wholesale electricity markets

On September 28, 2017, the US Department of Energy (DOE) submitted a proposed rule to the Federal Energy Regulatory Commission (FERC) that, if implemented, could reshape organized wholesale electricity markets. Citing electric grid reliability and resiliency issues like the 2014 Polar Vortex and recent hurricanes, DOE asked FERC to enact a new compensation system for coal and nuclear power plants—dubbed “fuel-secure resources” by DOE. Coal and nuclear plants have been retiring prematurely and, according to DOE, the retirements are “threatening the resilience of the Nation’s electricity system.”

In order to stem the tide of retirements, DOE submitted to FERC a proposed rule requiring organized wholesale electricity markets run by independent system operators (ISOs) or regional transmission organizations (RTOs) to develop and implement market rules that “accurately price generation resources necessary to maintain the reliability and resiliency” of the bulk power system. The proposed rule would require ISOs and RTOs to provide “a just and reasonable rate” for the purchase of electricity from a fuel-secure resource and “recovery of costs and a return on equity for such resource.” Eligible resources must (i) be located within an ISO or RTO, (ii) be able to provide energy and ancillary services, (iii) have a 90-day fuel supply on site, (iv) be compliant with all environmental laws, and (v) not be subject to cost-of-service rate regulation at the state or local level. Practically, these requirements limit participation to coal and nuclear plants. Continue Reading Department of Energy Proposes Rule Benefiting Coal and Nuclear to FERC

Last week, the Federal Energy Regulatory Commission (FERC) issued a Policy Statement to provide guidance on the ability of electric storage resources to recover costs through both cost-based and market-based rates concurrently. The Policy Statement appears intended to reconcile two lines of FERC precedent on this topic. The issue of multiple payment streams is one of particular concern for electric storage resources that, due to their technological capabilities, can switch from one type of service to another almost instantaneously. The Policy Statement is separate from FERC’s ongoing Notice of Proposed Rulemaking regarding electric storage resource participation in wholesale electricity markets (RTO/ISO markets), discussed here and here.

FERC’s guidance stems from two orders with opposite outcomes – Nevada Hydro and Western Grid. In the 2008 Nevada Hydro order, FERC denied a hydroelectric storage project’s petition to be treated as a transmission facility that would receive payments through cost-based rates. Then, in the 2010 Western Grid order, FERC granted the applicant’s request for cost-based rate recovery for its sodium sulfur batteries that would provide voltage support and thermal overload protection for transmission facilities.

FERC identified three major concerns present in scenarios where an electric storage resource seeks both cost-based and market-based rates: (1) the potential for cost-based and market-based rate recovery to result in double recovery; (2) the potential for cost-based rates to inappropriately suppress competitive market prices; and (3) the level of control of a storage resource exercised by a RTO/ISO that could jeopardize the RTO/ISO’s independence from market participants.

To address the concern of double recovery, FERC suggested that crediting any market revenues back to the cost-based ratepayers is a possible solution. Such crediting may vary depending on how the cost-based rate is structured; FERC provided examples of an up-front reduction in the cost-based rate or a later crediting procedure for cost-based ratepayers. Addressing the issue of suppressing competitive market prices, FERC disagreed with commenters that allowing market participants with cost-based rate recovery to also sell at market-based rates would create an adverse impact on other market competitors. FERC pointed out that some vertically integrated public utilities currently recover costs through cost-based retail rates while also making market-based rate sales to others. Finally, to maintain RTO/ISO independence, FERC clarified that RTO/ISO dispatch of a storage resource should receive priority over the resource’s provision of market-based rate services and that the provision of market-based rate services should be under the control of the resource owner rather than the RTO/ISO.

FERC Commissioner LaFleur dissented from the Policy Statement, arguing that its sweeping conclusions related to storage resources may be read to reflect FERC’s views about the impact of multiple payment streams more generally. Commissioner LaFleur also disagreed with FERC’s decision to separate the issues from FERC’s pending Notice of Proposed Rulemaking on storage participation.

On November 17, 2016, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) that, if adopted, would require organized wholesale electricity markets (RTO/ISO markets) to modify their open access transmission tariffs and market rules to accommodate electric storage resources and allow participation of distributed energy resource aggregators. This NOPR is part of FERC’s ongoing efforts to remove barriers to participation in wholesale electric markets. FERC recognizes that electric storage resources and distributed energy resources are often constrained by antiquated wholesale market rules that were, as FERC puts it, “developed in an era when traditional generation resources were the only resources participating in the organized wholesale electricity markets.” This NOPR will promote far greater market participation by storage resources of all types, including batteries, flywheels, compressed air and pumped hydro, as well as distributed resources such as distributed generation, electric storage, thermal storage and electric vehicles.

For electric storage resources, which are defined as resources capable of receiving electric energy from the grid and storing it for later injection of electricity back to the grid, the NOPR would require each RTO/ISO to implement tariff provisions that will:

  • Ensure an electric storage resource is eligible to provide services it is technically capable of providing
  • Incorporate bidding parameters that reflect the physical and operational characteristics of the resources
  • Ensure that electric storage resources can set the market clearing price as a seller or buyer
  • Establish a minimum size requirement that does not exceed 100 kW
  • Specify that sales and purchases must be made at the wholesale locational marginal price

Continue Reading FERC Proposes to Remove Barriers to Wholesale Market Participation for Electricity Storage and Distributed Energy Resource Aggregators