December 7, 2021

Volume XI, Number 341

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December 06, 2021

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Coming Up: FERC Conference on Storage Resources in PJM

In its recent landmark Order No. 841, FERC directed Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to remove barriers to participation by electric storage resources in their wholesale electricity markets.  The expectation is that each RTO/ISO will adopt rules that recognize and compensate physical and operational characteristics of storage resources, including battery storage, boosting their role in the nation’s electricity grid.  Against this policy backdrop, FERC recently issued two orders addressing issues affecting electric storage resources’ participation in one RTO’s regulation service market.

PJM, the RTO operating in the mid-Atlantic region, principally Virginia, Maryland, Delaware, Pennsylvania, New Jersey and Ohio, says its rules are procuring too many dynamic resources such as storage and are causing operational problems.  PJM made market software changes and proposed tariff revisions to address the issues.  Storage entities opposed these changes, claiming discriminatory treatment.  FERC rejected the tariff revisions and directed its staff to hold a technical conference to address the issues raised.  The upcoming technical conference will address the nuts-and-bolts challenges to integrating storage resources into regulation markets in a non-discriminatory manner and its outcome could have implications beyond the PJM market.

Below we summarize some of the complex technical issues presented by participation of  storage resources in PJM’s regulation services market.

Regulation service

As a balancing authority, PJM manages the supply and demand of electricity by economically dispatching generation to meet its load and the scheduled interchange with other balancing authorities.  Real-time imbalances between supply and demand result in an Area Control Error, or ACE, which is the difference between scheduled and actual flows across interconnections with other balancing authorities.  Regulation service is purchased to maintain or return the ACE to zero.

When the ACE indicates an imbalance, a dispatch signal is sent to each regulation resource to raise or lower its output to correct the imbalance.  PJM sends two different types of signals.  One, called RegA, is used to dispatch slower, sustained-output resources, such as steam and combustion resources. A faster signal, called RegD, is used to dispatch faster, dynamic resources, such as battery storage.

PJM experienced problems in its dispatch of resources to supply regulation service and proposed tariff changes to FERC.  Also, PJM took some dispatch actions on its own to alter the dispatch of storage resources.

Tariff order

PJM proposed changes to its tariff to address the following stated problems in its regulation market:

  • The algorithm it uses to establish the tradeoff between RegA and RegD resources to place them on a comparable basis for market clearing purposes was stated to be inflating the procurement of RegD service.[1]

  • The performance, or “mileage,” component of the market settlement equation was stated to result in a higher financial signal for new RegD market entry, contributing to an over-procurement of those resources.[2]

PJM proposed changes to its tariff to address these problems, among them were adopting a different algorithm that determines the tradeoff between RegA and RegD resources and removing the mileage component from the settlement equation.

Storage entities opposed the removal of the mileage component from the settlement equation. The storage entities argued that the proposal violates FERC policy and is unduly discriminatory.  In Order No. 755, FERC required, among other things, that regulation service compensation should be based on the actual service provided and include a performance payment that reflects the quantity of regulation service when following the dispatch signal.   Protests asserted that PJM’s proposal ignores the actual performance of regulation resources, and that under the new algorithm RegD resources will always be under-compensated.

FERC agreed and rejected PJM’s tariff proposal because it does not comply with the requirement of Order No. 755 to compensate all regulation resources based on the quantity of regulation service provided.  FERC found that the proposal does not account for actual mileage in settlement and does not accurately reflect the contribution of RegD resources when they operate.  Because PJM stated that it proposed reforms are interdependent and a change in one area will impact other areas, FERC did not address other aspects of the proposal.

Complaint order

PJM originally designed the RegD dispatch signal to be “unconditionally energy neutral,” within a 15-minute period; in other words, 7.5 minutes of input followed by 7.5 minutes of output.  According to PJM, however, this feature of the signal was causing operational problems.  Because it always signals RegD resources to maintain power balance over a 15-minute interval regardless of the direction PJM needs regulation resources to  move, the signal sometimes causes the RegA and RegD signals to work against each other, i.e., signaling the two types of resources to move in opposite directions, thus impeding efficient regulation control.  According to PJM, at times, hundreds of megawatts of RegD resources were performing in a way that respected their energy neutrality but inhibited PJM’s ability to control the ACE.

To address this issue, PJM had made the following unilateral changes in its dispatch practices over the last few years:

  • Revised a business manual such that the algorithm used to establish the tradeoff between RegA and RegD resources caps the amount of RegD resources that could be procured at 40 percent of the total (down from 62 percent under current rules) and at 26.2 percent during certain hours.

  • Revised its regulation signal software so that the RegA and RegD signals move together in the direction that minimizes ACE and that the RegD signal is “conditionally neutral” over a 30-minute period (instead of 15 minutes). Under “conditional” neutrality, managing ACE is the first priority and neutrality for energy-limited resources such as storage is honored only when system conditions permit.

Storage resource entities filed complaints against PJM’s revisions, arguing that both changes are unduly discriminatory against RegD resources and that both must be submitted for Commission review because they significantly affect the terms of service and thus must be included in a tariff accepted by the Commission rather than in business practice manuals.

With respect to the signal software revisions, storage resources argued that the original energy-neutral signal respected RegD resources’ limited-energy characteristics.  Since the revisions, those resources have been directed to operate outside of their design parameters, making responding to the dispatch signal more difficult and resulting in performance issues, reduced compensation, and adverse impacts on equipment.

FERC found that both the algorithm used to establish the tradeoff between RegA and RegD resources and the parameters of the signals to regulation resources significantly affect the rates, terms, and conditions of regulation service and thus should be included in the PJM tariff .  However, the Commission did not direct PJM to submit a compliance filing but instead directed staff to convene a technical conference to address the issues raised in the complaints.

Technical conference

In the complaint order, FERC says the technical conference should address the issues raised in the complaints, and, given the related issues raised in the tariff case, the conference should also examine PJM’s two-signal regulation market design with respect to the requirements of FERC’s compensation policy.  FERC directed staff to request data and information from PJM and the complainants prior to the technical conference to help inform the discussion,

FERC will issue a separate notice establishing dates and technical conference details.  The conference will be convened under Docket EL17-64 and EL17-65.


[1] PJM purchases regulation service in a bid-based auction market.

[2] A performance payment reflects the quantity of regulation service, or work done, when following the dispatch signal. It is sometimes referred to as “mileage” as it based on the MW changes from both increasing and deceasing generation.

© 2021 Covington & Burling LLPNational Law Review, Volume VIII, Number 96
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About this Author

Wilbur C. Earley, Energy attorney, Covington Burling
Energy Policy Advisor

Drawing on has over 39 years of experience in the energy industry, Bud Earley, a non-lawyer senior advisor, provides analysis and advice on a wide range of federal and state energy regulatory issues, including transaction and rate issues, regional transmission organization (RTO) tariffs and rules, interconnection, retail choice and demand response for electricity customers, a natural gas pipelines and hydroelectric facility licenses, and LNG export authorizations.

202-662-5434
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