Energy Law Alert: FERC Creates New Opportunities for Energy Storage and Sales of Ancillary Services

by Stoel Rives LLP

At last week's open meeting, the Federal Energy Regulatory Commission (FERC) issued Order No. 784, which creates new opportunities for energy storage technologies to cost effectively help customers self-supply their own Regulation and Frequency Response service requirements and also opens certain ancillary services markets to all generators selling at market-based rates.

Energy Storage

Until Order No. 784, as an alternative to a transmission customer's purchasing Regulation and Frequency Response service under an Open Access Transmission Tariff (OATT), the customer could self-supply those services from resources that are comparable to those the public utility transmission provider uses to provide the same service. However, the self-supply option often lacked material financial benefit to customers, because regardless of the resources that a customer procured for self-supply, the customer was required to purchase a volume of Regulation and Frequency Response Service that was based on the mix of regulation resources used by the transmission provider in supplying that service. As a result, there was little benefit to the customer in choosing resources that were faster and/or more accurate than the transmission provider's resources. This sometimes led the customer to either over- or under-purchase its own regulation resources.

Order No. 784 now requires each transmission provider to revise Schedule 3 of its OATT to include a statement that the transmission provider will take into account the "speed and accuracy" of regulation resources in its determination of reserve requirements for Regulation and Frequency Response service -- two attributes where energy storage excels. This requirement will also apply to a transmission provider's determinations of whether a customer who self-supplies its own regulation service has made alternative comparable arrangements for such services.

As a result of the reforms in Order No. 784, a self-supplying customer may be allowed to purchase a smaller volume of regulation resources (as compared to purchasing all reserves through OATT service) by utilizing energy storage resources that are faster and/or more accurate than the transmission provider's resources. For self-supplying customers, the real impact of this opportunity will come down to a clear comparison between a self-supplying customer's regulation resources and those of the transmission provider, and the balance between the cost of the customer's resources and the savings that result from having to carry a smaller volume of reserves.

Ancillary Services

Order No. 784 also removes barriers that have prevented third parties from selling ancillary services at market-based rates to a transmission provider that is purchasing ancillary services to satisfy its own OATT requirements. Previously, FERC's Avista policy generally restricted third parties from selling ancillary services at market-based rates in these circumstances, absent a third party making the complicated showing that it lacks market power in that particular service and in that particular market. But Order No. 784 lifts many of those restrictions.

Specifically, under Order No. 784, generators with market-based rate authority for sales of energy and capacity will be permitted to sell Energy and Generator Imbalance services and Operating Reserves services to transmission providers in the same balancing authority area, or a different balancing authority area, provided those areas have adopted intra-hour scheduling for transmission service. (Transmission providers are required to begin offering intra-hour transmission scheduling on November 13, 2013, which is also the effective date for Order No. 784.)

Generators that currently have market-based rate authority for sales of energy and capacity and who desire to sell imbalance services may do so without any additional approvals from FERC. However, a generator seeking to sell Operating Reserves services at market-based rates must first explain to FERC how scheduling practices in its region support Operating Reserves. For example, 15-minute transmission schedules may not occur often enough to satisfy the timeframe in which a particular region requires a response from the resources providing Spinning Reserve Service.

In addition, generators may also sell Reactive Supply and Voltage Control service and Regulation and Frequency Response service to a public utility either (a) at rates that do not exceed the buying public utility's OATT rate for the same service, or (b) at market-based rates where the buying public utility acquires the service(s) through competitive solicitation. Order No. 784 also requires that competitive solicitations be reviewed by independent third parties where one of the parties participating in the solicitation is an affiliate of the buying public utility.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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