State-federal concerns could dim FERC’s landmark storage order
Wider access to a variety of markets has been hailed as the basis for energy storage growth, but jurisdictional issues could thwart an overarching solution.
The promise of the Federal Energy Regulatory Commission’s Order 841 as a vehicle to accelerate the growth of energy storage could be dimmed or at least slowed down by pushback from state and utility interests.
Several organizations have filed requests for rehearing or clarification on the order, which aspires to remove barriers that could inhibit the participation of energy storage in the capacity, energy and ancillary services markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs).
The order, issued in mid-February, directs RTOs and ISOs to come up with new tariffs that would allow energy storage resources to provide multiple electricity market services.
FERC has sole jurisdiction over the wholesale markets of RTOs and ISOs, but in the Notice of Proposed Rulemaking that resulted in Order 841, FERC defined “electric storage resource” as all types of electric storage technologies regardless of “whether the resource is located on the interstate grid or on a distribution system.”
That definition touched a nerve. A range of entities have expressed concerns that FERC’s definition opens the potential for federal overreach into the domain of state regulation.
For decades, striking a balance between federal and state authority has been achieved under the legal theory of cooperative federalism, in which the federal government and individual states act as partners in drawing up and implementing policies. In the context of electric sector regulation, that theory has been tested in recent years in at least two FERC Orders, 719 and 745.
The issue is not academic. Advance enthusiasm for Order 841 has been hailed as a potential landmark in energy storage policy. To date, energy storage policy has been determined on a state-by-state basis. That has left large swaths of the national grid controlled by wholesale competitive markets uncertain or unclear when it comes to storage policies.
Those policies matter because the economics of energy storage, as they have been worked out so far, call for being able to use batteries to their fullest extent, that is, taking advantage of their ability to both inject and absorb power into and from the grid. (Absorption becomes more important as intermittent generation sources like wind and solar power become more widespread.)
But the rules governing the power sector were designed with a sharp distinction between generation and distribution in mind, and that definition does not easily accommodate the flexibility of energy storage.
Stacking revenues
From a business perspective, that lack of accommodation limits the scope of potential revenues and runs counter to one of the key business models of the energy storage industry — finding multiple uses for a single resource, often referred to as revenue stacking. But revenue stacking is often easier said than done. For instance, there are no consistent rules on how a distribution-tied storage device should be compensated for injecting energy into the grid: Should a storage device be paid at retail or wholesale rates?
That is one of the issues in a case pending before the Public Utility Commission of Texas (PUCT). American Electric Power wanted to install energy storage devices on its distribution grid instead of upgrading a transmission line or building a new substation.
Merchant generators and other stakeholders objected to AEP’s projects, arguing that the utility was removing opportunities from the market while being subsidized by ratepayers.
Generators also objected to the way that AEP had proposed to account for the energy it would use to charge the batteries. AEP wanted to account for the charging energy as “unaccounted for energy,” which is usually pooled, with the costs spread across all ratepayers. Generators said AEP’s treatment of charging costs would distort the energy prices and the operation of the wholesale power market.
The PUCT dismissed the AEP case and opened a rulemaking to “develop facts necessary to establish a regulatory framework” for energy storage.
Energy storage often has more leeway to operate in wholesale power markets, but distribution applications could be an essential ingredient if energy storage is going to reach its full potential, according to a recent report by The Brattle Group.
