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APPA outlines guiding principles for storage in wholesale markets


From the June 21, 2016 issue of Public Power Daily

Originally published June 20, 2016

By Paul Ciampoli
News Director

As the Federal Energy Regulatory Commission considers possible barriers to participation by electric storage resources in wholesale power markets, the commission should keep in mind several guiding principles including the need to protect against double-recovery of storage costs and cross-subsidies, the American Public Power Association recently said.

APPA’s June 6 comments were filed in response to a request by FERC’s Office of Energy Policy and Innovation for comments on possible barriers to participation by electric storage resources in the wholesale electric markets of regional transmission organizations and independent system operators (AD16-20-000).

APPA said it welcomes FERC’s Office of Energy Policy and Innovation’s attention to whether the markets rules of rules of the RTOs and ISOs pose undue barriers to participation by electric storage resources in regional wholesale energy markets.

“APPA has long supported Commission policies that reduce barriers to entry and increase competition in wholesale electricity markets with the goal of lowering the wholesale costs borne by load-serving entities. Allowing electric storage resources to interconnect and integrate with the interstate transmission grid holds the promise of increasing competition, lowering costs, and improving service quality and reliability,” the association said.

The filing also pointed out that while electric storage technology continues to evolve, public power utilities across the country have completed or are pursuing a wide variety of innovative storage projects that will benefit their local communities. APPA lists several specific examples of those projects.

As FERC considers the responses and comments it receives in the proceeding and what remedies, if any, it may propose, the association believes that several key principles should guide the discussion.

First, APPA said, the participation of electric storage resources in RTO and ISO wholesale electric markets is a means to an end: better service and lower costs to consumers.

The notice seeking comments frames the question as “whether barriers exist to the participation of electric storage resources in the capacity, energy, and ancillary services markets in the RTOs and ISOs potentially leading to unjust and unreasonable wholesale rates,” APPA noted.

“The last clause is important: the goal of wholesale market rules is not to maximize, let alone subsidize, market penetration by energy storage resources, but to benefit consumers,” the association told FERC.

Don’t undercut existing storage projects, operations, APPA says

Second, wholesale market rules and FERC policy should not undercut existing energy storage projects and operations, APPA said in its comments.

Besides investing in new electric storage projects, public power systems and other utilities continue to use other, well-established energy storage technologies, such as hydroelectric pumped-storage projects and controllable water heaters, the association pointed out.

“New wholesale market rules should not frustrate existing energy storage operations or strand existing storage assets. To the contrary, the commission should strive to allow public power systems and other load-serving entities the flexibility to continue and expand their existing energy storage programs, while investing in new electric storage technologies,” APPA said.

A related concern is that a constant churn of new market rules may have the unintended consequence of creating so much regulatory uncertainty that it stifles investment and innovation, the association went on to say.

A third principle laid out by APPA is that wholesale market rules and commission policy should not undercut the ability of state and local authorities to regulate existing and future electric storage projects, interconnected at the distribution level or behind a customer meter, that provide retail- or distribution-level services.

“Many distribution utilities, including public power systems, are examining how electric storage facilities might provide benefits to their communities—backup energy; enhanced power quality; peak shaving; increased integration of intermittent distributed energy resources; and avoidance of distribution-system upgrades,” APPA said in its comments.

Electric storage facilities potentially can provide multiple services and benefits to retail and distribution customers, it noted. “Wholesale market rules should not frustrate these important local uses of electric storage facilities.” This issue, APPA said, is particularly important with respect to distribution-connected and aggregated electric storage resources.

APPA also said that FERC policy should recognize the need to protect against double-recovery of storage costs and cross-subsidies.

“Depending on where they are located and how they are operated, electric storage facilities may serve different or multiple functions—transmission, generation, or ancillary services—and may provide multiple benefits and have multiple revenue streams,” the association said.

In particular, they may end up simultaneously earning revenues under market-based rates in the wholesale electricity markets of the RTOs and ISOs and under cost-based rates outside those markets, APPA pointed out to FERC.

“Simply stated, electric storage project owners should not be allowed to recover the full costs of their facilities in cost-based rates while also pocketing additional revenues through market-based rates,” APPA argued.

The possible issues include not only over-recovery of costs but also cross-subsidization of one class of customers (e.g., retail) by another class (e.g., wholesale), the association went on to say.

“These problems can be addressed through appropriate crediting mechanisms and other ratemaking and accounting measures intended to make sure that consumers do not pay twice for the same facilities or that some customers do not subsidize service to others. But the potential problem should not be ignored,” APPA said.

It noted that FERC has already taken an important step in preventing such outcomes by adopting in Order No. 784 reforms to the commission’s accounting and reporting regulations to add new electric plant and operation and maintenance expense accounts for energy storage devices.

These reforms are intended to ensure that the activities and costs of new energy storage operations are sufficiently transparent to allow effective oversight. “APPA supported this step for those reasons,” the public power group said, adding that the need for such oversight will only grow as more electric storage resources participate in RTO and ISO wholesale markets.

APPA comments on specific subjects raised by FERC staff

APPA also used its filing to comment on the following subjects raised by commission staff in the notice: (1) the eligibility of electric storage resources to be market participants; (2) qualification criteria and performance requirements, (3) bid parameters for electric storage resources, (4) distribution-connected and aggregated electric storage resources; and (5) the question of when electric storage resources are receiving electricity.

With respect to the eligibility of electric storage resources to be market participants, the association said it supports allowing electric storage resources to be eligible to participate in the wholesale electric markets of RTOs and ISOs, provided that reliability is maintained and that their participation benefits consumers with improved service or lower costs.

APPA went on to say that eligibility to participate does not appear to be a significant problem, although some clarification of some market rules may be warranted.

As for qualification criteria and performance requirements, APPA believes that reasonable qualification criteria and performance requirements are needed for electric storage resources, just as they are for any other kind of resource in wholesale electric markets. “Minimum technical and performance requirements are not per se unreasonable but instead must be examined on a case-by-case basis,” APPA told FERC.

Several other parties filed responses to the request for comments in the proceeding including other power industry associations, energy storage developers and state utility regulators.

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