Utilization of Electric Storage Resources for Multiple Services When Receiving Cost-Based Rate Recovery, 9343-9348 [2017-02421]
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Rules and Regulations
Federal Register
Vol. 82, No. 23
Monday, February 6, 2017
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DEPARTMENT OF ENERGY
10 CFR Part 435
[Docket No. EERE–2016–BT–STD–0003]
RIN 1904–AD56
Energy Efficiency Standards for the
Design and Construction of New
Federal Low-Rise Residential
Buildings’ Baseline Standards Update
Office of Energy Efficiency and
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ACTION: Final rule; delay of effective
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AGENCY:
This document temporarily
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DATES: Effective February 6, 2017, the
effective date of the rule amending 10
CFR part 435 published in the Federal
Register at 82 FR 2857 on January 10,
2017, is delayed until March 21, 2017.
The incorporation by reference of the
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Register as of March 21, 2017.
FOR FURTHER INFORMATION CONTACT:
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and Renewable Energy, Federal
Energy Management Program,
Mailstop EE–5F, 1000 Independence
Avenue SW., Washington, DC 20585,
(202) 586–8215, email: nicolas.baker@
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of Energy, Office of the General
Counsel, Forrestal Building, GC–33,
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Washington, DC 20585, (202) 586–
0669, email: kavita.vaidyanathan@
hq.doe.gov.
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SUMMARY:
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On
January 20, 2017, the Assistant to the
President and Chief of Staff (‘‘Chief of
Staff’’) issued a memorandum,
published in the Federal Register on
January 24, 2017 (82 FR 8346), outlining
the President’s plan for managing the
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of the new Administration. In
implementation of one of the measures
directed by that memorandum, the
United States Department of Energy
(‘‘DOE’’) hereby temporarily postpones
the effective date of its final rule
amending the baseline Federal building
standards published in the Federal
Register on January 10, 2017. See 82 FR
2857. The January 10th rule amends the
baseline Federal building standard for
10 CFR part 435 from the 2009
International Energy Conservation Code
(IECC) to the 2015 IECC. Consistent with
the memorandum, DOE is temporarily
postponing the effective date of the final
rule by 60 days, starting from January
20, 2017. The temporary 60-day delay in
effective date is necessary to give DOE
officials the opportunity for further
review and consideration of new
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Staff’s memorandum of January 20,
2017.
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and comment because it constitutes a
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that good cause exists to forego the
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thereon for this rule as such procedures
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is temporarily postponing for 60 days
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pursuant to the previously-noted
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public comment on this delay is
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SUPPLEMENTARY INFORMATION:
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delay in effective date provided for in 5
U.S.C. 553(d).
Issued in Washington, DC, on January 31,
2017.
John T. Lucas,
Acting General Counsel.
[FR Doc. 2017–02403 Filed 2–3–17; 8:45 am]
BILLING CODE 6450–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 35
[Docket No. PL17–2–000]
Utilization of Electric Storage
Resources for Multiple Services When
Receiving Cost-Based Rate Recovery
Federal Energy Regulatory
Commission, DOE.
ACTION: Policy statement.
AGENCY:
The Commission issues this
policy statement to clarify its precedent
and provide guidance on the ability of
electric storage resources to provide
services at and seek to recover their
costs through both cost-based and
market-based rates concurrently. We are
mindful that, by providing electric
storage resources the opportunity to
receive cost-based rate recovery
concurrently with other revenue from
market-based services (e.g., through
organized wholesale electric markets),
there can be implementation details that
may need to be addressed, including
protections against the potential for
double-recovery of costs from cost-based
ratepayers, adverse market impacts, and
regional transmission organization
(RTO)/independent system operator
(ISO) independence from market
participants. 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.
DATES: Effective Date: This policy
statement will become effective
February 6, 2017.
SUMMARY:
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FOR FURTHER INFORMATION CONTACT:
Rahim Amerkhail (Technical
Information), Office of Energy Policy
and Innovation, Federal Energy
Regulatory Commission, 888 First
Street NE., Washington, DC 20426,
(202) 502–8266, rahim.amerkhail@
ferc.gov.
Heidi Nielsen (Legal Information),
Office of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street NE., Washington, DC
20426, (202) 502–8435, heidi.nielsen@
ferc.gov.
SUPPLEMENTARY INFORMATION:
Policy Statement
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(Issued January 19, 2017)
1. The Commission issues this policy
statement to clarify its precedent and
provide guidance on the ability of
electric storage resources to provide
services at and seek to recover their
costs through both cost-based and
market-based rates concurrently. We are
mindful that, by providing electric
storage resources the opportunity to
receive cost-based rate recovery
concurrently with other revenue from
market-based services (e.g., through
organized wholesale electric markets),
there can be implementation details that
may need to be addressed, including
protections against the potential for
double-recovery of costs from cost-based
ratepayers, adverse market impacts, and
regional transmission organization
(RTO)/independent system operator
(ISO) independence from market
participants. 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.
I. Background
2. Electric storage resources have the
ability both to charge and discharge
electricity and can provide a variety of
grid services to multiple entities (e.g.,
RTO/ISOs, transmission and
distribution utilities) or in multiple
markets. In addition, these resources are
able to provide multiple services almost
instantaneously and can switch from
providing one service to another almost
instantaneously. As such, electric
storage resources may fit into one or
more of the traditional asset functions of
generation, transmission, and
distribution. Enabling electric storage
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resources to provide multiple services
(including both cost-based and marketbased services) ensures that the full
capabilities of these resources can be
realized, thereby maximizing their
efficiency and value for the system and
to consumers. On November 9, 2016,
Commission staff led a technical
conference to discuss the utilization of
electric storage resources as
transmission assets compensated
through transmission rates, for grid
support services that are compensated
in other ways, and for multiple
services.1 On November 14, 2016, in
that same proceeding, the Commission
issued a notice inviting post-technical
conference comments.2 The
Commission received more than 30
comments from interested parties in
response to that notice. The discussions
at the technical conference and the
comments highlight the different ways
in which industry is considering using
electric storage resources and have
prompted us to issue this policy
statement to clarify our precedent and
provide guidance regarding electric
storage resources seeking to receive
cost-based rate recovery for certain
services while also receiving marketbased revenues for providing marketbased rate services.
3. The Commission previously has
discussed such concerns in Nevada
Hydro 3 and Western Grid.4 In Nevada
Hydro, the Commission found that it
would not be appropriate, as requested
by The Nevada Hydro Company, Inc.’s
(Nevada Hydro), to require the
California Independent System Operator
Corporation (CAISO) to assume ‘‘any
level of operational control’’ over the
proposed Lake Elsinore Advanced
Pumped Storage project (LEAPS) or
functionalize it as transmission for rate
recovery purposes.5 Nevada Hydro had
1 Utilization In the Organized Markets of Electric
Storage Resources as Transmission Assets
Compensated Through Transmission Rates, for Grid
Support Services Compensated in Other Ways, and
for Multiple Services, Notice of Technical
Conference, Docket No. AD16–25–000 (issued Sept.
30, 2016). The Commission issued supplemental
notices on November 1, 2016, and November 7,
2016.
2 Utilization In the Organized Markets of Electric
Storage Resources as Transmission Assets
Compensated Through Transmission Rates, for Grid
Support Services Compensated in Other Ways, and
for Multiple Services, Notice Inviting PostTechnical Conference Comments, Docket No.
AD16–25–000 (issued Nov. 14, 2016).
3 The Nev. Hydro Co. Inc., 122 FERC ¶ 61,272
(2008) (Nevada Hydro).
4 Western Grid Dev., LLC, 130 FERC ¶ 61,056
(Western Grid), reh’g denied, 133 FERC ¶ 61,029
(2010).
