[Federal Register Volume 82, Number 23 (Monday, February 6, 2017)]
[Rules and Regulations]
[Pages 9343-9348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02421]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. PL17-2-000]


Utilization of Electric Storage Resources for Multiple Services 
When Receiving Cost-Based Rate Recovery

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Policy statement.

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SUMMARY: The Commission issues this policy statement to clarify its 
precedent and provide guidance on the ability of electric storage 
resources to provide services at and seek to recover their costs 
through both cost-based and market-based rates concurrently. We are 
mindful that, by providing electric storage resources the opportunity 
to receive cost-based rate recovery concurrently with other revenue 
from market-based services (e.g., through organized wholesale electric 
markets), there can be implementation details that may need to be 
addressed, including protections against the potential for double-
recovery of costs from cost-based ratepayers, adverse market impacts, 
and regional transmission organization (RTO)/independent system 
operator (ISO) independence from market participants. The Commission 
provides guidance in this policy statement as to how electric storage 
resources seeking to receive cost-based rate recovery for certain 
services (such as transmission or grid support services or to address 
other needs identified by an RTO/ISO) while also receiving market-based 
revenues for providing separate market-based rate services could 
address these concerns and also clarifies some past precedent on these 
issues.

DATES: Effective Date: This policy statement will become effective 
February 6, 2017.

[[Page 9344]]


FOR FURTHER INFORMATION 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].

Heidi Nielsen (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
DC 20426, (202) 502-8435, [email protected].

SUPPLEMENTARY INFORMATION:

Policy Statement

(Issued January 19, 2017)

    1. The Commission issues this policy statement to clarify its 
precedent and provide guidance on the ability of electric storage 
resources to provide services at and seek to recover their costs 
through both cost-based and market-based rates concurrently. We are 
mindful that, by providing electric storage resources the opportunity 
to receive cost-based rate recovery concurrently with other revenue 
from market-based services (e.g., through organized wholesale electric 
markets), there can be implementation details that may need to be 
addressed, including protections against the potential for double-
recovery of costs from cost-based ratepayers, adverse market impacts, 
and regional transmission organization (RTO)/independent system 
operator (ISO) independence from market participants. The Commission 
provides guidance in this policy statement as to how electric storage 
resources seeking to receive cost-based rate recovery for certain 
services (such as transmission or grid support services or to address 
other needs identified by an RTO/ISO) while also receiving market-based 
revenues for providing separate market-based rate services could 
address these concerns and also clarifies some past precedent on these 
issues.

