[Federal Register Volume 75, Number 122 (Friday, June 25, 2010)]
[Notices]
[Pages 36381-36384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15450]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD10-13-000]


Office of Energy Policy and Innovation; Request for Comments 
Regarding Rates, Accounting and Financial Reporting for New Electric 
Storage Technologies

June 11, 2010.

Dear Reader:

    Pursuant to authority delegated to the Director, Office of Energy 
Policy and Innovation, under 18 CFR 375.315, comments are requested in 
the above-referenced docket regarding rates, accounting and financial 
reporting associated with services provided by electric storage 
technologies.\1\
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    \1\ The statements herein do not necessarily reflect the views 
of the Commission.
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    Commission staff has been considering the growing interest in the 
use of non-traditional technologies to help meet the Nation's 
electricity needs. In particular, newer storage technologies like 
flywheels and chemical batteries have recently achieved technological 
maturity and are well into successful pilot stages and, in some cases, 
commercial operation. The roles of traditional generation, 
transmission, and distribution assets within the electric system are 
well understood and each has set method(s) of rate recovery, accounting 
and financial reporting. However, the same is not necessarily true of 
electric storage.
    Under appropriate circumstances, storage can act like any of the 
traditional asset categories, and also like load. The only electricity 
storage technology that has been widely adopted to date, pumped storage 
hydropower, was generally built at a time when the majority of utility 
assets were constructed by vertically integrated load-serving utilities 
at retail ratepayer expense. In many parts of the country today, 
entities other than vertically integrated load-serving utilities have 
expressed interest in building and owning electric storage assets of 
varying sizes. Suggested business models range from traditional cost-
of-service rates to competing in wholesale commodity trading; some are 
considering the possibility of multiple revenue streams which may blend 
both cost-of-service recovery for some costs with other costs being at 
risk in competitive wholesale market transactions. For all of these 
reasons, there is little case precedent to guide industry and a 
divergence in practice concerning how to develop rates and categorize 
electric storage costs for rate purposes.
    Further, the Commission's accounting \2\ and financial reporting 
requirements \3\ currently do not contain specific accounting, 
functional classification, and related FERC Form No. 1 reporting 
requirements for new storage technologies. Under a cost-of-service 
ratemaking methodology, it is critical for companies to accurately and 
uniformly account and report financial information and data to 
facilitate the development and monitoring of rates. Without this 
information, it would be difficult for the Commission and others to 
determine the costs related to new storage technologies for cost-of-
service rate purposes.
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    \2\ 18 CFR Part 101 (2009).
    \3\ 18 CFR Part 141 (2009).
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    In order to better understand the various ways electric storage can 
be used, where each of those uses would fall within established 
jurisdictional boundaries, and the appropriate rate treatment, 
accounting classification, and reporting requirements for those uses, 
Commission staff seeks comment on the attached document regarding 
alternatives for categorizing and compensating storage services, and in 
particular ideas on how best to develop rate policies that accommodate 
the flexibility of storage, consistent with the Federal Power Act.\4\ 
In addition, staff welcomes comments about any other aspects of these 
storage issues not specifically raised in the attachment.
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    \4\ 16 U.S.C. 791a-825r (2006).
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    Persons wishing to comment on the matters discussed herein should 
submit comments to the Commission no later than 45 days after the 
publication of this notice in the Federal Register.

[[Page 36382]]

Comments should reference Docket No. AD10-13-000. For further 
information, please contact:
    Rahim Amerkhail (Technical Information), Office of Energy Policy 
and Innovation, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-8266, [email protected]. 
    Christopher Handy (Accounting Information), Office of Enforcement, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6496, [email protected].

    Thank you.
Jamie Simler,
Director, Office of Energy Policy & Innovation.

Attachment--Potential Approaches to Categorizing Storage Service for 
Compensation Purposes \5\
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    \5\ The statements herein do not necessarily reflect the views 
of the Commission.
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    To determine what, if any, Commission-jurisdictional rate structure 
is appropriate for a given electric storage asset, staff has attempted 
to identify the chief electric system uses of storage. Staff believes 
that the chief electric storage uses implicating Commission 
jurisdiction are: (1) Maintaining service to unbundled transmission 
customers; (2) enhancing the value of generation; and (3) providing 
ancillary services.\6\ Below staff reviews compensation structures 
available for these uses of storage, as well as the possibility of 
creating a stand-alone contract storage service. Staff seeks comment on 
the ideas contained throughout and in particular on the following 
issues:
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    \6\ These uses are exclusive of the service storage may provide 
to retail load.
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     The circumstances in which a storage provider can be 
classified and receive compensation as a transmission asset.
     The circumstances, if any, under which a storage project 
should be permitted to receive compensation as transmission and also 
receive compensation for enhancing the value of merchant generation or 
providing ancillary services.\7\
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    \7\ Some new technologies have the potential to respond to 
frequency deviations in the transmission system faster than other 
(traditional generation) resources. At the May 26, 2010 technical 
conference in Docket No. AD10-11-000, the Commission staff explored 
issues relating to frequency compensation in the organized wholesale 
power markets, including whether there are benefits to be gained 
from linking compensation for frequency regulation service to the 
quality of the service provided.
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     Whether creation of a stand-alone contract storage service 
should be considered and in particular, the possibility that a storage 
provider would provide only the service of electricity storage and 
leave it to its customers to determine how to use their contracted 
share of the storage device.
     Whether new accounting and reporting requirements need to 
be created in order to facilitate cost of service ratemaking for these 
new storage technologies.

