In response to concerns regarding the changing nature of the nation’s energy supply portfolio and the emergence of promising energy storage technologies, the Commission in recent years issued several notices of inquiry, notices of proposed rulemaking, and policy statements regarding various energy storage and ancillary service supply issues.  Additionally, the Commission considered but ultimately declined to pursue the Department of Energy-initiated rulemaking on grid resiliency and reliability.  On February 15, 2018, however, the Commission took concrete action by issuing a pair of Final Rules, addressing (i) storage participation in regional markets; and (ii) the provision of primary frequency response, a critical grid support service.

A.  Action on Storage

On February 15, 2018, FERC issued a landmark order (“Order No. 841”) on the participation of electric storage resources in capacity, energy, and ancillary service markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).

Order No. 841 requires each RTO/ISO to revise its respective tariff to establish a participation model consisting of market rules that, recognizing the physical and operational characteristics of electric storage resources, facilitates their participation in the RTO/ISO markets.  Order No. 841 mandates that each RTO/ISO participation model meet four distinct criteria.  Specifically, each RTO/ISO participation model must:

1. ensure that a resource using the participation model is eligible to provide all capacity, energy, and ancillary services that the resource is technically capable of providing in the RTO/ISO markets;

2. ensure that a resource using the participation model can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer consistent with existing market rules that govern when a resource can set the wholesale price;

3. account for the physical and operational characteristics of electric storage resources through bidding parameters or other means; and

4. establish a minimum size requirement for participation in the RTO/ISO markets that does not exceed 100 kW.

Order No. 841 also requires that each RTO/ISO specify that the sale of electric energy from the RTO/ISO markets to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price.

Order No. 841 expansively defines “electric storage resource” as “a resource capable of receiving electric energy from the grid and storing it for later injection of electric energy back to the grid.”  The Commission clarified that this definition applies to all resources that can meet it, regardless of medium (e.g., batteries, flywheels, compressed air, and pumped-hydro), and regardless of location (e.g., the interstate transmission system, a distribution system, or behind the meter).

While the Commission had originally proposed reforms related to distributed energy resource aggregations in the Notice of Proposed Rulemaking that preceded Order No. 841 (see November 23, 2016 Troutman Client Alert), the Commission in Order No. 841 determined that more information is needed with respect to those proposed reforms, and established a technical conference in Docket No. RM18-9-000 to explore these issues further.

Additionally, in a separate order but also related to storage, the Commission declined to initiate an enforcement action pursuant to the Public Utility Regulatory Policies Act against the Idaho Public Utilities Commission (“Idaho PUC”) in response to a petition that alleged the Idaho PUC improperly classified the petitioner’s energy storage qualify facilities (“QFs”) as solar QFs, thereby rendering the QFs ineligible for the Idaho PUC’s compensation available to non-wind and non-solar QFs of 10 MW or less.

Order No. 841 requires each RTO/ISO to file the tariff changes needed to implement its directives within 270 days of the publication date of the order in the Federal Register.  Each RTO/ISO has an additional 365 days from that date to implement the tariff provisions.

B. Action on Primary Frequency Response

Simultaneously with the issuance of Order No. 841, FERC issued a final rule (“Order No. 842”) requiring generating facilities interconnecting through a Large Generator Interconnection Agreement (“LGIA”) or Small Generator Interconnection Agreement (“SGIA”) to install equipment capable of providing primary frequency response.

Specifically, Order No. 842 modifies the pro forma LGIA and SGIA to require new generating facilities, both synchronous and non-synchronous, interconnecting through an LGIA or SGIA to install, maintain, and operate equipment capable of providing primary frequency response as a condition of interconnection.  The Commission explained that the changes would address declining frequency response performance and the potential reliability impact of adding variable energy resources to the grid.  Additionally, Order No. 842 amends the pro forma LGIA and SGIA to include operational requirements for providing primary frequency response.

Order No. 842 also requires transmission providers to include in their pro forma LGIA and SGIA specific accommodations for electric storage resources, including the identification of an operating range within which electric storage resources will be required to provide primary frequency response, the identification of particular operating circumstances when electric storage resources will not be required to provide primary frequency response, and the inclusion of energy limitations in the list of exemptions from the requirement to provide primary frequency response.

In addition, Order No. 842 exempts a subset of combined heat and power (“CHP”) facilities from the operational requirements of the final rule, but requires all new CHP facilities to install governor or other equivalent controls.  Furthermore, Order No. 842 exempts nuclear generating facilities regulated by the Nuclear Regulatory Commission from its requirements.

Notably, the Commission declined to mandate that suppliers of primary frequency response be separately compensated for the provisions of this service.

Order No. 842 applies to newly interconnecting generation facilities that execute or request the unexecuted filing of an LGIA or SGIA, as well as existing generating facilities that submit a new interconnection request that results in the filing of an executed or unexecuted interconnection date, on or after the effective date of the final rule—70 days following publication in the Federal Register.  Additionally, Order No. 842 requires each public utility transmission provider that has a pro forma LGIA and/or pro forma SGIA within its OATT to submit a compliance filing demonstrating that it meets the requirements of Order No. 842 within 70 days following publication in the Federal Register.

A copy of Order No. 841 is available here.  A copy of Order No. 842 is available here.