I. Background

    2. Electric storage resources have the ability both to charge and 
discharge electricity and can provide a variety of grid services to 
multiple entities (e.g., RTO/ISOs, transmission and distribution 
utilities) or in multiple markets. In addition, these resources are 
able to provide multiple services almost instantaneously and can switch 
from providing one service to another almost instantaneously. As such, 
electric storage resources may fit into one or more of the traditional 
asset functions of generation, transmission, and distribution. Enabling 
electric storage resources to provide multiple services (including both 
cost-based and market-based services) ensures that the full 
capabilities of these resources can be realized, thereby maximizing 
their efficiency and value for the system and to consumers. On November 
9, 2016, Commission staff led a technical conference to discuss the 
utilization of electric storage resources as transmission assets 
compensated through transmission rates, for grid support services that 
are compensated in other ways, and for multiple services.\1\ On 
November 14, 2016, in that same proceeding, the Commission issued a 
notice inviting post-technical conference comments.\2\ The Commission 
received more than 30 comments from interested parties in response to 
that notice. The discussions at the technical conference and the 
comments highlight the different ways in which industry is considering 
using electric storage resources and have prompted us to issue this 
policy statement to clarify our precedent and provide guidance 
regarding electric storage resources seeking to receive cost-based rate 
recovery for certain services while also receiving market-based 
revenues for providing market-based rate services.
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    \1\ Utilization In the Organized Markets of Electric Storage 
Resources as Transmission Assets Compensated Through Transmission 
Rates, for Grid Support Services Compensated in Other Ways, and for 
Multiple Services, Notice of Technical Conference, Docket No. AD16-
25-000 (issued Sept. 30, 2016). The Commission issued supplemental 
notices on November 1, 2016, and November 7, 2016.
    \2\ Utilization In the Organized Markets of Electric Storage 
Resources as Transmission Assets Compensated Through Transmission 
Rates, for Grid Support Services Compensated in Other Ways, and for 
Multiple Services, Notice Inviting Post-Technical Conference 
Comments, Docket No. AD16-25-000 (issued Nov. 14, 2016).
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    3. The Commission previously has discussed such concerns in Nevada 
Hydro \3\ and Western Grid.\4\ In Nevada Hydro, the Commission found 
that it would not be appropriate, as requested by The Nevada Hydro 
Company, Inc.'s (Nevada Hydro), to require the California Independent 
System Operator Corporation (CAISO) to assume ``any level of 
operational control'' over the proposed Lake Elsinore Advanced Pumped 
Storage project (LEAPS) or functionalize it as transmission for rate 
recovery purposes.\5\ Nevada Hydro had proposed that LEAPS be treated 
as a transmission facility under CAISO's operational control.\6\ 
According to Nevada Hydro, CAISO would serve its ancillary services 
needs consistently from LEAPS, and Nevada Hydro would consistently bid 
LEAPS' stored energy into the market at a price of zero dollars.\7\ 
Nevada Hydro asserted that it had carefully crafted its proposal to 
avoid market distortions. CAISO argued that its independence would be 
compromised, as it would have to decide when LEAPS would operate, how 
much energy it would produce, and when it would operate the pumps to 
store water for future generation.\8\ The Commission stated that the 
purpose of CAISO's transmission access charge (TAC) is to recover the 
costs of transmission facilities under the control of CAISO, not to 
recover the costs of bundled services.\9\ The Commission noted that it 
was denying the request that LEAPS be placed under CAISO's operational 
control. The Commission stated that, for these reasons, LEAPS' costs 
were not properly recovered through the TAC. The Commission added that, 
absent information that justified treating LEAPS differently from the 
existing pumped hydro facilities in CAISO's footprint, allowing LEAPS 
to receive a guaranteed revenue stream through CAISO's TAC would create 
an undue preference for LEAPS compared to these other similarly 
situated pumped hydro generators. Therefore, the Commission rejected 
Nevada Hydro's proposal to include the costs of LEAPS in CAISO's 
rolled-in transmission charge.
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    \3\ The Nev. Hydro Co. Inc., 122 FERC ] 61,272 (2008) (Nevada 
Hydro).
    \4\ Western Grid Dev., LLC, 130 FERC ] 61,056 (Western Grid), 
reh'g denied, 133 FERC ] 61,029 (2010).
    \5\ Nevada Hydro, 122 FERC ] 61,272 at PP 1, 82-83. LEAPS was 
intended to be a pumped hydro storage facility with an installed 
generating capacity of 500 MW and a pumping capacity of 600 MW. Id. 
P 3.
    \6\ Id. P 5.
    \7\ Id. P 74.
    \8\ Id. P 81.
    \9\ Id. P 83.
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    4. In Western Grid, the Commission accepted Western Grid's proposal 
to provide cost-based rate recovery for electric storage resources 
through transmission rates based on the proposed uses (voltage support 
and thermal overload protection for relevant transmission facilities) 
and on other conditions Western Grid proposed, including a commitment 
to forego any sales into CAISO's organized wholesale electric 
markets.\10\ Western Grid asserted that its electric storage resources 
would be used to solve transmission reliability problems

[[Page 9345]]