5 Nevada Hydro, 122 FERC ¶ 61,272 at PP 1, 82–
83. LEAPS was intended to be a pumped hydro
storage facility with an installed generating capacity
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proposed that LEAPS be treated as a
transmission facility under CAISO’s
operational control.6 According to
Nevada Hydro, CAISO would serve its
ancillary services needs consistently
from LEAPS, and Nevada Hydro would
consistently bid LEAPS’ stored energy
into the market at a price of zero
dollars.7 Nevada Hydro asserted that it
had carefully crafted its proposal to
avoid market distortions. CAISO argued
that its independence would be
compromised, as it would have to
decide when LEAPS would operate,
how much energy it would produce,
and when it would operate the pumps
to store water for future generation.8
The Commission stated that the purpose
of CAISO’s transmission access charge
(TAC) is to recover the costs of
transmission facilities under the control
of CAISO, not to recover the costs of
bundled services.9 The Commission
noted that it was denying the request
that LEAPS be placed under CAISO’s
operational control. The Commission
stated that, for these reasons, LEAPS’
costs were not properly recovered
through the TAC. The Commission
added that, absent information that
justified treating LEAPS differently from
the existing pumped hydro facilities in
CAISO’s footprint, allowing LEAPS to
receive a guaranteed revenue stream
through CAISO’s TAC would create an
undue preference for LEAPS compared
to these other similarly situated pumped
hydro generators. Therefore, the
Commission rejected Nevada Hydro’s
proposal to include the costs of LEAPS
in CAISO’s rolled-in transmission
charge.
4. In Western Grid, the Commission
accepted Western Grid’s proposal to
provide cost-based rate recovery for
electric storage resources through
transmission rates based on the
proposed uses (voltage support and
thermal overload protection for relevant
transmission facilities) and on other
conditions Western Grid proposed,
including a commitment to forego any
sales into CAISO’s organized wholesale
electric markets.10 Western Grid
asserted that its electric storage
resources would be used to solve
transmission reliability problems
of 500 MW and a pumping capacity of 600 MW. Id.
P 3.
6 Id. P 5.
7 Id. P 74.
8 Id. P 81.
9 Id. P 83.
10 Western Grid, 130 FERC ¶ 61,056 at PP 18–24,
45–46. The proposed electric storage projects
(Western Grid Projects) were to be composed of
sodium sulfur batteries that ranged in size from 10
to 50 MW. Id. P 4.
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identified by CAISO,11 at significantly
lower cost than traditional transmission
upgrade methods.12 As relevant here, in
Western Grid, the Commission found
that, based on the specific
circumstances and characteristics of the
Western Grid Projects, they would be
wholesale transmission facilities subject
to the Commission’s jurisdiction if
operated as Western Grid described.13
5. The Commission explained that
Western Grid proposed to operate the
Western Grid Projects under the
direction of CAISO in a manner similar
to the way in which high-voltage
wholesale transmission facilities are
operated by participating transmission
owners under the direction of CAISO
(e.g., capacitors that address voltage
issues or alternate transmission circuits
that address line overloads or trips).14
The Commission noted that Western
Grid stated that it would only operate
the Western Grid Projects to address
voltage support and thermal overload
protection needs at CAISO’s direction
and that CAISO’s involvement was
consistent with CAISO’s operating
obligations for transmission assets.
Western Grid also stated that it would
be responsible for all operating
functions, including maintenance,
communication, and system
emergencies. The Commission noted
that, most importantly, Western Grid
would be responsible for energizing
(i.e., maintaining the state-of-charge on)
the Western Grid Projects needed to
address voltage support and thermal
overload protection at CAISO’s
direction. The Commission found that,
because of this, the independence of
CAISO would be maintained because
CAISO would not be responsible for
buying power to energize the Western
Grid Projects or physically operating the
batteries when they were being charged
and discharged. The Commission added
that, importantly, Western Grid would
operate the Western Grid Projects, at
CAISO’s direction, only as transmission
assets.
6. The Commission noted that, just
like other transmission assets, and
unlike traditional generation assets,
Western Grid proposed that it would not
retain revenues outside of the TAC and
would credit any revenues it might
accrue as a result of charging and
discharging the Western Grid Projects
through its participating transmission
owner tariff to transmission
11 See Western Grid November 20, 2009 Petition,
Docket No. EL10–19–000, at 4.
12 Id. at 6.
13 Western Grid, 130 FERC ¶ 61,056 at P 43.
14 Id. P 45.
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customers.15 The Commission further
noted, in particular, that Western Grid
proposed that it would not arbitrage
wholesale energy market prices. The
Commission found that, based on the
facts as presented by Western Grid, the
Western Grid Projects would function as
transmission.
7. The Commission also found that
the Western Grid Projects would not
undercut bids by other market
participants because Western Grid
would not be offering the Western Grid
Projects into the CAISO markets and the
Western Grid Projects would only be
used to provide voltage support and to
address thermal overload situations at
the CAISO’s instruction.16
8. The Commission also found that
the facts and circumstances in Western
Grid were sufficiently distinguishable
from those in Nevada Hydro to justify a
different result.17 The Commission
explained that an important issue that
arose in Nevada Hydro—and that
protesters echoed with respect to the
Western Grid Projects—involved the
question of whether CAISO’s operation
of the LEAPS storage facility would
render it an energy market participant.18
The Commission found that Western
Grid’s proposal eliminated that concern
because (1) Western Grid itself would
maintain the state of charge of its
electric storage resources (rather than
CAISO), and (2) Western Grid would
credit any incidental net revenues from
such transactions to its customers via
the TAC.19 Therefore, the Commission
concluded that there was little
likelihood that CAISO would become a
profit-seeking energy market
participant.
identified by an RTO/ISO) while also
receiving market-based revenues for
providing separate market-based
services. We clarify that there may be
approaches different from Western
Grid’s approach under which an electric
storage resource may receive cost-based
rate recovery and, if technically capable,
provide market-based services.
10. In Western Grid, the applicant
proposed to operate only as a
transmission resource and to forego any
sales into CAISO’s organized wholesale
electric markets.20 Western Grid also
proposed to take responsibility for
charging its electric storage resources.
The Commission found that Western
Grid’s proposals addressed the concerns
described above. However, that order
was limited to the facts that Western
Grid presented to the Commission.
Thus, that order should not be read to
require other entities to forgo market
sales as Western Grid proposed. We
clarify that there may be approaches
different from Western Grid’s approach
under which an electric storage resource
may receive cost-based rate recovery
and, if technically capable, provide
market-based services that may address
these concerns. To that end, we provide
the following guidance on how
applicants seeking cost-based rate
recovery for electric storage resources
providing certain services while also
providing separate services at marketbased rates could address concerns
related to double recovery of costs,
adverse market impacts, and RTO/ISO
independence.
II. Policy Statement
9. We believe that it is timely to
provide additional guidance regarding
issues that arise for electric storage
resources seeking to recover their costs
through both cost-based and marketbased rates concurrently. We also
believe that clarification regarding our
Nevada Hydro and Western Grid
precedent is warranted due to potential
confusion with respect to that
precedent. Accordingly, through this
policy statement, we provide guidance
and clarification regarding the ability of
electric storage resources to receive costbased rate recovery for certain services
(such as transmission or grid support
services or to address other needs
11. As noted above, electric storage
resources can provide a variety of
services to multiple entities. An electric
storage resource receiving cost-based
rate recovery for providing one service
may also be technically capable of
providing other market-based rate
services. Most participants in the
technical conference and commenters
generally support multiple uses and
revenue streams, including both costbased and market-based revenues, for
electric storage resources.21
Commenters believe that the key
question is not whether to allow
multiple use applications for electric
storage resources but how to allow and
15 Id.
P 46.
16 See id. P 51.
17 Id. P 48.
18 Id. (citing The Nev. Hydro Co. Inc., 117 FERC
¶ 61,204, at PP 28–32; Nevada Hydro, 122 FERC ¶
61,272 at PP 82–83).
19 Id. P 49.
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Multiple Uses and Revenue Streams
20 See
id. PP 19, 21–23; see also id. PP 48–50.
e.g., Pacific Gas and Electric Co. Dec. 14,
2016 Comments at 2–3; Xcel Energy Services Inc.
Dec. 16, 2016 Comments at 6–7; SolarCity Corp. and
Tesla Motors, Inc. Dec. 14, 2016 Comments at 2–
4, 8–10; AES Companies Dec. 14, 2016 Comments
at 4; Alevo USA Inc. Dec. 14, 2016 Comments at
3–4; Renewable Energy Systems Americas, Inc.
Comments at 2–3, 5.
21 See,
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enable such applications.22 Commenters
also note that it would be inefficient and
wasteful to let electric storage resources
that are not being used to serve a
transmission need to sit idle and instead
these resources should be permitted to
provide other market services to capture
their full system benefits and maximize
economic efficiency and value to
consumers.23
12. To the extent that an electric
storage resource seeks cost-based rates
for a particular service, that resource
may need to compete at least in part on
cost against other alternatives that could
provide the service. In some cases, an
electric storage resource may only be
cost competitive for the cost-based
service if expected market revenues are
considered in the evaluation of the
electric storage resources. Such market
revenues can be used to offset the
electric storage resource’s costs for
providing the cost-based rate service.
