New Federal Energy Regulatory Commission Policy Statement Potentially Expands Revenue Opportunities for Electric Storage Resources

On January 19, 2017, the Federal Energy Regulatory Commission (FERC or Commission) issued a new policy statement entitled “Utilization of Electric Storage Resources for Multiple Services When Receiving Cost-Based Rate Recovery” (Storage Policy Statement or Policy Statement), which clarifies that electric storage resources may receive cost-based recovery for certain services, such as transmission or grid support services, while also receiving market-based revenues for separate services, such as selling electric energy, capacity and ancillary services in the organized wholesale markets, so long as adequate protections are in place to address potential abuses. The Storage Policy Statement suggests potential new revenue opportunities for electric storage resources that can provide multiple or stacked services, some of which are cost-based and some of which are market-based.

Storage Policy Statement Clarifies Prior Precedent

The Storage Policy Statement specifically aims to clarify questions left open by FERC’s prior decisions in Nevada Hydro[1] and Western Grid.[2] In Nevada Hydro, the Commission rejected a proposal by The Nevada Hydro Company, Inc. to treat an advanced pumped hydroelectric storage project as a transmission facility and allow its costs to be recovered through the California Independent System Operator’s (CAISO) transmission access charge. The company also proposed to have CAISO assume operational control over the project such that CAISO would have to determine when and how to charge and discharge electric energy from the storage project.

FERC rejected the proposal, finding that “it would not be appropriate to require CAISO to assume any level of operational control” because the company failed to show that doing so was reasonable or necessary.[3] FERC also found that the project’s costs would not be properly recovered through CAISO’s transmission access charge because the purpose of that charge is to recover the costs of transmission facilities under CAISO’s control and not to recover costs associated with bundled services. This decision effectively left open the question of whether a storage facility could be treated as transmission for the purpose of cost-based rate recovery at all.

In Western Grid, the Commission issued a declaratory order confirming that certain battery storage projects proposed by Western Grid Development, LLC (Western Grid) could be treated as wholesale transmission facilities such that Western Grid could recover costs through the CAISO’s cost-based transmission access charge.[4] However, Western Grid narrowly tailored its proposed operation of its prospective battery storage projects to mimic only a wholesale transmission function. Western Grid committed that its battery storage projects would only provide voltage support and thermal overload protection to help solve transmission reliability problems identified by CAISO and that it would credit any revenues from sales of electric energy in the CAISO’s wholesale markets to transmission customers. Further, Western Grid committed to retain responsibility for all operating functions associated with its battery storage projects (e.g., maintaining the necessary state of charge) and to operate its projects under CAISO’s direction, similar to how CAISO directs the operation of other transmission facilities under its operational control, such as capacitors or alternate transmission circuits.

The Commission found that Western Grid’s proposed operation of its prospective battery storage projects addressed concerns in Nevada Hydro related to CAISO’s independence as an independent system operator (ISO) or a regional transmission organization (RTO) and the possibility of CAISO becoming an energy market participant because Western Grid would operate the battery storage systems and credit incidental revenues from sales in the CAISO’s wholesale markets to transmission customers. While FERC was able to get comfortable with Western Grid’s narrow proposal, its limited decision left open questions of whether and how energy storage resources could be compensated for the variety of other services that they could provide to the grid.

Storage Policy Statement Suggests Potential New Revenue Opportunities

The Storage Policy Statement clarifies that Western Grid’s approach is not the only acceptable arrangement for electric storage resources and that such resources can potentially receive cost-based rate recovery and revenues from market-based rate sales. FERC makes clear that from its perspective, “the key question is not whether to allow multiple use applications for electric storage resources but how to allow and enable such applications.”[5] The Commission goes on to identify three chief concerns that an electric storage resource would need to address to be allowed to recover costs through both cost-based and market-based rates concurrently:

double recovery of costs to the detriment of cost-based ratepayers

suppression of competitive prices in wholesale electric markets

compromising the independence of RTOs and ISOs

The Storage Policy Statement explains that crediting market-based rate revenues back to cost-based ratepayers is “one possible solution” to issues related to double recovery and the potential for adverse impacts on market prices.[6] For example, if an electric storage resource were to seek to recover all costs through cost-based rates, then any market-based rate revenues would potentially need to be credited to those cost-based ratepayers. If, however, there was no cost recovery through cost-based rates, then the electric storage resource would not need to credit any revenues from market-based rates. The Policy Statement FERC leaves open the possibility that if a portion (e.g., 25%) of an electric storage resource’s cost-of-service would be recovered through cost-based rates, then it is possible that only a corresponding portion of market-based rate revenues (e.g., 25%) would need to be credited back to cost-based ratepayers.