identified by CAISO,\11\ at significantly lower cost than traditional 
transmission upgrade methods.\12\ As relevant here, in Western Grid, 
the Commission found that, based on the specific circumstances and 
characteristics of the Western Grid Projects, they would be wholesale 
transmission facilities subject to the Commission's jurisdiction if 
operated as Western Grid described.\13\
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    \10\ Western Grid, 130 FERC ] 61,056 at PP 18-24, 45-46. The 
proposed electric storage projects (Western Grid Projects) were to 
be composed of sodium sulfur batteries that ranged in size from 10 
to 50 MW. Id. P 4.
    \11\ See Western Grid November 20, 2009 Petition, Docket No. 
EL10-19-000, at 4.
    \12\ Id. at 6.
    \13\ Western Grid, 130 FERC ] 61,056 at P 43.
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    5. The Commission explained that Western Grid proposed to operate 
the Western Grid Projects under the direction of CAISO in a manner 
similar to the way in which high-voltage wholesale transmission 
facilities are operated by participating transmission owners under the 
direction of CAISO (e.g., capacitors that address voltage issues or 
alternate transmission circuits that address line overloads or 
trips).\14\ The Commission noted that Western Grid stated that it would 
only operate the Western Grid Projects to address voltage support and 
thermal overload protection needs at CAISO's direction and that CAISO's 
involvement was consistent with CAISO's operating obligations for 
transmission assets. Western Grid also stated that it would be 
responsible for all operating functions, including maintenance, 
communication, and system emergencies. The Commission noted that, most 
importantly, Western Grid would be responsible for energizing (i.e., 
maintaining the state-of-charge on) the Western Grid Projects needed to 
address voltage support and thermal overload protection at CAISO's 
direction. The Commission found that, because of this, the independence 
of CAISO would be maintained because CAISO would not be responsible for 
buying power to energize the Western Grid Projects or physically 
operating the batteries when they were being charged and discharged. 
The Commission added that, importantly, Western Grid would operate the 
Western Grid Projects, at CAISO's direction, only as transmission 
assets.
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    \14\ Id. P 45.
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    6. The Commission noted that, just like other transmission assets, 
and unlike traditional generation assets, Western Grid proposed that it 
would not retain revenues outside of the TAC and would credit any 
revenues it might accrue as a result of charging and discharging the 
Western Grid Projects through its participating transmission owner 
tariff to transmission customers.\15\ The Commission further noted, in 
particular, that Western Grid proposed that it would not arbitrage 
wholesale energy market prices. The Commission found that, based on the 
facts as presented by Western Grid, the Western Grid Projects would 
function as transmission.
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    \15\ Id. P 46.
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    7. The Commission also found that the Western Grid Projects would 
not undercut bids by other market participants because Western Grid 
would not be offering the Western Grid Projects into the CAISO markets 
and the Western Grid Projects would only be used to provide voltage 
support and to address thermal overload situations at the CAISO's 
instruction.\16\
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    \16\ See id. P 51.
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    8. The Commission also found that the facts and circumstances in 
Western Grid were sufficiently distinguishable from those in Nevada 
Hydro to justify a different result.\17\ The Commission explained that 
an important issue that arose in Nevada Hydro--and that protesters 
echoed with respect to the Western Grid Projects--involved the question 
of whether CAISO's operation of the LEAPS storage facility would render 
it an energy market participant.\18\ The Commission found that Western 
Grid's proposal eliminated that concern because (1) Western Grid itself 
would maintain the state of charge of its electric storage resources 
(rather than CAISO), and (2) Western Grid would credit any incidental 
net revenues from such transactions to its customers via the TAC.\19\ 
Therefore, the Commission concluded that there was little likelihood 
that CAISO would become a profit-seeking energy market participant.
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    \17\ Id. P 48.
    \18\ Id. (citing The Nev. Hydro Co. Inc., 117 FERC ] 61,204, at 
PP 28-32; Nevada Hydro, 122 FERC ] 61,272 at PP 82-83).
    \19\ Id. P 49.
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II. Policy Statement

    9. We believe that it is timely to provide additional guidance 
regarding issues that arise for electric storage resources seeking to 
recover their costs through both cost-based and market-based rates 
concurrently. We also believe that clarification regarding our Nevada 
Hydro and Western Grid precedent is warranted due to potential 
confusion with respect to that precedent. Accordingly, through this 
policy statement, we provide guidance and clarification regarding the 
ability of electric storage resources to receive cost-based rate 
recovery for certain services (such as transmission or grid support 
services or to address other needs identified by an RTO/ISO) while also 
receiving market-based revenues for providing separate market-based 
services. We clarify that there may be approaches different from 
Western Grid's approach under which an electric storage resource may 
receive cost-based rate recovery and, if technically capable, provide 
market-based services.
    10. In Western Grid, the applicant proposed to operate only as a 
transmission resource and to forego any sales into CAISO's organized 
wholesale electric markets.\20\ Western Grid also proposed to take 
responsibility for charging its electric storage resources. The 
Commission found that Western Grid's proposals addressed the concerns 
described above. However, that order was limited to the facts that 
Western Grid presented to the Commission. Thus, that order should not 
be read to require other entities to forgo market sales as Western Grid 
proposed. We clarify that there may be approaches different from 
Western Grid's approach under which an electric storage resource may 
receive cost-based rate recovery and, if technically capable, provide 
market-based services that may address these concerns. To that end, we 
provide the following guidance on how applicants seeking cost-based 
rate recovery for electric storage resources providing certain services 
while also providing separate services at market-based rates could 
address concerns related to double recovery of costs, adverse market 
impacts, and RTO/ISO independence.
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    \20\ See id. PP 19, 21-23; see also id. PP 48-50.
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Multiple Uses and Revenue Streams