13. Additionally, if an electric storage
resource seeks to recover its costs
through both cost-based and marketbased rates concurrently, the following
issues, as raised in prior proceedings,
should be addressed: (1) The potential
for combined cost-based and marketbased rate recovery to result in double
recovery of costs by the electric storage
resource owner or operator to the
detriment of cost-based ratepayers; (2)
the potential for cost recovery through
cost-based rates to inappropriately
suppress competitive prices in the
wholesale electric markets to the
detriment of other competitors who do
not receive such cost-based rate
recovery; and (3) the level of control in
the operation of an electric storage
resource by an RTO/ISO that could
jeopardize its independence from
market participants.
14. We note that these or similar
issues were raised by commenters in
Western Grid or Nevada Hydro. This
policy statement is not intended to
resolve the detailed implementation
issues surrounding how an electric
storage resource may concurrently
provide services at cost- and marketbased rates. Rather, it is intended to
clarify that providing services at both
cost- and market-based rates is
permissible as a matter of policy,
provide guidance on some of the details
and allow entities to address these
22 See, e.g., California Energy Storage Alliance
Dec. 14, 2016 Comments at 5.
23 See, e.g., Technical Conference Transcript,
Docket No. AD16–25–000, at Tr. 34: 11–20 (posted
Nov. 9, 2016); Exelon Corp. Dec. 14, 2016
Comments at 2, 6; Union of Concerned Scientists
Dec. 14, 2016 Comments at 9–10; Energy Storage
Association Dec. 14, 2016 Comments at 3, 6, 12–
13.
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issues through stakeholder processes
and in filings before the Commission.
1. Avoiding Double Recovery of Costs
15. One issue associated with an
electric storage resource receiving costbased rate recovery while concurrently
receiving compensation for marketbased rate services involves potential
double recovery of costs borne by the
relevant cost-based ratepayers. Most
participants in the technical conference
and commenters believe that double
recovery can be addressed by
appropriate market revenue crediting.24
16. While we believe there may be
additional approaches for addressing
this concern beyond the one proposed
in Western Grid, we clarify that
crediting any market revenues back to
the cost-based ratepayers is one possible
solution. The Commission has sought to
prevent the subsidization of public
utility shareholders at the expense of
their captive customers.25 Proposals to
allow public utilities using electric
storage resources to recover costs under
cost-based rates from captive customers
should address the potential for the
recovery of those same costs through
market-based sales.
17. We note that the amount of this
crediting may vary depending on how
the cost-based rate recovery is
structured. For example, if the electric
storage resource indicates that it will
seek to recover its full, unadjusted costs
through cost-based rates, it may be
reasonable for the electric storage
resource owner or operator to credit all
projected market revenues earned by the
electric storage resource over a
reasonable period of time (e.g., the
expected useful life of the asset or the
term of the cost-based rate service if it
differs from the useful asset life). We
believe that the accounting provisions
in Order No. 784 26 (including the
supplemental accounting and reporting
24 See,
e.g., Technical Conference Transcript at
Tr. 47: 25—Tr. 48: 1; Tr. 50: 13–15; Tr. 168: 4–9;
AES Companies Comments at 4; Exelon Corp.
Comments at 8, 10; NextEra Energy Resources, LLC
Dec. 14, 2016 Comments at 7; Transmission Access
Policy Study Group Dec. 14, 2016 Comments at 5–
6.
25 See, e.g., Heartland Energy Servs, Inc., 68 FERC
¶ 61,223, at 62,062–63 (1994) (prohibiting transfer
of benefits from captive customers of a franchised
public utility to affiliates and shareholders). See
also Golden Spread Elec. Coop. v. Southwestern
Public Serv. Co., 123 FERC ¶ 61,047, Opinion No.
501, at P 40 (2008) (citing Minnesota Power & Light
Co., 47 FERC ¶ 61,064, at 61,183 n.2, 61,184
(1989)), order on reh’g, Opinion No. 501–A, 144
FERC ¶ 61,132 (2013).
26 See Third-Party Provision of Ancillary Services;
Accounting and Financial Reporting for New
Electric Storage Technologies, Order No. 784, FERC
Stats. & Regs., Regulations Preambles ¶ 31,349 (July
30, 2013), order partly granting clarification, Order
No. 784–A, 146 FERC ¶ 61,114 (2014).
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guidance issued in Docket No. AI14–1–
000) 27 coupled with the requirement to
submit Electric Quarterly Reports
pursuant to Order Nos. 2001 28 and
768 29 provide sufficient transparency to
allow effective oversight for any needed
revenue crediting.
18. Alternatively, at the electric
storage resource owner’s or operator’s
discretion, this market-revenue offset
can be used to reduce the amount of the
revenue requirement to be used in the
development of the cost-based rate. This
up-front rate reduction would also help
ensure that the cost-based rate remains
just and reasonable and provide the
electric storage resource owner or
operator with an incentive to estimate
market revenues as accurately as
possible. In this scenario, the need for
crediting of market revenues could be
proportionally reduced as well. In other
words, full cost recovery through costbased rates may require full crediting of
projected market revenues; no cost
recovery through cost-based rates would
require no crediting of projected or
actual market revenues; and partial cost
recovery through cost-based rates could
require partial crediting of market
revenues. For example, if the cost-based
rate is based on 25 percent of the asset’s
full cost-of-service, then perhaps only
25 percent of market revenues would
need to be credited to cost-based
ratepayers.
19. We recognize there may be other
ways for an electric storage resource
owner or operator seeking to recover
costs through cost-based rates and
market-based rates to prevent the double
recovery of costs. Any solution would
need to comport with cost-of-service
precedent cited earlier.
2. Minimizing Adverse Impacts on
Wholesale Electric Markets
20. Another issue associated with an
electric storage resource receiving cost27 Accounting and Reporting Guidance for New
Electric Storage Technologies, Docket No. AI14–1–
000 (Feb. 20, 2014).
28 See Revised Public Utility Filing Requirements,
Order No. 2001, FERC Stats. & Regs. ¶ 31,127, reh’g
denied, Order No. 2001–A, 100 FERC ¶ 61,074,
reh’g denied, Order No. 2001–B, 100 FERC ¶
61,342, order directing filing, Order No. 2001–C,
101 FERC ¶ 61,314 (2002), order directing filing,
Order No. 2001–D, 102 FERC ¶ 61,334, order
refining filing requirements, Order No. 2001–E, 105
FERC ¶ 61,352 (2003), order on clarification, Order
No. 2001–F, 106 FERC ¶ 61,060 (2004), order
revising filing requirements, Order No. 2001–G, 120
FERC ¶ 61,270, order on reh’g and clarification,
Order No. 2001–H, 121 FERC ¶ 61,289 (2007), order
revising filing requirements, Order No. 2001–I,
FERC Stats. & Regs. ¶ 31,282 (2008).
29 Electricity Market Transparency Provisions of
Section 220 of the Federal Power Act, Order No.
768, FERC Stats. & Regs. ¶ 31,336 (2012), order on
reh’g, Order No. 768–A, 143 FERC ¶ 61,054 (2013),
order on reh’g, Order No. 768–B, 150 FERC ¶ 61,075
(2015).
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based rate recovery while concurrently
receiving compensation for marketbased rate services that the Commission
addressed in Nevada Hydro and
Western Grid is the adverse market
impacts that could occur.30 Some
commenters believe that any potential
adverse impacts on wholesale electric
markets either do not need to be
addressed because numerous resources
participating in organized wholesale
electric markets currently receive costbased rate treatment for other services as
well 31 or can be addressed by
appropriate market revenue crediting.32
Other commenters argue, however, that
permitting new electric storage
resources that receive transmissionbased rate recovery to participate in the
competitive organized wholesale
electric markets could undermine
competition and suppress market prices
to sub-competitive levels.33
21. As provided above, we clarify that
electric storage resources may
concurrently receive cost- and marketbased revenues for providing separate
services. We do not share commenters’
concerns and are not convinced that
allowing such arrangements will
adversely impact other market
competitors.
22. We agree that many assets that
participate in RTO/ISO markets receive
some form of cost-based rate recovery.
