FERC and California Take Steps to Facilitate Markets for Electric Energy Storage

by Akin Gump Strauss Hauer & Feld LLP

On July 28, 2013, the Federal Energy Regulatory Commission (FERC) issued Order 784, which opens new markets for electric energy storage effective in November 2013.1  Order 784 reformed FERC’s so-called “Avista Rule,” which restricts third-party sales of ancillary services at market-based rates.2  In particular, a third party may not sell ancillary services at market-based rates to a public utility that is purchasing ancillary services to satisfy its own OATT requirements to offer ancillary services to its own customers. In order to overcome this restriction, a potential seller must provide a market power study demonstrating a lack of market power for the particular ancillary service in the particular geographic market. 

Under Order 784, resources with market-based rate authority to sell energy and capacity can also sell imbalance services and operator reserve services (spinning and supplemental reserve services) if there is an intra-hour scheduling and sales mechanism for that area.  As long as the public utility transmission provider allows intra-hour sales in its tariff, storage service providers will be able to provide their storage services under the same market-based rate authority that applies to sellers of energy and capacity.  In fact, sellers that already have market-based rate authority will be able to apply that authority to their storage service sales as well.

FERC is also requiring more precise reporting of the speed and accuracy of regulation resources and allowing greater flexibility to purchase smaller amounts of those services.   The market will therefore reward technologies that are faster, more accurate and more flexible.  While Order 784 did not change the existing regime for regulation and frequency response services, FERC has left open the record for future evaluation, which is likely to happen.

California has also been aggressively pursuing its own energy storage initiatives.  Earlier this year, the California Public Utilities Commission (CPUC) directed Southern California Edison to include 50 MW of energy storage in its West Los Angeles area resource procurement plan.3  Following California’s landmark energy storage statute known as AB 2514, the California PUC is expected to release broader, multi-year storage procurement targets for all of the state's investor-owned utilities this fall.4  All indications point to those targets being applicable at the transmission level, the distribution level and the level of the customer site.  Third-party storage arrangements would be procured using a similar reverse auction mechanism as the RAM process used for the state’s 3MW - 20MW renewable energy projects.

These developments in California and at the federal level, which rely on market signaling, indicate the maturation of energy storage as an emerging player in the energy markets.  Not long ago, energy storage’s greatest challenge was technological viability -- it was simply impossible or too expensive to store electric power except by hydro pump storage.  Scientific breakthroughs have led to very many storage technologies with different services to offer the grid (the California PUC has identified 20 different potential uses for energy storage5).  This fall is shaping up to be a ground breaking period for storage that will see the lifting of barriers to new market entrants and the establishment of new market mechanisms and procurement targets.

1 http://www.ferc.gov/whats-new/comm-meet/2013/071813/E-22.pdf

2 Third-party sales of ancillary services at market-based rates are permitted, except in the following three situations: (1) a sale to an RTO or ISO that does not self-supply ancillary services; (2) a sale to a traditional, franchised public utility affiliated with a third-party supplier, or a sale where the underlying transmission service is on the system of the public utility affiliated with the third-party supplier; or (3) a sale to a public utility that is purchasing ancillary services to satisfy its tariff requirements to provide ancillary services to its customers.

3 http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M050/K374/50374520.PDF

4 http://www.cpuc.ca.gov/PUC/energy/electric/storage.htm

5 CPUC Energy Storage Framework Staff Proposal, April 3, 2012, p. 20.


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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