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FERC Rule Seeks to Expand Energy Storage Participation in Wholesale Electricity Markets

On February 15, 2018 the Federal Energy Regulatory Commission (“FERC”) issued a Final Rule addressing participation of energy storage resources in electricity markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).  Largely adopting the proposal issued in November 2016, the Final Rule seeks to remove barriers for energy storage participation in wholesale capacity, energy, and ancillary services markets.  The ultimate impact of FERC’s directive will be determined over the next few years as RTOs and ISOs implement the standards through their respective stakeholder processes, compliance filings, and (potentially) litigation.    FERC deferred ruling on a companion proposal addressing participation of distributed energy resources (“DERs”) in wholesale markets.  In the coming months, stakeholders should carefully consider these measures as there will continue to be opportunities to shape the final outcomes.

Summary of FERC’s Rulemaking

The final rule issued by FERC requires RTOs and ISOs to revise their tariffs to develop a participation model that better incorporates energy storage into the market, including processes that account for the physical and operational characteristics of energy storage systems. FERC mandates that such revisions should:

  • Allow energy storage resources to be eligible to participate in all capacity, energy, and ancillary services markets that the resource is technically capable of providing;

  • Ensure that storage resources under the participation model can be dispatched and establish the wholesale market clearing price as a wholesale seller and/or buyer;
  • Account for electric energy storage’s physical and operational characteristics (via bidding parameters or other means); and
  • Set a minimum size requirement for storage resources’ participation in the RTO and ISO markets of not more than 100 kW.

In addition to these market requirements, FERC also determined that electric storage resources should pay the wholesale locational marginal price (“LMP”) for electric energy that the resource buys from the RTO or ISO (presumably to charge the resource) that is then resold back into the RTO or ISO.

Notably, FERC deferred action regarding wholesale market participation of DERs, which was a significant part of the original proposal. According to FERC, additional information is needed before directing the RTOs and ISOs to further reform their market rules to accommodate DERs.  FERC has scheduled a technical conference for April 10-11, 2018, to explore the next steps for better integrating DERs into the wholesale markets.

Next Steps and Implications

FERC’s Final Rule will go into effect 90 days after publication in the Federal Register.  Parties seeking modifications of the Final Rule may request rehearing at FERC and could eventually appeal FERC’s rule in federal court.

While the long-awaited Final Rule is a significant development for the nation’s wholesale electricity markets, stakeholders will have additional opportunities to shape how the Final Rule is implemented at a regional level. Each RTO and ISO is required to file its tariff changes to comply with the Final Rule within 270 days of the publication date, and implement its tariff provisions within 365 days from the tariff filing date.  To the extent that a RTO or ISO believes that its existing rules comply with part of the Commission’s Final Rule, those RTOs and ISOs will still need to demonstrate compliance with this rulemaking.  During that time, interested parties will have an opportunity to review and comment on the compliance filings submitted by each RTO and ISO, and each RTO and ISO will likely hold listening sessions, workshops, or other stakeholder initiatives to examine how energy storage will interact with the regional differences in weather, generation mix, and state policy.  Some RTOs/ISOs, like the California Independent System Operator, Inc. and PJM Interconnection, L.L.C., have taken steps to incorporate storage into their energy and ancillary services markets, and it remains to be seen how the Final Rule will advance or modify these existing initiatives.  Given the additional stakeholder processes, it will likely take two years or more for the RTOs and ISOs to implement FERC’s directives fully.

Copyright 2018 K & L Gates


About this Author

William Keyser, KL Gates Law Firm, Energy Law Attorney

William Keyser, a partner in Washington, D.C., focuses his practice on regulatory litigation and transactions involving the nation’s electricity and capacity markets. Will represents clients before the Federal Energy Regulatory Commission (FERC), the Department of Energy, federal and state courts and state public utility commissions. His clients include electric utilities, transmission providers, independent power providers, hydro electric power producers, power marketers, public utility holding companies, and debt and equity investors. Will has represented and counseled...

Buck B. Endemann, KL Gates, energy infrastructure lawyer, remediation projects attorney

Buck Endemann is a partner in the firm’s San Francisco office, where he is a member of the energy practice group. He provides comprehensive counseling on energy, infrastructure and remediation projects, including advice on air, water and waste compliance issues, and represents clients in related litigation. 

Mr. Endemann has extensive experience on the commercial, land use, and regulatory aspects of renewable energy and infrastructure projects throughout the Western United States, with an emphasis on California. He has a particular expertise before the California Public Utilities Commission and counsels clients on California Independent System Operator (CAISO) issues. Mr. Endemann is also well-versed in the primary federal and state environmental, water, and species laws, including, CERCLA, RCRA, NEPA, CEQA, Endangered Species Act, Migratory Bird Treaty Protection Act, and Bald and Golden Eagle Protection Act. Mr. Endemann has also counseled clients in proceedings before the Los Angeles Department of Water Resources and Water Replenishment District of Southern California. 

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Mike O’Neill is an associate in the firm’s Boston office and focuses his practice on energy, infrastructure, and natural resources issues. His practice deals primarily with energy and environmental issues, particularly with respect to natural gas and oil, especially under the Natural Gas Act, liquefied natural gas (LNG), pipeline safety and compliance, natural gas tariffs, and commodities regulation. He practices primarily before the Federal Energy Regulatory Commission (“FERC”) and the Pipeline & Hazardous Material Safety Administration (“PHMSA”). He also has...

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Jim Wrathall is counsel in the firm’s Washington, D.C. office and focuses his practice on energy matters. He has particular experience in renewable and distributed energy development and financing transactions; mergers and acquisitions; regulatory and policy matters; litigation; and corporate compliance.

Mr. Wrathall served from 2007 through 2011 as Majority Senior Counsel with the U.S. Senate Environment and Public Works Committee, responsible for climate and clean energy legislation and oversight. He previously was a partner in the D.C. office...