For example, many participating
generation resources seek and are paid
a cost-based rate for providing reactive
supply, even as they make market-based
rate sales into organized wholesale
electric markets.34 Further, as noted
during the discussions at the technical
conference and in comments, a
significant amount of generation in
certain RTO/ISO markets is owned by
vertically integrated public utilities that
30 We note that the Supplemental Notice of
Technical Conference, setting forth the agenda and
questions for the technical conference, which also
formed the basis for post-technical conference
comments, referred to ‘‘cross-subsidization’’ when
discussing this issue. See supra nn.1, 2. We
consider ‘‘cross-subsidization’’ to refer to concerns
over the allocation of costs between different
customer classes for the same services, or between
customers under different services, not concerns
that resources or public utilities receiving both costbased and market-based revenues undermine
competition in the wholesale electric markets.
Therefore, for more precision, here, we use the term
‘‘adverse market impacts’’ instead.
31 See, e.g., Technical Conference Transcript at
Tr. 65: 8–18; NextEra Energy Resources, LLC
Comments at 9–10; Exelon Corp. Comments at 6.
32 See, e.g., Transmission Access Policy Study
Group Comments at 6.
33 See, e.g., FirstLight Power Resources, Inc. Dec.
14, 2016 Comments at 2, 6–7; New England Power
Generators Association, Inc. Dec. 14, 2016
Comments at 2–9.
34 See, e.g., SolarCity Corp. and Tesla Motors, Inc.
Comments at 9.
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15:51 Feb 03, 2017
Jkt 241001
recover some or all of their costs
through cost-based retail rates.35
Similarly, some vertically integrated
public utilities make cost-based rate
sales to captive wholesale requirements
customers such as transmission
dependent utilities while also making
off-system market-based rate sales to
others.36 As noted earlier, in these
circumstances, the Commission has
required crediting of an appropriate
portion of market revenues to captive
wholesale customers in order to prevent
the subsidization of public utility
shareholders at the expense of their
captive customers. But the Commission
has not required any other measures to
address the potential competitive
impact of such market-based rate sales
on other competitors in those markets.
One commenter also points to bilateral
contracts as another example of
resources receiving both cost-based and
market-based revenues.37 It is also true
that there are many public utilities in
restructured states that have
transmission assets with cost-based
recovery and generation assets that
receive market-based revenues. If we
were to deny electric storage resources
the possibility of earning cost-based and
market-based revenues on the theory
that having dual revenue streams
undermines competition, we would
need to revisit years of precedent
allowing such concurrent cost-based
and market-based sales to occur as
described above.
23. Moreover, we believe any
concerns that electric storage resources
would offer in a manner that suppresses
market clearing prices simply because
they receive cost recovery (in whole or
in part) through cost-based rates could
be addressed by the manner in which
double recovery is addressed and the
costs that go into the cost-based rates are
established.38
3. RTO/ISO Independence
24. Another issue relevant to this
policy statement is maintaining RTO/
ISO independence from market
participants. The discussions of this
issue at the technical conference and in
comments crossed into other issues
such as adverse market impacts
(discussed in the previous section) and
largely focused on RTO/ISO discretion
and the role of the RTO/ISO in
35 See, e.g., Technical Conference Transcript at
Tr. 65: 8–18; NextEra Energy Resources, LLC
Comments at 9–10.
36 See, e.g., Opinion No. 501, 123 FERC ¶ 61,047.
37 See NextEra Energy Resources, LLC Comments
at 9.
38 We note that cost-based rates are reviewed by
the Commission and can only be accepted if the
rates are just and reasonable.
PO 00000
Frm 00005
Fmt 4700
Sfmt 4700
9347
operating the electric storage resources,
especially for planning and reliability
purposes.39 Nevertheless, we believe
that clarification is required in this area.
25. Coordination between the RTO/
ISO and the electric storage resource
owner or operator will be necessary for
electric storage resources that
concurrently provide services
compensated through cost-based rates
and services compensated through
market-based rates. Among any other
operational concerns that individual
RTOs or ISOs may need to address, the
electric 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
this priority need is reasonably
predictable as to size and the time it
will arise each day, the electric storage
resource should be permitted to deviate
from this state of charge at other times
of the day in order to provide other,
market-based rate services. We
recognize that this assignment of
responsibility is premised on the need
for the service compensated through
cost-based rates being predictable
enough to allow the appropriate charge
management structure to be
implemented. In situations where this
premise does not hold, and the need for
the service for which cost-based rates
are provided 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.
26. We also provide guidance that,
when the circumstances leading to the
need for the service compensated
through cost-based rates arise, 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. Performance penalties
could be imposed on the electric storage
resource owner or operator for failure to
perform at these times.
27. We further provide guidance that
the provision of market-based rate
services should be under the control of
the electric storage resource owner or
operator, rather than the RTO/ISO, to
ensure RTO/ISO independence. In other
words, while the RTO/ISO always
performs the actual optimization of
resources participating in the organized
wholesale electric markets, during
periods when the electric storage
resource is not needed for the separate
service compensated at cost-based rates,
39 See, e.g., Technical Conference Transcript at
Tr. 50–51; PG&E Comments at 3; NextEra Energy
Resources, LLC Comments at 11–13.
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the RTO/ISO would rely on offer
parameters provided by the electric
storage resource owner or operator for
such operation, just as the RTO/ISO
does with other market participants.
28. In this regard, we believe that one
statement in Nevada Hydro requires
clarification. Specifically, the
Commission’s conclusion that it would
not be appropriate to require CAISO to
assume ‘‘any level of operational
control’’ 40 over the LEAPS facility
should not be taken out of context
because RTOs/ISOs arguably always
exercise some level of operational
control over the resources they dispatch
through their markets. The
Commission’s decision in Nevada
Hydro was discussing only the six
proposals for operation of LEAPS as a
transmission asset that were discussed
in CAISO’s stakeholder process.41 Other
facts may warrant a different decision
from the Commission. Therefore, we
clarify 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.
29. We are willing to consider other
solutions proposed by an electric
storage resource owner or operator
seeking to recover costs through costbased rates and market-based rates that
are shown to be effective in avoiding
these RTO/ISO independence issues.
eLibrary. The full text of this document
is available on eLibrary in PDF and
Microsoft Word format for viewing,
printing, and/or downloading. To access
this document in eLibrary, type the
docket number excluding the last three
digits of this document in the docket
number field.
32. User assistance is available for
eLibrary and the FERC’s Web site during
normal business hours from FERC
Online Support at 202–502–6652 (toll
free at 1–866–208–3676) or email at
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. Email the
Public Reference Room at
public.referenceroom@ferc.gov.
IV. Effective Date
33. This policy statement will become
effective February 6, 2017.
By the Commission. Commissioner LaFleur
is dissenting with a separate statement
attached.
Issued: January 19, 2017.
Kimberly D. Bose,
Secretary.
UNITED STATES OF AMERICA
Federal Energy Regulatory Commission
Utilization of Electric Storage Resources
for Multiple Services When Receiving
Cost-Based Rate Recovery
Docket No. PL17–2–000
(Issued January 19, 2017)
LaFLEUR, Commissioner dissenting:
Today’s order addresses whether a
storage resource can receive cost-based
revenues for providing a transmission
service while also participating in the
Commission’s wholesale markets. The
Commission has previously considered
related issues in individual cases, such
as our Western Grid orders from 2010,1
and I agree that the Commission should
be flexible and open to proposals that go
III. Document Availability
beyond the model contemplated in
30. In addition to publishing the full
those orders. I am open to potential
text of this document in the Federal
structures that compensate storage
Register, the Commission provides all
providing transmission service at a costinterested persons an opportunity to
based rate while participating in the
view and/or print the contents of this
wholesale markets. However, I am
document via the Internet through
concerned about the broad rationale for
FERC’s Home Page (https://www.ferc.gov)
this approach put forth in the Policy
and in FERC’s Public Reference Room
Statement, which I believe is both
during normal business hours (8:30 a.m.
flawed in its conclusions and premature
to 5:00 p.m. Eastern time) at 888 First
in its timing.
Street NE., Room 2A, Washington, DC
I particularly disagree with the Policy
20426.
Statement’s sweeping conclusions about
31. From FERC’s Home Page on the
Internet, this information is available on the potential impacts of multiple
payment streams on pricing in
40 Nevada Hydro, 122 FERC ¶ 61,272 at P 82
(emphasis added).
