff was unjust and unreasonable because it prevented “electric storage resources from providing all the services that they are technically capable of providing.” IPL v. MISO, 158 FERC ¶ 61,107, at p. 2 (2017). The order, however, stopped short of labelling MISO’s tariff as being discriminatory because, for example, MISO does not permit batteries to provide frequency response services. (This order was unanimously issued by FERC and was one of the last orders issued prior to the loss of a quorum at FERC when Commissioner Norman Bay resigned on February 3, 2017).
As new technologies are developed (i.e., more efficient photovoltaic solar cells, more efficient batteries, etc.), it will be important for FERC to re-examine the existing rules to see how such improved technologies can be efficiently and effectively integrated into tariffs that were approved by FERC based upon an older paradigm. Like other distributed energy resources, the batteries of tomorrow may well be capable of efficiently enhancing the reliability of the grid. Whether batteries will thrive, or will wither on the vine due to antiquated tariff rules, will likely depend upon FERC’s regulatory policies.
This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions, please contact Charles Zdebski at (202) 659-6605 – czdebski@eckertseamans.com.