FERC provides guidance for electric storage cost recovery

FERC Commissioner LaFleur said she is concerned about the broad rationale for the approach put forth in the policy statement

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FERC on Jan. 19 said that it has issued a policy statement that provides additional guidance for energy storage resources that seek to concurrently recover their costs through cost-based and market-based rates.

The policy statement helps ensure that those resources can operate at maximum efficiency to benefit the electric system and consumers, FERC said, noting that electric storage resources can charge and discharge electricity, as well as provide various grid services in multiple markets or to multiple entities, including regional grid operators and transmission and distribution utilities.

Since they can almost instantaneously provide multiple services and switch from providing one service to another, those resources may fit into one or more of the traditional asset functions of generation, transmission and distribution, FERC said.

The policy statement, which also clarifies existing FERC precedent on electric storage resources, was prompted by a November 2016 technical conference that highlighted different ways in which the industry is considering using those resources, FERC said.

Allowing electric storage resources to recover costs through cost-based and market-based rates concurrently has raised issues that must be addressed, including double recovery of costs to the detriment of cost-based ratepayers, FERC said, adding that the Jan. 19 policy statement provides guidance related to such issues.

According to the policy statement, most participants in the technical conference and commenters believe that double recovery can be addressed by appropriate market revenue crediting.

Discussing avoiding double recovery of costs, FERC said that crediting any market revenues back to the cost-based ratepayers is one possible solution. FERC noted that it has sought to prevent the subsidization of public utility shareholders at the expense of their captive customers.

FERC also said that 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.

The amount of that crediting may vary depending on how the cost-based rate recovery is structured, FERC said. For instance, if the electric storage resource indicates that it will seek to recover its full, unadjusted costs through cost-based rates, then 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, such as the expected useful life of the asset, FERC said.

Among other things, FERC said that another issue relevant to the policy statement is maintaining RTO/ISO independence from market participants. The discussions of that issue at the technical conference and in comments crossed into other issues such as adverse market impacts 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, FERC said.

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, FERC said. However, assuming that priority need is reasonably predictable as to size and the time it will arise each day, then the electric storage resource should be permitted to deviate from that state of charge at other times of the day in order to provide other, market-based rate services, FERC said.

The commission said it also provides 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 those times, FERC said.

In a statement noting her dissent, FERC Commissioner Cheryl LaFleur said that she is open to potential structures that compensate storage providing transmission service at a cost-based rate while participating in the wholesale markets. But, she said she is concerned about the broad rationale for the approach put forth in the policy statement, which she said she believes “is both flawed in its conclusions and premature in its timing.”

Among other things, LaFleur said, “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.”

Those issues, which are being discussed by several RTOs/ISOs and their stakeholders, will require careful consideration to ensure that policy advancements can be achieved while the benefits of competition are preserved for customers, she said.

LaFleur also said that she disagrees with FERC’s decision to separate the issue from its pending Notice of Proposed Rulemaking on storage participation, which is directed to enabling greater participation of storage technologies in wholesale markets.

While storage is a promising resource that warrants FERC’s attention to ensure that markets are appropriately adapted to recognize storage’s unique characteristics and contributions, “efforts to accommodate these resources should not come at the expense of careful market design after full public participation,” she said.

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