41 See id.
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15:51 Feb 03, 2017
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1 Western Grid Dev., LLC, 130 FERC ¶ 61,056,
reh’g denied, 133 FERC ¶ 61,029 (2010).
PO 00000
Frm 00006
Fmt 4700
Sfmt 9990
wholesale electric markets.2 The Policy
Statement summarily dismisses
concerns regarding the impact of such
arrangements on market competition,
and leaves far more than just
‘‘implementation details’’ to be worked
out. Indeed, the Policy Statement
provides no guidance on how the
Commission could evaluate whether a
particular filing under section 205 of the
Federal Power Act successfully avoids
adverse market impacts.
I am concerned 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.
These issues, which are currently being
discussed by several RTO/ISOs and
their stakeholders, will require careful
and holistic consideration to ensure that
policy advancements can be achieved
while the benefits of competition are
preserved for customers.
Furthermore, I disagree with the
Commission’s decision to separate this
issue from its pending Notice of
Proposed Rulemaking on storage
participation,3 which is itself directed to
enabling greater participation of storage
technologies in wholesale markets. The
conclusions of this Policy Statement
regarding market participation of storage
resources would benefit from being
considered and commented on as part of
that broader discussion.
Storage is an important and promising
resource that warrants Commission
attention to ensure that our markets are
appropriately adapted to recognize
storage’s unique characteristics and
contributions. However, efforts to
accommodate these resources should
not come at the expense of careful
market design after full public
participation.
For these reasons, I respectfully
dissent.
Cheryl A. LaFleur,
Commissioner
[FR Doc. 2017–02421 Filed 2–3–17; 8:45 am]
BILLING CODE 6717–01–P
2 Utilization of Electric Storage Resources for
Multiple Services When Receiving Cost-Based Rate
Recovery, 158 FERC ¶ 61,051 (2017).
3 Electric Storage Participation in Markets
Operated by Regional Transmission Organizations
and Independent System Operators, Notice of
Proposed Rulemaking, 157 FERC ¶ 61,121 (2016).
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]]>Agencies
[Federal Register Volume 82, Number 23 (Monday, February 6, 2017)]
[Rules and Regulations]
[Pages 9343-9348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02421]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 35
[Docket No. PL17-2-000]
Utilization of Electric Storage Resources for Multiple Services
When Receiving Cost-Based Rate Recovery
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Policy statement.
-----------------------------------------------------------------------
SUMMARY: The Commission issues this policy statement to clarify its
precedent and provide guidance on the ability of electric storage
resources to provide services at and seek to recover their costs
through both cost-based and market-based rates concurrently. We are
mindful that, by providing electric storage resources the opportunity
to receive cost-based rate recovery concurrently with other revenue
from market-based services (e.g., through organized wholesale electric
markets), there can be implementation details that may need to be
addressed, including protections against the potential for double-
recovery of costs from cost-based ratepayers, adverse market impacts,
and regional transmission organization (RTO)/independent system
operator (ISO) independence from market participants. 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.
DATES: Effective Date: This policy statement will become effective
February 6, 2017.
[[Page 9344]]
FOR FURTHER INFORMATION CONTACT:
Rahim Amerkhail (Technical Information), Office of Energy Policy and
Innovation, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426, (202) 502-8266, rahim.amerkhail@ferc.gov.
Heidi Nielsen (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426, (202) 502-8435, heidi.nielsen@ferc.gov.
SUPPLEMENTARY INFORMATION:
Policy Statement
(Issued January 19, 2017)
1. The Commission issues this policy statement to clarify its
precedent and provide guidance on the ability of electric storage
resources to provide services at and seek to recover their costs
through both cost-based and market-based rates concurrently. We are
mindful that, by providing electric storage resources the opportunity
to receive cost-based rate recovery concurrently with other revenue
from market-based services (e.g., through organized wholesale electric
markets), there can be implementation details that may need to be
addressed, including protections against the potential for double-
recovery of costs from cost-based ratepayers, adverse market impacts,
and regional transmission organization (RTO)/independent system
operator (ISO) independence from market participants. 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.
I. Background
2. Electric storage resources have the ability both to charge and
discharge electricity and can provide a variety of grid services to
multiple entities (e.g., RTO/ISOs, transmission and distribution
utilities) or in multiple markets. In addition, these resources are
able to provide multiple services almost instantaneously and can switch
from providing one service to another almost instantaneously. As such,
electric storage resources may fit into one or more of the traditional
asset functions of generation, transmission, and distribution. Enabling
electric storage resources to provide multiple services (including both
cost-based and market-based services) ensures that the full
capabilities of these resources can be realized, thereby maximizing
their efficiency and value for the system and to consumers. On November
9, 2016, Commission staff led a technical conference to discuss the
utilization of electric storage resources as transmission assets
compensated through transmission rates, for grid support services that
are compensated in other ways, and for multiple services.\1\ On
November 14, 2016, in that same proceeding, the Commission issued a
notice inviting post-technical conference comments.\2\ The Commission
received more than 30 comments from interested parties in response to
that notice. The discussions at the technical conference and the
comments highlight the different ways in which industry is considering
using electric storage resources and have prompted us to issue this
policy statement to clarify our precedent and provide guidance
regarding electric storage resources seeking to receive cost-based rate
recovery for certain services while also receiving market-based
revenues for providing market-based rate services.
---------------------------------------------------------------------------
\1\ Utilization In the Organized Markets of Electric Storage
Resources as Transmission Assets Compensated Through Transmission
Rates, for Grid Support Services Compensated in Other Ways, and for
Multiple Services, Notice of Technical Conference, Docket No. AD16-
25-000 (issued Sept. 30, 2016). The Commission issued supplemental
notices on November 1, 2016, and November 7, 2016.
\2\ Utilization In the Organized Markets of Electric Storage
Resources as Transmission Assets Compensated Through Transmission
Rates, for Grid Support Services Compensated in Other Ways, and for
Multiple Services, Notice Inviting Post-Technical Conference
Comments, Docket No. AD16-25-000 (issued Nov. 14, 2016).
---------------------------------------------------------------------------
3. The Commission previously has discussed such concerns in Nevada
Hydro \3\ and Western Grid.\4\ In Nevada Hydro, the Commission found
that it would not be appropriate, as requested by The Nevada Hydro
Company, Inc.'s (Nevada Hydro), to require the California Independent
System Operator Corporation (CAISO) to assume ``any level of
operational control'' over the proposed Lake Elsinore Advanced Pumped
Storage project (LEAPS) or functionalize it as transmission for rate
recovery purposes.\5\ Nevada Hydro had proposed that LEAPS be treated
as a transmission facility under CAISO's operational control.\6\
According to Nevada Hydro, CAISO would serve its ancillary services
needs consistently from LEAPS, and Nevada Hydro would consistently bid
LEAPS' stored energy into the market at a price of zero dollars.\7\
Nevada Hydro asserted that it had carefully crafted its proposal to
avoid market distortions. CAISO argued that its independence would be
compromised, as it would have to decide when LEAPS would operate, how
much energy it would produce, and when it would operate the pumps to
store water for future generation.\8\ The Commission stated that the
purpose of CAISO's transmission access charge (TAC) is to recover the
costs of transmission facilities under the control of CAISO, not to
recover the costs of bundled services.\9\ The Commission noted that it
was denying the request that LEAPS be placed under CAISO's operational
control. The Commission stated that, for these reasons, LEAPS' costs
were not properly recovered through the TAC. The Commission added that,
absent information that justified treating LEAPS differently from the
existing pumped hydro facilities in CAISO's footprint, allowing LEAPS
to receive a guaranteed revenue stream through CAISO's TAC would create
an undue preference for LEAPS compared to these other similarly
situated pumped hydro generators. Therefore, the Commission rejected
Nevada Hydro's proposal to include the costs of LEAPS in CAISO's
rolled-in transmission charge.
---------------------------------------------------------------------------
\3\ The Nev. Hydro Co. Inc., 122 FERC ] 61,272 (2008) (Nevada
Hydro).
\4\ Western Grid Dev., LLC, 130 FERC ] 61,056 (Western Grid),
reh'g denied, 133 FERC ] 61,029 (2010).
\5\ Nevada Hydro, 122 FERC ] 61,272 at PP 1, 82-83. LEAPS was
intended to be a pumped hydro storage facility with an installed
generating capacity of 500 MW and a pumping capacity of 600 MW. Id.
