Late last week, the Federal Energy Regulatory Commission (FERC) released a proposed rule that, if adopted, would facilitate greater participation by electric storage resources (including batteries, flywheels, pumped-hydro, etc.) and distributed energy resource (DER) aggregators in organized wholesale electric markets. The proposal would allow these resources to sell all forms of grid services that they are technically capable of providing – including bulk energy services (e.g., capacity and energy) and ancillary services (e.g., regulation and reserves).

The proposed rule (FERC Docket No. RM16-23) signals FERC’s recognition that electric storage resources and DER are continually improving and becoming increasingly competitive options in wholesale power markets. it also sends a clear message that FERC views such resources and technologies as critical to the future of the grid.

FERC’s proposal calls for regional transmission organizations (RTOs) and independent system operators (ISOs) to take the following actions:

1. Establish a "participation model" for electric storage resources, consisting of market rules that acknowledge the unique attributes and characteristics of storage, and that will allow storage to effectively participate in organized wholesale electric markets.

The electric storage "participation model" and market rules to be developed by ISOs/RTOs must:

• Ensure that electric storage resources are eligible to provide all capacity, energy and ancillary services that they are technically able to provide
• Incorporate bidding parameters that reflect the physical and operational characteristics of electric storage resources, including minimum and maximum charge times and run times
• Ensure that electric storage resources can be dispatched, set the market clearing price as both a wholesale seller and a wholesale buyer, and participate as a price taker
• Establish a minimum size requirement for participation (no more than 100 kW)
• Specify that the sale of power from the market to the electric storage resource that is subsequently resold back to the market must be at the wholesale locational marginal price

Under the proposed rule, RTOs/ISOs would have flexibility to determine qualification criteria that a resource must meet to use this model, provided such criteria remain technology-neutral. FERC further proposes that electric storage resources be eligible to provide other services, such as blackstart or primary frequency response, that are not procured through market mechanisms. It also clarifies that electric storage resources may de-rate their capacity to meet minimum run-time requirements.

2. Allow DER aggregators, including electric storage, to participate directly in organized wholesale electric markets, and accommodate their participation through market rules.

The proposed rule would require RTOs/ISOs to include DER aggregators as a type of market participant, and allow them to register their aggregations under whichever tariff rules best suit their physical and operational characteristics.

RTOs/ISOs also must facilitate participation of DER aggregations by establishing market rules that address:

• Eligibility for direct participation in the organized market through a DER aggregator
• Locational requirements for DER aggregations that are as geographically broad as possible
• Distribution factors and bidding parameters for DER aggregations
• Information and data requirements for DER aggregations, including total capacity, operating limits, ramp rate, minimum run time, and default distribution factors
• Ability to modify the list of resources in a DER aggregation without having to re-register all resources if the modification raises no safety or reliability concerns
• Metering and telemetry system requirements for provision of real-time data
• Coordination between the RTO/ISO, DER aggregator and the distribution utility to avoid reliability or safety concerns, including allowing the distribution utility to review the list of DERs in a DER aggregation
• Market participation agreements for DER aggregators that define their roles, responsibilities, and relationship with the RTO/ISO but do not limit the business models under which aggregators may operate

The proposed rule calls for RTOs/ISOs to ensure that their tariffs do not prohibit any particular type of technology, though FERC does not seek to upend existing RTO/ISO rules that explicitly prohibit certain technologies. To avoid duplicative compensation for these types of resources, FERC proposes to limit participation by sellers that are receiving compensation for the same service as part of another program. FERC did not propose minimum or maximum capacity requirements for DER aggregators. DER aggregators will be required to maintain settlement data. Unlike FERC’s demand response rule, this proposal does not make provision for states to limit DER participation.

FERC proposed that RTOs/ISOs would be required to submit their compliance filings within six months after publication of any final rule in the Federal Register, with implementation to take effect 12 months thereafter.

Comments on the proposed rule likely will be due in late January, based on its publication date in the Federal Register.