    11. As noted above, electric storage resources can provide a 
variety of services to multiple entities. An electric storage resource 
receiving cost-based rate recovery for providing one service may also 
be technically capable of providing other market-based rate services. 
Most participants in the technical conference and commenters generally 
support multiple uses and revenue streams, including both cost-based 
and market-based revenues, for electric storage resources.\21\ 
Commenters believe that the key question is not whether to allow 
multiple use applications for electric storage resources but how to 
allow and

[[Page 9346]]

enable such applications.\22\ Commenters also note that it would be 
inefficient and wasteful to let electric storage resources that are not 
being used to serve a transmission need to sit idle and instead these 
resources should be permitted to provide other market services to 
capture their full system benefits and maximize economic efficiency and 
value to consumers.\23\
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    \21\ See, e.g., Pacific Gas and Electric Co. Dec. 14, 2016 
Comments at 2-3; Xcel Energy Services Inc. Dec. 16, 2016 Comments at 
6-7; SolarCity Corp. and Tesla Motors, Inc. Dec. 14, 2016 Comments 
at 2-4, 8-10; AES Companies Dec. 14, 2016 Comments at 4; Alevo USA 
Inc. Dec. 14, 2016 Comments at 3-4; Renewable Energy Systems 
Americas, Inc. Comments at 2-3, 5.
    \22\ See, e.g., California Energy Storage Alliance Dec. 14, 2016 
Comments at 5.
    \23\ See, e.g., Technical Conference Transcript, Docket No. 
AD16-25-000, at Tr. 34: 11-20 (posted Nov. 9, 2016); Exelon Corp. 
Dec. 14, 2016 Comments at 2, 6; Union of Concerned Scientists Dec. 
14, 2016 Comments at 9-10; Energy Storage Association Dec. 14, 2016 
Comments at 3, 6, 12-13.
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    12. To the extent that an electric storage resource seeks cost-
based rates for a particular service, that resource may need to compete 
at least in part on cost against other alternatives that could provide 
the service. In some cases, an electric storage resource may only be 
cost competitive for the cost-based service if expected market revenues 
are considered in the evaluation of the electric storage resources. 
Such market revenues can be used to offset the electric storage 
resource's costs for providing the cost-based rate service.
    13. Additionally, if an electric storage resource seeks to recover 
its costs through both cost-based and market-based rates concurrently, 
the following issues, as raised in prior proceedings, should be 
addressed: (1) The potential for combined cost-based and market-based 
rate recovery to result in double recovery of costs by the electric 
storage resource owner or operator to the detriment of cost-based 
ratepayers; (2) the potential for cost recovery through cost-based 
rates to inappropriately suppress competitive prices in the wholesale 
electric markets to the detriment of other competitors who do not 
receive such cost-based rate recovery; and (3) the level of control in 
the operation of an electric storage resource by an RTO/ISO that could 
jeopardize its independence from market participants.
    14. We note that these or similar issues were raised by commenters 
in Western Grid or Nevada Hydro. This policy statement is not intended 
to resolve the detailed implementation issues surrounding how an 
electric storage resource may concurrently provide services at cost- 
and market-based rates. Rather, it is intended to clarify that 
providing services at both cost- and market-based rates is permissible 
as a matter of policy, provide guidance on some of the details and 
allow entities to address these issues through stakeholder processes 
and in filings before the Commission.
1. Avoiding Double Recovery of Costs
    15. One issue associated with an electric storage resource 
receiving cost-based rate recovery while concurrently receiving 
compensation for market-based rate services involves potential double 
recovery of costs borne by the relevant cost-based ratepayers. Most 
participants in the technical conference and commenters believe that 
double recovery can be addressed by appropriate market revenue 
crediting.\24\
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    \24\ See, e.g., Technical Conference Transcript at Tr. 47: 25--
Tr. 48: 1; Tr. 50: 13-15; Tr. 168: 4-9; AES Companies Comments at 4; 
Exelon Corp. Comments at 8, 10; NextEra Energy Resources, LLC Dec. 
14, 2016 Comments at 7; Transmission Access Policy Study Group Dec. 
14, 2016 Comments at 5-6.
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    16. While we believe there may be additional approaches for 
addressing this concern beyond the one proposed in Western Grid, we 
clarify that crediting any market revenues back to the cost-based 
ratepayers is one possible solution. The Commission has sought to 