P 3.
\6\ Id. P 5.
\7\ Id. P 74.
\8\ Id. P 81.
\9\ Id. P 83.
---------------------------------------------------------------------------
4. In Western Grid, the Commission accepted Western Grid's proposal
to provide cost-based rate recovery for electric storage resources
through transmission rates based on the proposed uses (voltage support
and thermal overload protection for relevant transmission facilities)
and on other conditions Western Grid proposed, including a commitment
to forego any sales into CAISO's organized wholesale electric
markets.\10\ Western Grid asserted that its electric storage resources
would be used to solve transmission reliability problems
[[Page 9345]]
identified by CAISO,\11\ at significantly lower cost than traditional
transmission upgrade methods.\12\ As relevant here, in Western Grid,
the Commission found that, based on the specific circumstances and
characteristics of the Western Grid Projects, they would be wholesale
transmission facilities subject to the Commission's jurisdiction if
operated as Western Grid described.\13\
---------------------------------------------------------------------------
\10\ Western Grid, 130 FERC ] 61,056 at PP 18-24, 45-46. The
proposed electric storage projects (Western Grid Projects) were to
be composed of sodium sulfur batteries that ranged in size from 10
to 50 MW. Id. P 4.
\11\ See Western Grid November 20, 2009 Petition, Docket No.
EL10-19-000, at 4.
\12\ Id. at 6.
\13\ Western Grid, 130 FERC ] 61,056 at P 43.
---------------------------------------------------------------------------
5. The Commission explained that Western Grid proposed to operate
the Western Grid Projects under the direction of CAISO in a manner
similar to the way in which high-voltage wholesale transmission
facilities are operated by participating transmission owners under the
direction of CAISO (e.g., capacitors that address voltage issues or
alternate transmission circuits that address line overloads or
trips).\14\ The Commission noted that Western Grid stated that it would
only operate the Western Grid Projects to address voltage support and
thermal overload protection needs at CAISO's direction and that CAISO's
involvement was consistent with CAISO's operating obligations for
transmission assets. Western Grid also stated that it would be
responsible for all operating functions, including maintenance,
communication, and system emergencies. The Commission noted that, most
importantly, Western Grid would be responsible for energizing (i.e.,
maintaining the state-of-charge on) the Western Grid Projects needed to
address voltage support and thermal overload protection at CAISO's
direction. The Commission found that, because of this, the independence
of CAISO would be maintained because CAISO would not be responsible for
buying power to energize the Western Grid Projects or physically
operating the batteries when they were being charged and discharged.
The Commission added that, importantly, Western Grid would operate the
Western Grid Projects, at CAISO's direction, only as transmission
assets.
---------------------------------------------------------------------------
\14\ Id. P 45.
---------------------------------------------------------------------------
6. The Commission noted that, just like other transmission assets,
and unlike traditional generation assets, Western Grid proposed that it
would not retain revenues outside of the TAC and would credit any
revenues it might accrue as a result of charging and discharging the
Western Grid Projects through its participating transmission owner
tariff to transmission customers.\15\ The Commission further noted, in
particular, that Western Grid proposed that it would not arbitrage
wholesale energy market prices. The Commission found that, based on the
facts as presented by Western Grid, the Western Grid Projects would
function as transmission.
---------------------------------------------------------------------------
\15\ Id. P 46.
---------------------------------------------------------------------------
7. The Commission also found that the Western Grid Projects would
not undercut bids by other market participants because Western Grid
would not be offering the Western Grid Projects into the CAISO markets
and the Western Grid Projects would only be used to provide voltage
support and to address thermal overload situations at the CAISO's
instruction.\16\
---------------------------------------------------------------------------
\16\ See id. P 51.
---------------------------------------------------------------------------
8. The Commission also found that the facts and circumstances in
Western Grid were sufficiently distinguishable from those in Nevada
Hydro to justify a different result.\17\ The Commission explained that
an important issue that arose in Nevada Hydro--and that protesters
echoed with respect to the Western Grid Projects--involved the question
of whether CAISO's operation of the LEAPS storage facility would render
it an energy market participant.\18\ The Commission found that Western
Grid's proposal eliminated that concern because (1) Western Grid itself
would maintain the state of charge of its electric storage resources
(rather than CAISO), and (2) Western Grid would credit any incidental
net revenues from such transactions to its customers via the TAC.\19\
Therefore, the Commission concluded that there was little likelihood
that CAISO would become a profit-seeking energy market participant.
---------------------------------------------------------------------------
\17\ Id. P 48.
\18\ Id. (citing The Nev. Hydro Co. Inc., 117 FERC ] 61,204, at
PP 28-32; Nevada Hydro, 122 FERC ] 61,272 at PP 82-83).
\19\ Id. P 49.
---------------------------------------------------------------------------
II. Policy Statement
9. We believe that it is timely to provide additional guidance
regarding issues that arise for electric storage resources seeking to
recover their costs through both cost-based and market-based rates
concurrently. We also believe that clarification regarding our Nevada
Hydro and Western Grid precedent is warranted due to potential
confusion with respect to that precedent. Accordingly, through this
policy statement, we provide guidance and clarification regarding the
ability of electric storage resources 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
services. We clarify that there may be approaches different from
Western Grid's approach under which an electric storage resource may
receive cost-based rate recovery and, if technically capable, provide
market-based services.
10. In Western Grid, the applicant proposed to operate only as a
transmission resource and to forego any sales into CAISO's organized
wholesale electric markets.\20\ Western Grid also proposed to take
responsibility for charging its electric storage resources. The
Commission found that Western Grid's proposals addressed the concerns
described above. However, that order was limited to the facts that
Western Grid presented to the Commission. Thus, that order should not
be read to require other entities to forgo market sales as Western Grid
proposed. We clarify that there may be approaches different from
Western Grid's approach under which an electric storage resource may
receive cost-based rate recovery and, if technically capable, provide
market-based services that may address these concerns. To that end, we
provide the following guidance on how applicants seeking cost-based
rate recovery for electric storage resources providing certain services
while also providing separate services at market-based rates could
address concerns related to double recovery of costs, adverse market
impacts, and RTO/ISO independence.
---------------------------------------------------------------------------
\20\ See id. PP 19, 21-23; see also id. PP 48-50.
---------------------------------------------------------------------------
Multiple Uses and Revenue Streams
11. As noted above, electric storage resources can provide a
variety of services to multiple entities. An electric storage resource
receiving cost-based rate recovery for providing one service may also
be technically capable of providing other market-based rate services.
Most participants in the technical conference and commenters generally
support multiple uses and revenue streams, including both cost-based
and market-based revenues, for electric storage resources.\21\
Commenters believe that the key question is not whether to allow
multiple use applications for electric storage resources but how to
allow and
[[Page 9346]]
enable such applications.\22\ Commenters also note that it would be
inefficient and wasteful to let electric storage resources that are not
being used to serve a transmission need to sit idle and instead these
resources should be permitted to provide other market services to
capture their full system benefits and maximize economic efficiency and
value to consumers.\23\
---------------------------------------------------------------------------
\21\ See, e.g., Pacific Gas and Electric Co. Dec. 14, 2016
Comments at 2-3; Xcel Energy Services Inc. Dec. 16, 2016 Comments at
6-7; SolarCity Corp. and Tesla Motors, Inc. Dec. 14, 2016 Comments
at 2-4, 8-10; AES Companies Dec. 14, 2016 Comments at 4; Alevo USA
Inc. Dec. 14, 2016 Comments at 3-4; Renewable Energy Systems
Americas, Inc. Comments at 2-3, 5.
\22\ See, e.g., California Energy Storage Alliance Dec. 14, 2016
Comments at 5.
\23\ See, e.g., Technical Conference Transcript, Docket No.
AD16-25-000, at Tr. 34: 11-20 (posted Nov. 9, 2016); Exelon Corp.
Dec. 14, 2016 Comments at 2, 6; Union of Concerned Scientists Dec.
14, 2016 Comments at 9-10; Energy Storage Association Dec. 14, 2016
Comments at 3, 6, 12-13.
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12. To the extent that an electric storage resource seeks cost-
based rates for a particular service, that resource may need to compete
at least in part on cost against other alternatives that could provide
the service. In some cases, an electric storage resource may only be
cost competitive for the cost-based service if expected market revenues
are considered in the evaluation of the electric storage resources.