I. The Uses of and Rate Treatment for Storage Facilities

1. Maintaining Service to Unbundled Transmission Customers
    Some storage technologies can be used to support unbundled 
transmission service by supplying reactive power or possibly by acting 
as a virtual replacement transmission circuit in the event of a 
transmission line trip (by releasing energy to replace the transmitted 
energy that was cut-off by the line trip). The Commission recently 
clarified in response to a request by Western Grid that batteries used 
in this fashion are eligible for potential cost recovery through the 
California ISO transmission access charge, provided certain additional 
protections were in place as described in that order.\8\ Accordingly, 
cost recovery through a jurisdictional transmission rate would be 
permissible under certain circumstances.
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    \8\ Western Grid Development, LLC, 130 FERC ] 61,056, at P 43 
(2010) (Western Grid).
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    However, an identical storage facility could be installed on the 
distribution grid to similarly provide voltage support or serve as a 
virtual replacement distribution circuit. In that case, the storage 
asset could be considered to provide non-jurisdictional distribution 
service, leading to cost recovery through retail rates.
2. Enhancing the Value of Generation
    Another possible use of a storage facility is to shift generation 
output from one period to another. Again, the appropriate rate 
treatment for a given storage facility will vary with its use. On the 
one hand, a generation owner could build a storage facility to enhance 
the market value of its generation by shifting off-peak generation to 
more lucrative peak periods. If the purpose is to enhance the market 
value of generation in this way, staff believes that storage facility 
costs should be recovered through the generator's wholesale energy 
charges alone (i.e., no separate storage charge).
    On the other hand, a load-serving entity could install the same 
type of storage facility to shift generation output used to serve 
retail customers; for example to store excess off-peak wind generation 
for use in serving retail load later in the day. In that case, staff 
would view this as using storage to serve a non-jurisdictional retail 
purpose so that no Commission-jurisdictional cost recovery would be 
permissible. Instead, the load-serving entity would likely seek to 
include the cost of this storage facility in its bundled retail rates.
    However, a load-serving entity may also use such storage facility 
to reduce demand as part of a wholesale market demand response program. 
In that case, the storage resource could seek to be compensated as a 
demand response resource.
 3. Provision of Ancillary Services
    Storage facilities also can be used to provide ancillary services, 
priced at cost or market consistent with the Commission's current rules 
and regulations. A storage provider wishing to provide these services 
would appear to enjoy all of the same options for doing so as are 
currently available to any other independent power marketer.

II. Using Storage Facilities for Multiple Purposes

    Distinguishing between the potential uses of electric storage 
facilities is helpful to identify the potential ratemaking treatment 
that could apply in varying circumstances. In reality, however, a 
single storage facility can often be used for multiple purposes, which 
complicates cost recovery issues.
    For example, a transmission provider might be interested in 
building pumped storage to address issues related to variable energy 
resource integration. Being a transmission provider, it could use the 
storage facility as a transmission asset to provide voltage support or 
as a virtual replacement transmission circuit. On that basis, the 
transmission provider may seek to recover the asset's costs through 
Commission-jurisdictional transmission rates. The transmission provider 
also may be able to use the storage facility to firm up output from 
variable energy resources used to serve retail load. This latter 
function would be equivalent to shifting variable generation from one 
period to another in order to maintain deliverability to retail 
customers, implicating cost recovery under retail rates. Moreover, the 
same storage facility could be used to provide ancillary services, the 
costs of which would be recovered through the transmission provider's 
Commission-approved rates.
    Given that storage facilities can be physically capable of 
providing multiple services, it may be reasonable to contemplate some 
appropriate sharing of the total cost of the facilities