prevent the subsidization of public utility shareholders at the expense 
of their captive customers.\25\ Proposals to allow public utilities 
using electric storage resources to recover costs under cost-based 
rates from captive customers should address the potential for the 
recovery of those same costs through market-based sales.
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    \25\ See, e.g., Heartland Energy Servs, Inc., 68 FERC ] 61,223, 
at 62,062-63 (1994) (prohibiting transfer of benefits from captive 
customers of a franchised public utility to affiliates and 
shareholders). See also Golden Spread Elec. Coop. v. Southwestern 
Public Serv. Co., 123 FERC ] 61,047, Opinion No. 501, at P 40 (2008) 
(citing Minnesota Power & Light Co., 47 FERC ] 61,064, at 61,183 
n.2, 61,184 (1989)), order on reh'g, Opinion No. 501-A, 144 FERC ] 
61,132 (2013).
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    17. We note that the amount of this crediting may vary depending on 
how the cost-based rate recovery is structured. For example, if the 
electric storage resource indicates that it will seek to recover its 
full, unadjusted costs through cost-based rates, it may be reasonable 
for the electric storage resource owner or operator to credit all 
projected market revenues earned by the electric storage resource over 
a reasonable period of time (e.g., the expected useful life of the 
asset or the term of the cost-based rate service if it differs from the 
useful asset life). We believe that the accounting provisions in Order 
No. 784 \26\ (including the supplemental accounting and reporting 
guidance issued in Docket No. AI14-1-000) \27\ coupled with the 
requirement to submit Electric Quarterly Reports pursuant to Order Nos. 
2001 \28\ and 768 \29\ provide sufficient transparency to allow 
effective oversight for any needed revenue crediting.
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    \26\ See Third-Party Provision of Ancillary Services; Accounting 
and Financial Reporting for New Electric Storage Technologies, Order 
No. 784, FERC Stats. & Regs., Regulations Preambles ] 31,349 (July 
30, 2013), order partly granting clarification, Order No. 784-A, 146 
FERC ] 61,114 (2014).
    \27\ Accounting and Reporting Guidance for New Electric Storage 
Technologies, Docket No. AI14-1-000 (Feb. 20, 2014).
    \28\ See Revised Public Utility Filing Requirements, Order No. 
2001, FERC Stats. & Regs. ] 31,127, reh'g denied, Order No. 2001-A, 
100 FERC ] 61,074, reh'g denied, Order No. 2001-B, 100 FERC ] 
61,342, order directing filing, Order No. 2001-C, 101 FERC ] 61,314 
(2002), order directing filing, Order No. 2001-D, 102 FERC ] 61,334, 
order refining filing requirements, Order No. 2001-E, 105 FERC ] 
61,352 (2003), order on clarification, Order No. 2001-F, 106 FERC ] 
61,060 (2004), order revising filing requirements, Order No. 2001-G, 
120 FERC ] 61,270, order on reh'g and clarification, Order No. 2001-
H, 121 FERC ] 61,289 (2007), order revising filing requirements, 
Order No. 2001-I, FERC Stats. & Regs. ] 31,282 (2008).
    \29\ Electricity Market Transparency Provisions of Section 220 
of the Federal Power Act, Order No. 768, FERC Stats. & Regs. ] 
31,336 (2012), order on reh'g, Order No. 768-A, 143 FERC ] 61,054 
(2013), order on reh'g, Order No. 768-B, 150 FERC ] 61,075 (2015).
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    18. Alternatively, at the electric storage resource owner's or 
operator's discretion, this market-revenue offset can be used to reduce 
the amount of the revenue requirement to be used in the development of 
the cost-based rate. This up-front rate reduction would also help 
ensure that the cost-based rate remains just and reasonable and provide 
the electric storage resource owner or operator with an incentive to 
estimate market revenues as accurately as possible. In this scenario, 
the need for crediting of market revenues could be proportionally 
reduced as well. In other words, full cost recovery through cost-based 
rates may require full crediting of projected market revenues; no cost 
recovery through cost-based rates would require no crediting of 
projected or actual market revenues; and partial cost recovery through 
cost-based rates could require partial crediting of market revenues. 
For example, if the cost-based rate is based on 25 percent of the 
asset's full cost-of-service, then perhaps only 25 percent of market 
revenues would need to be credited to cost-based ratepayers.
    19. We recognize there may be other ways for an electric storage 
resource owner or operator seeking to recover costs through cost-based 
rates and market-based rates to prevent the double recovery of costs. 
Any solution would need to comport with cost-of-service precedent cited 
earlier.
2. Minimizing Adverse Impacts on Wholesale Electric Markets
    20. Another issue associated with an electric storage resource 
receiving cost-

