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FERC and Oregon PUC Provide Key Guidance for Energy Storage Projects

February 03, 2017 posted by Eric Christensen

Both the Federal Energy Regulatory Commission (“FERC”) and the Oregon Public Utility Commission (“OPUC”) recently issued regulatory guidance documents spelling out how the agencies will address the unique questions related to cost recovery and market access raised by rapidly emerging energy storage technologies.  Together with FERC's recent Notice of Proposed Rulemaking (“NOPR”) to address energy storage access in organized markets, these documents help clarify how energy storage will fit into the existing utility regulatory structure, both nationally and here in the Pacific Northwest, and how operators of energy storage facilities can capture all the different value streams these technologies offer.  Unfortunately, the future of the FERC policy statement is befogged by recent developments related to the agency’s transition under the Trump Administration.

The FERC policy statement, issued at the agency's January monthly meeting, addresses two overarching questions that regulators and energy storage advocates alike have struggled with, in part because FERC has in the past issued seemingly contradictory decisions addressing these issues.   First, FERC addresses the complications created by the fact that energy storage has characteristics of both transmission, which is generally subject to tariffs and cost-based rates, and generation, which is generally subject to market-based rates and "light-handed" market-based regulation.  The policy statement, echoing FERC's NOPR, indicates that FERC wishes to allow energy storage to maximize its ability to recover all value streams energy storage products (for example, balancing services, voltage regulation, real power production), so that a given energy storage facility could recover revenues through both a cost-based sale of transmission services and a market-based sale of generation services.  The primary constraint, FERC indicates, is that double-recovery on particular value streams will not be allowed.  

Second, the policy statement addresses the potential difficulties created when a Regional Transmission Organization ("RTO") controls an energy storage facility.  In this situation, FERC has been concerned that, because the RTO both controls the facility and pays its costs, it will not act independently, which violates one of the fundamental requirements for RTOs – that they act free from the influence of particular market participants, and do not favor one market participant over another.   To address this problem, the policy statement indicates that an RTO may exercise some degree of control over a storage resource as long as the RTO’s decision to dispatch that resource is based on an organized clearing mechanism or some other objective parameter.  In FERC’s view, the objective nature of the mechanism should maintain the RTO’s independence from market participants.    

Unfortunately, the future of the policy statement is now clouded by the Trump Administration’s appointment of Commissioner Cheryl LeFleur to act temporarily as FERC Chairman, and the departure of former Chairman Norman Bay, which will become effective on February 3, 2017.  Chairman LeFleur dissented from the policy statement, while Commissioner Honorable, along with Chairman Bay, supported it.  This leaves the current Commission evenly split on the merits of the policy statement, and without a quorum, so that further action will be impossible until new appointments are made to fill FERC’s three vacant seats.  

The Oregon Public Utility Commission in late December also issued an important guidance document, this one setting forth the guidelines the OPUC will use to in carrying out the legislature’s mandate in HB 2193 for Oregon’s investor-owned utilities to acquire at least five megawatts of energy storage by 2020.   The OPUC’s order, which is part of a lengthy administrative process aimed at implementing HB 2193, sets forth principles the OPUC will use in four areas: (1) “Project Guidelines” aimed at assisting the utilities to design and select projects; (2) “Proposal Guidelines” for the utilities to use in submitting their formal implementation proposals to the OPUC; (3) “Storage Evaluation Requirements” designed to assist the utilities in conducting the system-wide storage potential evaluation mandated by HB 2193; and, (4) “Competitive Bidding Requirements” that will govern the competitive bidding process by which the utilities will acquire storage resources.    In each of these four areas, the order lays out several specific principles the OPUC will use for evaluating regulated utility performance in that area. 

Together the FERC and OPUC policy statements provide critical guidance for companies seeking to construct energy storage resources, and especially here in the Pacific Northwest, and provide assurance that energy storage operators will be permitted to seek maximum recovery for each of the many value streams such projects can produce.