[[Page 36383]]

between Commission-jurisdictional and/or retail rates. It should be 
noted that permitting storage performing transmission functions to 
recover costs through transmission rates raises certain additional 
issues in the Commission context. Some of these issues have been 
discussed in prior Commission orders.\9\ Staff seeks comment on the 
following criteria that could be used to determine the mechanisms by 
which a storage facility can recover its costs, including when the 
facility is being used for multiple purposes:
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    \9\ See Western Grid; Nevada Hydro Co., 122 FERC ] 61,272 (2008) 
(Nevada Hydro).
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    (1) Intended use and capability of the facility.
    Recovery in transmission rates could be conditioned on a 
demonstration that the intended use of the storage asset is for 
transmission purposes, such as to support the transmission system 
through either voltage support or providing energy to address 
transmission line instability or trips, and that the asset is capable 
of performing the specified function. Commission staff seeks comment on 
an ``intended use and capabilities'' standard, and whether it creates 
uncertainty. Would a good option be to rely on transmission planning 
processes to make such a determination? Also, the concept of a storage 
asset supporting service to transmission customers by providing energy 
to address transmission line instability or trips seems to rely on the 
idea that maintaining service to transmission customer ``load'' is 
different from maintaining service to non-jurisdictional retail load. 
Is there enough difference between un-bundled transmission ``load'' and 
retail load to justify identifying this as a separate, jurisdictional 
use of storage rather than a non-jurisdictional retail use?
    (2) Commitment to address cross-subsidization and competitive 
concerns.
    Unlike traditional transmission assets, electric storage serving a 
transmission function and receiving cost-based transmission rates would 
also be physically capable of providing ancillary services or otherwise 
enhancing the value of generation in wholesale energy markets. 
Accordingly, potential cross-subsidization, competition, and 
discrimination issues could arise if the storage participated in those 
markets at the same time it is receiving full cost-recovery through 
transmission rates. Although a commitment not to participate in 
wholesale energy markets would address these concerns, staff seeks 
comment on whether there are other ways to address these concerns such 
that the storage provider can fully utilize the capabilities of its 
storage device?
    There is some precedent in retail ratemaking for permitting 
guaranteed cost recovery (in bundled retail rates) while also 
permitting profit-seeking off-system sales in a competitive 
environment. Retail regulators at times have addressed this issue by 
requiring a utility making off-system sales from generation built at 
retail ratepayer expense to credit to retail rates at least the cost of 
such off-system sales, and possibly some share of the profit as well. 
The Commission imposed a similar requirement in Pacific Gas & Electric 
Co., where it approved a revenue sharing ratemaking treatment for 
secondary uses of jurisdictional assets, such as leases for space on 
transmission facilities for telecommunications and the use of 
transmission tower licenses for wireless antennas.\10\ While those 
measures could address cross-subsidization issues, staff seeks comment 
on whether this type of structure would fully address wholesale 
discrimination and competitive concerns in the electric storage 
context.
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    \10\ See Pacific Gas & Electric Co., 106 FERC ] 61,058 (2004); 
Pacific Gas & Electric Co., 90 FERC ] 61,314 (2000).
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    (3) Maintaining the independence of market operators.
    The Commission has long held that a Regional Transmission 
Organization (RTO) or Independent System Operator (ISO) must be 
independent of its market participants. ISO/RTO operation of 
traditional transmission assets does not jeopardize the ISO/RTO's 
independence from energy market participants because such assets 
generally cannot participate in the energy market. As noted above 
however, a storage asset would remain physically capable of 
participating in the energy market. Moreover, it might need to transact 
in the energy market in order to charge and discharge for purposes of 
serving its transmission function. Can an ISO/RTO's ``operation'' of a 
storage facility be deemed to include responsibility for charging and 
discharging the storage facility through energy market transactions 
without jeopardizing its independence, or is this only a concern if the 
ISO/RTO is essentially left taking title to the resulting stored power, 
which was one of the main concerns with the proposal in Nevada Hydro? 
\11\ Do any existing ISO/RTO practices for implementing special 
dispatch procedures for certain resources (e.g., PJM Interconnection's 
pool-scheduling procedures for hydro units) convey some level of 
control or do they simply implement the resource owner's instructions 
for dispatch in a manner that, while more detailed, is essentially 
similar to how traditional generators are dispatched based on bid and 
operating parameters? Could similar special procedures be developed for 
storage technologies more generally?
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    \11\ Nevada Hydro, 122 FERC ] 61,272 at P 82.
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    (4) Application of the Avista Policy.
    The Commission has adopted a policy permitting third-party 
provision of ancillary services at market-based rates with one key 
exception, described in the Avista orders.\12\ Specifically, third-
party provision of ancillary services at market-based rates is 
prohibited to a transmission provider seeking to meet its own ancillary 
service requirements. This exception was meant to ensure a competitive 
market for such ancillary services by maintaining the existence of a 
cost-based utility back-stop for such services. Subsequently, however, 
utility industry restructuring sometimes led to situations where the 
incumbent utility divested its generation assets and thus needed to 
purchase ancillary services from third-parties. As a result, the 
Commission began authorizing case-by-case waivers of this prohibition, 
but otherwise left it in place.
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    \12\ Avista Corporation, 87 FERC ] 61,223, order on reh'g, 89 
FERC ] 61,136 (1999).
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    This prohibition on third-party provision of ancillary services at 
market-based rates to transmission providers seeking to meet their own 
ancillary services requirements may pose an undue barrier to the 
development of storage facilities and other resources capable of 
providing ancillary services. Staff seeks comment on whether this 
prohibition with case-by-case waiver remains appropriate and, if not, 
ideas for revising the policy.