[[Page 9347]]

based rate recovery while concurrently receiving compensation for 
market-based rate services that the Commission addressed in Nevada 
Hydro and Western Grid is the adverse market impacts that could 
occur.\30\ Some commenters believe that any potential adverse impacts 
on wholesale electric markets either do not need to be addressed 
because numerous resources participating in organized wholesale 
electric markets currently receive cost-based rate treatment for other 
services as well \31\ or can be addressed by appropriate market revenue 
crediting.\32\ Other commenters argue, however, that permitting new 
electric storage resources that receive transmission-based rate 
recovery to participate in the competitive organized wholesale electric 
markets could undermine competition and suppress market prices to sub-
competitive levels.\33\
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    \30\ We note that the Supplemental Notice of Technical 
Conference, setting forth the agenda and questions for the technical 
conference, which also formed the basis for post-technical 
conference comments, referred to ``cross-subsidization'' when 
discussing this issue. See supra nn.1, 2. We consider ``cross-
subsidization'' to refer to concerns over the allocation of costs 
between different customer classes for the same services, or between 
customers under different services, not concerns that resources or 
public utilities receiving both cost-based and market-based revenues 
undermine competition in the wholesale electric markets. Therefore, 
for more precision, here, we use the term ``adverse market impacts'' 
instead.
    \31\ See, e.g., Technical Conference Transcript at Tr. 65: 8-18; 
NextEra Energy Resources, LLC Comments at 9-10; Exelon Corp. 
Comments at 6.
    \32\ See, e.g., Transmission Access Policy Study Group Comments 
at 6.
    \33\ See, e.g., FirstLight Power Resources, Inc. Dec. 14, 2016 
Comments at 2, 6-7; New England Power Generators Association, Inc. 
Dec. 14, 2016 Comments at 2-9.
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    21. As provided above, we clarify that electric storage resources 
may concurrently receive cost- and market-based revenues for providing 
separate services. We do not share commenters' concerns and are not 
convinced that allowing such arrangements will adversely impact other 
market competitors.
    22. We agree that many assets that participate in RTO/ISO markets 
receive some form of cost-based rate recovery. For example, many 
participating generation resources seek and are paid a cost-based rate 
for providing reactive supply, even as they make market-based rate 
sales into organized wholesale electric markets.\34\ Further, as noted 
during the discussions at the technical conference and in comments, a 
significant amount of generation in certain RTO/ISO markets is owned by 
vertically integrated public utilities that recover some or all of 
their costs through cost-based retail rates.\35\ Similarly, some 
vertically integrated public utilities make cost-based rate sales to 
captive wholesale requirements customers such as transmission dependent 
utilities while also making off-system market-based rate sales to 
others.\36\ As noted earlier, in these circumstances, the Commission 
has required crediting of an appropriate portion of market revenues to 
captive wholesale customers in order to prevent the subsidization of 
public utility shareholders at the expense of their captive customers. 
But the Commission has not required any other measures to address the 
potential competitive impact of such market-based rate sales on other 
competitors in those markets. One commenter also points to bilateral 
contracts as another example of resources receiving both cost-based and 
market-based revenues.\37\ It is also true that there are many public 
utilities in restructured states that have transmission assets with 
cost-based recovery and generation assets that receive market-based 
revenues. If we were to deny electric storage resources the possibility 
of earning cost-based and market-based revenues on the theory that 
having dual revenue streams undermines competition, we would need to 
revisit years of precedent allowing such concurrent cost-based and 
market-based sales to occur as described above.
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    \34\ See, e.g., SolarCity Corp. and Tesla Motors, Inc. Comments 
at 9.
    \35\ See, e.g., Technical Conference Transcript at Tr. 65: 8-18; 
NextEra Energy Resources, LLC Comments at 9-10.
    \36\ See, e.g., Opinion No. 501, 123 FERC ] 61,047.
    \37\ See NextEra Energy Resources, LLC Comments at 9.
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    23. Moreover, we believe any concerns that electric storage 
resources would offer in a manner that suppresses market clearing 
prices simply because they receive cost recovery (in whole or in part) 