Such market revenues can be used to offset the electric storage
resource's costs for providing the cost-based rate service.
13. Additionally, if an electric storage resource seeks to recover
its costs through both cost-based and market-based rates concurrently,
the following issues, as raised in prior proceedings, should be
addressed: (1) The potential for combined cost-based and market-based
rate recovery to result in double recovery of costs by the electric
storage resource owner or operator to the detriment of cost-based
ratepayers; (2) the potential for cost recovery through cost-based
rates to inappropriately suppress competitive prices in the wholesale
electric markets to the detriment of other competitors who do not
receive such cost-based rate recovery; and (3) the level of control in
the operation of an electric storage resource by an RTO/ISO that could
jeopardize its independence from market participants.
14. We note that these or similar issues were raised by commenters
in Western Grid or Nevada Hydro. This policy statement is not intended
to resolve the detailed implementation issues surrounding how an
electric storage resource may concurrently provide services at cost-
and market-based rates. Rather, it is intended to clarify that
providing services at both cost- and market-based rates is permissible
as a matter of policy, provide guidance on some of the details and
allow entities to address these issues through stakeholder processes
and in filings before the Commission.
1. Avoiding Double Recovery of Costs
15. One issue associated with an electric storage resource
receiving cost-based rate recovery while concurrently receiving
compensation for market-based rate services involves potential double
recovery of costs borne by the relevant cost-based ratepayers. Most
participants in the technical conference and commenters believe that
double recovery can be addressed by appropriate market revenue
crediting.\24\
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\24\ See, e.g., Technical Conference Transcript at Tr. 47: 25--
Tr. 48: 1; Tr. 50: 13-15; Tr. 168: 4-9; AES Companies Comments at 4;
Exelon Corp. Comments at 8, 10; NextEra Energy Resources, LLC Dec.
14, 2016 Comments at 7; Transmission Access Policy Study Group Dec.
14, 2016 Comments at 5-6.
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16. While we believe there may be additional approaches for
addressing this concern beyond the one proposed in Western Grid, we
clarify that crediting any market revenues back to the cost-based
ratepayers is one possible solution. The Commission has sought to
prevent the subsidization of public utility shareholders at the expense
of their captive customers.\25\ Proposals to allow public utilities
using electric storage resources to recover costs under cost-based
rates from captive customers should address the potential for the
recovery of those same costs through market-based sales.
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\25\ See, e.g., Heartland Energy Servs, Inc., 68 FERC ] 61,223,
at 62,062-63 (1994) (prohibiting transfer of benefits from captive
customers of a franchised public utility to affiliates and
shareholders). See also Golden Spread Elec. Coop. v. Southwestern
Public Serv. Co., 123 FERC ] 61,047, Opinion No. 501, at P 40 (2008)
(citing Minnesota Power & Light Co., 47 FERC ] 61,064, at 61,183
n.2, 61,184 (1989)), order on reh'g, Opinion No. 501-A, 144 FERC ]
61,132 (2013).
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17. We note that the amount of this crediting may vary depending on
how the cost-based rate recovery is structured. For example, if the
electric storage resource indicates that it will seek to recover its
full, unadjusted costs through cost-based rates, it may be reasonable
for the electric storage resource owner or operator to credit all
projected market revenues earned by the electric storage resource over
a reasonable period of time (e.g., the expected useful life of the
asset or the term of the cost-based rate service if it differs from the
useful asset life). We believe that the accounting provisions in Order
No. 784 \26\ (including the supplemental accounting and reporting
guidance issued in Docket No. AI14-1-000) \27\ coupled with the
requirement to submit Electric Quarterly Reports pursuant to Order Nos.
2001 \28\ and 768 \29\ provide sufficient transparency to allow
effective oversight for any needed revenue crediting.
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\26\ See Third-Party Provision of Ancillary Services; Accounting
and Financial Reporting for New Electric Storage Technologies, Order
No. 784, FERC Stats. & Regs., Regulations Preambles ] 31,349 (July
30, 2013), order partly granting clarification, Order No. 784-A, 146
FERC ] 61,114 (2014).
\27\ Accounting and Reporting Guidance for New Electric Storage
Technologies, Docket No. AI14-1-000 (Feb. 20, 2014).
\28\ See Revised Public Utility Filing Requirements, Order No.
2001, FERC Stats. & Regs. ] 31,127, reh'g denied, Order No. 2001-A,
100 FERC ] 61,074, reh'g denied, Order No. 2001-B, 100 FERC ]
61,342, order directing filing, Order No. 2001-C, 101 FERC ] 61,314
(2002), order directing filing, Order No. 2001-D, 102 FERC ] 61,334,
order refining filing requirements, Order No. 2001-E, 105 FERC ]
61,352 (2003), order on clarification, Order No. 2001-F, 106 FERC ]
61,060 (2004), order revising filing requirements, Order No. 2001-G,
120 FERC ] 61,270, order on reh'g and clarification, Order No. 2001-
H, 121 FERC ] 61,289 (2007), order revising filing requirements,
Order No. 2001-I, FERC Stats. & Regs. ] 31,282 (2008).
\29\ Electricity Market Transparency Provisions of Section 220
of the Federal Power Act, Order No. 768, FERC Stats. & Regs. ]
31,336 (2012), order on reh'g, Order No. 768-A, 143 FERC ] 61,054
(2013), order on reh'g, Order No. 768-B, 150 FERC ] 61,075 (2015).
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18. Alternatively, at the electric storage resource owner's or
operator's discretion, this market-revenue offset can be used to reduce
the amount of the revenue requirement to be used in the development of
the cost-based rate. This up-front rate reduction would also help
ensure that the cost-based rate remains just and reasonable and provide
the electric storage resource owner or operator with an incentive to
estimate market revenues as accurately as possible. In this scenario,
the need for crediting of market revenues could be proportionally
reduced as well. In other words, full cost recovery through cost-based
rates may require full crediting of projected market revenues; no cost
recovery through cost-based rates would require no crediting of
projected or actual market revenues; and partial cost recovery through
cost-based rates could require partial crediting of market revenues.
For example, if the cost-based rate is based on 25 percent of the
asset's full cost-of-service, then perhaps only 25 percent of market
revenues would need to be credited to cost-based ratepayers.
19. We recognize there may be other ways for an electric storage
resource owner or operator seeking to recover costs through cost-based
rates and market-based rates to prevent the double recovery of costs.
Any solution would need to comport with cost-of-service precedent cited
earlier.
2. Minimizing Adverse Impacts on Wholesale Electric Markets
20. Another issue associated with an electric storage resource
receiving cost-
[[Page 9347]]
based rate recovery while concurrently receiving compensation for
market-based rate services that the Commission addressed in Nevada
Hydro and Western Grid is the adverse market impacts that could
occur.\30\ Some commenters believe that any potential adverse impacts
on wholesale electric markets either do not need to be addressed
because numerous resources participating in organized wholesale
electric markets currently receive cost-based rate treatment for other
services as well \31\ or can be addressed by appropriate market revenue
crediting.\32\ Other commenters argue, however, that permitting new
electric storage resources that receive transmission-based rate
recovery to participate in the competitive organized wholesale electric
markets could undermine competition and suppress market prices to sub-
competitive levels.\33\
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\30\ We note that the Supplemental Notice of Technical
Conference, setting forth the agenda and questions for the technical
conference, which also formed the basis for post-technical
conference comments, referred to ``cross-subsidization'' when
discussing this issue. See supra nn.1, 2. We consider ``cross-
subsidization'' to refer to concerns over the allocation of costs
between different customer classes for the same services, or between
customers under different services, not concerns that resources or
public utilities receiving both cost-based and market-based revenues
undermine competition in the wholesale electric markets. Therefore,
for more precision, here, we use the term ``adverse market impacts''
instead.
\31\ See, e.g., Technical Conference Transcript at Tr. 65: 8-18;
NextEra Energy Resources, LLC Comments at 9-10; Exelon Corp.
Comments at 6.
\32\ See, e.g., Transmission Access Policy Study Group Comments
at 6.
\33\ See, e.g., FirstLight Power Resources, Inc. Dec. 14, 2016
Comments at 2, 6-7; New England Power Generators Association, Inc.
Dec. 14, 2016 Comments at 2-9.