III. New Contract Storage Service

    Most interstate natural gas storage facilities are operated as 
transmission facilities and offer open access storage services to 
customers who contract for that service; the storage facility operator 
may not buy and sell the gas commodity at that location. Contract 
storage service is offered at either cost-based or negotiated rates for 
the service of storing customers' gas and only those storage customers 
buy and sell the gas commodity itself (storage customers hold ``title'' 
to the gas held in storage). Generally, the customer pays a reservation 
fee and a storage fee based on usage with penalties for over and under 
scheduling, though this may not always be the case with negotiated 
rates. Either way, the time arbitrage gains on the stored gas are the 
profit or loss for

[[Page 36384]]

the customer, not the gas storage operator.
    This model has not yet been adopted for electric storage facilities 
but may provide an attractive alternative business model for some 
storage operators. In this model, the storage operator would operate 
and maintain the electricity storage facility at its customers' 
direction and never take title to the energy stored at the facility. 
Thus, each storage customer would decide how to use its purchased 
storage capacity. If, for example, a given storage customer has market-
based rate authority, then it could use its contracted-for storage 
capacity to arbitrage differences in peak and off-peak energy prices. 
The Commission would review the storage provider's cost-based rates for 
the stand-alone service of storage, or its authority to negotiate 
market-based rates for that service, separately from the review of the 
storage customer's independent authority to make power sales using the 
stored energy (or any other kind of energy).
    Alternatively, if the storage facility happens to be favorably 
located to address a transmission reliability issue, by providing 
voltage support or serving as a virtual replacement transmission 
circuit, then to address the issue the local transmission owner could 
contract with the storage facility to provide this function with all or 
part of its storage capacity. Again, since the storage provider would 
provide storage service only at the customer's direction and under a 
dedicated storage rate, the particular use to which each customer puts 
its contracted-for storage capacity should not play a role in the 
Commission's review of the stand-alone storage rate. However the 
storage customer, in this example a transmission owner, would still 
need to make its own separate filing to justify transmission rate 
recovery for the cost of its storage contract.
    The primary potential barrier to this type of business model 
appears to be financial. An independent contract storage provider might 
need to sign up long-term customers in advance under bilateral 
contracts, perhaps following an open season, in order to secure 
financing for construction of the facility. Storage facilities with 
large up-front capital costs, like pumped storage, may have difficulty 
attracting sufficient customer interest during the crucial pre-
construction financing phase. However, storage service from newer 
storage technologies with lower up-front capital costs may be easier to 
finance and market in this way.
    We seek comment on the practicality and usefulness of this type of 
stand-alone contract storage service.

IV. Accounting and Financial Reporting for New Storage Technologies

    The Commission's existing accounting and reporting requirements 
classify utility plant costs under the following accounts: (1) 
Intangible, (2) steam, (3) nuclear, (4) hydraulic, (5) other 
production, (6) transmission, (7) distribution, (8) regional 
transmission and market operation, and (9) general plant. These 
functional classifications have associated operation and maintenance 
expense accounts to record expenses associated with the plant assets. 
However, there are no specific plant asset accounts or related 
operation and maintenance expense accounts to record costs associated 
with new storage technologies such as flywheels and chemical batteries. 
Consequently, Staff seeks comments on the following matters:
    1. What new plant functions, if any, should be created to 
accommodate the above-mentioned technologies?
    2. What new plant or new equipment accounts and related reporting 
requirements, if any, need to be created to facilitate cost of service 
or other rate policies for the above-mentioned technologies?
    3. What new operations and maintenance expense accounts and related 
reporting requirements, if any, need to be created to facilitate cost 
of service or other rate policies for the above-mentioned technologies?
    4. What new revenue accounts and related reporting requirements, if 
any, need to be created to facilitate cost of service or other rate 
policies for the above-mentioned technologies?
    5. What type of financial and non-financial data, if any, and what 
level of detail need to be reported in the FERC Form No. 1 for the 
above-mentioned technologies and how would the Commission and others 
use this information for developing and monitoring cost-based rates?

[FR Doc. 2010-15450 Filed 6-24-10; 8:45 am]
BILLING CODE 6717-01-P