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21. As provided above, we clarify that electric storage resources
may concurrently receive cost- and market-based revenues for providing
separate services. We do not share commenters' concerns and are not
convinced that allowing such arrangements will adversely impact other
market competitors.
22. We agree that many assets that participate in RTO/ISO markets
receive some form of cost-based rate recovery. For example, many
participating generation resources seek and are paid a cost-based rate
for providing reactive supply, even as they make market-based rate
sales into organized wholesale electric markets.\34\ Further, as noted
during the discussions at the technical conference and in comments, a
significant amount of generation in certain RTO/ISO markets is owned by
vertically integrated public utilities that recover some or all of
their costs through cost-based retail rates.\35\ Similarly, some
vertically integrated public utilities make cost-based rate sales to
captive wholesale requirements customers such as transmission dependent
utilities while also making off-system market-based rate sales to
others.\36\ As noted earlier, in these circumstances, the Commission
has required crediting of an appropriate portion of market revenues to
captive wholesale customers in order to prevent the subsidization of
public utility shareholders at the expense of their captive customers.
But the Commission has not required any other measures to address the
potential competitive impact of such market-based rate sales on other
competitors in those markets. One commenter also points to bilateral
contracts as another example of resources receiving both cost-based and
market-based revenues.\37\ It is also true that there are many public
utilities in restructured states that have transmission assets with
cost-based recovery and generation assets that receive market-based
revenues. If we were to deny electric storage resources the possibility
of earning cost-based and market-based revenues on the theory that
having dual revenue streams undermines competition, we would need to
revisit years of precedent allowing such concurrent cost-based and
market-based sales to occur as described above.
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\34\ See, e.g., SolarCity Corp. and Tesla Motors, Inc. Comments
at 9.
\35\ See, e.g., Technical Conference Transcript at Tr. 65: 8-18;
NextEra Energy Resources, LLC Comments at 9-10.
\36\ See, e.g., Opinion No. 501, 123 FERC ] 61,047.
\37\ See NextEra Energy Resources, LLC Comments at 9.
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23. Moreover, we believe any concerns that electric storage
resources would offer in a manner that suppresses market clearing
prices simply because they receive cost recovery (in whole or in part)
through cost-based rates could be addressed by the manner in which
double recovery is addressed and the costs that go into the cost-based
rates are established.\38\
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\38\ We note that cost-based rates are reviewed by the
Commission and can only be accepted if the rates are just and
reasonable.
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3. RTO/ISO Independence
24. Another issue relevant to this policy statement is maintaining
RTO/ISO independence from market participants. The discussions of this
issue at the technical conference and in comments crossed into other
issues such as adverse market impacts (discussed in the previous
section) and largely focused on RTO/ISO discretion and the role of the
RTO/ISO in operating the electric storage resources, especially for
planning and reliability purposes.\39\ Nevertheless, we believe that
clarification is required in this area.
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\39\ See, e.g., Technical Conference Transcript at Tr. 50-51;
PG&E Comments at 3; NextEra Energy Resources, LLC Comments at 11-13.
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25. Coordination between the RTO/ISO and the electric storage
resource owner or operator will be necessary for electric storage
resources that concurrently provide services compensated through cost-
based rates and services compensated through market-based rates. Among
any other operational concerns that individual RTOs or ISOs may need to
address, the electric 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 this
priority need is reasonably predictable as to size and the time it will
arise each day, the electric storage resource should be permitted to
deviate from this state of charge at other times of the day in order to
provide other, market-based rate services. We recognize that this
assignment of responsibility is premised on the need for the service
compensated through cost-based rates being predictable enough to allow
the appropriate charge management structure to be implemented. In
situations where this premise does not hold, and the need for the
service for which cost-based rates are provided 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.
26. We also provide guidance that, when the circumstances leading
to the need for the service compensated through cost-based rates arise,
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. Performance penalties could be imposed
on the electric storage resource owner or operator for failure to
perform at these times.
27. We further provide guidance that the provision of market-based
rate services should be under the control of the electric storage
resource owner or operator, rather than the RTO/ISO, to ensure RTO/ISO
independence. In other words, while the RTO/ISO always performs the
actual optimization of resources participating in the organized
wholesale electric markets, during periods when the electric storage
resource is not needed for the separate service compensated at cost-
based rates,
[[Page 9348]]
the RTO/ISO would rely on offer parameters provided by the electric
storage resource owner or operator for such operation, just as the RTO/
ISO does with other market participants.
28. In this regard, we believe that one statement in Nevada Hydro
requires clarification. Specifically, the Commission's conclusion that
it would not be appropriate to require CAISO to assume ``any level of
operational control'' \40\ over the LEAPS facility should not be taken
out of context because RTOs/ISOs arguably always exercise some level of
operational control over the resources they dispatch through their
markets. The Commission's decision in Nevada Hydro was discussing only
the six proposals for operation of LEAPS as a transmission asset that
were discussed in CAISO's stakeholder process.\41\ Other facts may
warrant a different decision from the Commission. Therefore, we clarify
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.
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\40\ Nevada Hydro, 122 FERC ] 61,272 at P 82 (emphasis added).
\41\ See id.
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29. We are willing to consider other solutions proposed by an
electric storage resource owner or operator seeking to recover costs
through cost-based rates and market-based rates that are shown to be
effective in avoiding these RTO/ISO independence issues.
III. Document Availability
30. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (https://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5:00
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC
20426.
31. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
32. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or email at
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at
public.referenceroom@ferc.gov.
IV. Effective Date
33. This policy statement will become effective February 6, 2017.
By the Commission. Commissioner LaFleur is dissenting with a
separate statement attached.
Issued: January 19, 2017.
Kimberly D. Bose,
Secretary.
UNITED STATES OF AMERICA
Federal Energy Regulatory Commission
Utilization of Electric Storage Resources for Multiple Services When
Receiving Cost-Based Rate Recovery
Docket No. PL17-2-000
(Issued January 19, 2017)
LaFLEUR, Commissioner dissenting:
Today's order addresses whether a storage resource can receive
cost-based revenues for providing a transmission service while also
participating in the Commission's wholesale markets. The Commission has
previously considered related issues in individual cases, such as our
Western Grid orders from 2010,\1\ and I agree that the Commission
should be flexible and open to proposals that go beyond the model
contemplated in those orders. I am open to potential structures that
compensate storage providing transmission service at a cost-based rate
while participating in the wholesale markets. However, I am concerned
about the broad rationale for this approach put forth in the Policy
Statement, which I believe is both flawed in its conclusions and
premature in its timing.
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\1\ Western Grid Dev., LLC, 130 FERC ] 61,056, reh'g denied, 133
FERC ] 61,029 (2010).
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I particularly disagree with the Policy Statement's sweeping
conclusions about the potential impacts of multiple payment streams on
pricing in wholesale electric markets.\2\ The Policy Statement
summarily dismisses concerns regarding the impact of such arrangements
on market competition, and leaves far more than just ``implementation
details'' to be worked out. Indeed, the Policy Statement provides no
guidance on how the Commission could evaluate whether a particular
filing under section 205 of the Federal Power Act successfully avoids
adverse market impacts.
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\2\ Utilization of Electric Storage Resources for Multiple
Services When Receiving Cost-Based Rate Recovery, 158 FERC ] 61,051
(2017).
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I am concerned 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.
These issues, which are currently being discussed by several RTO/ISOs
and their stakeholders, will require careful and holistic consideration
to ensure that policy advancements can be achieved while the benefits
of competition are preserved for customers.
Furthermore, I disagree with the Commission's decision to separate
this issue from its pending Notice of Proposed Rulemaking on storage
participation,\3\ which is itself directed to enabling greater
participation of storage technologies in wholesale markets. The
conclusions of this Policy Statement regarding market participation of
storage resources would benefit from being considered and commented on
as part of that broader discussion.
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\3\ Electric Storage Participation in Markets Operated by
Regional Transmission Organizations and Independent System
Operators, Notice of Proposed Rulemaking, 157 FERC ] 61,121 (2016).
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Storage is an important and promising resource that warrants
Commission attention to ensure that our markets are appropriately
adapted to recognize storage's unique characteristics and
contributions. However, efforts to accommodate these resources should
not come at the expense of careful market design after full public
participation.
For these reasons, I respectfully dissent.
Cheryl A. LaFleur,
Commissioner
[FR Doc. 2017-02421 Filed 2-3-17; 8:45 am]
BILLING CODE 6717-01-P