through cost-based rates could be addressed by the manner in which 
double recovery is addressed and the costs that go into the cost-based 
rates are established.\38\
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    \38\ We note that cost-based rates are reviewed by the 
Commission and can only be accepted if the rates are just and 
reasonable.
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3. RTO/ISO Independence
    24. Another issue relevant to this policy statement is maintaining 
RTO/ISO independence from market participants. The discussions of this 
issue at the technical conference and in comments crossed into other 
issues such as adverse market impacts (discussed in the previous 
section) and largely focused on RTO/ISO discretion and the role of the 
RTO/ISO in operating the electric storage resources, especially for 
planning and reliability purposes.\39\ Nevertheless, we believe that 
clarification is required in this area.
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    \39\ See, e.g., Technical Conference Transcript at Tr. 50-51; 
PG&E Comments at 3; NextEra Energy Resources, LLC Comments at 11-13.
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    25. Coordination between the RTO/ISO and the electric storage 
resource owner or operator will be necessary for electric storage 
resources that concurrently provide services compensated through cost-
based rates and services compensated through market-based rates. Among 
any other operational concerns that individual RTOs or ISOs may need to 
address, the electric storage resource should be maintained so that the 
necessary state of charge can be achieved when necessary to provide the 
service compensated through cost-based rates. But, assuming this 
priority need is reasonably predictable as to size and the time it will 
arise each day, the electric storage resource should be permitted to 
deviate from this state of charge at other times of the day in order to 
provide other, market-based rate services. We recognize that this 
assignment of responsibility is premised on the need for the service 
compensated through cost-based rates being predictable enough to allow 
the appropriate charge management structure to be implemented. In 
situations where this premise does not hold, and the need for the 
service for which cost-based rates are provided is not reasonably 
predictable as to size or the time it will arise each day, the cost-
based rate service may be the only service that the electric storage 
resource could provide.
    26. We also provide guidance that, when the circumstances leading 
to the need for the service compensated through cost-based rates arise, 
RTO/ISO dispatch of the electric storage resource to address that need 
should receive priority over the electric storage resource's provision 
of market-based rate services. Performance penalties could be imposed 
on the electric storage resource owner or operator for failure to 
perform at these times.
    27. We further provide guidance that the provision of market-based 
rate services should be under the control of the electric storage 
resource owner or operator, rather than the RTO/ISO, to ensure RTO/ISO 
independence. In other words, while the RTO/ISO always performs the 
actual optimization of resources participating in the organized 
wholesale electric markets, during periods when the electric storage 
resource is not needed for the separate service compensated at cost-
based rates,

[[Page 9348]]

the RTO/ISO would rely on offer parameters provided by the electric 
storage resource owner or operator for such operation, just as the RTO/
ISO does with other market participants.
    28. In this regard, we believe that one statement in Nevada Hydro 
requires clarification. Specifically, the Commission's conclusion that 
it would not be appropriate to require CAISO to assume ``any level of 
operational control'' \40\ over the LEAPS facility should not be taken 
out of context because RTOs/ISOs arguably always exercise some level of 
operational control over the resources they dispatch through their 
markets. The Commission's decision in Nevada Hydro was discussing only 
the six proposals for operation of LEAPS as a transmission asset that 
were discussed in CAISO's stakeholder process.\41\ Other facts may 
warrant a different decision from the Commission. Therefore, we clarify 
that there is nothing unreasonable about an RTO/ISO exercising some 
level of control over the resources it commits or dispatches where it 
can be shown that the RTO/ISO independence is not at issue. When those 
resources are dispatched through the organized wholesale electric 
market clearing process, the level of RTO/ISO control will be lower 
because such dispatch will be based on offer parameters submitted by 
resource owners or operators. When resources are operated outside of 
the organized wholesale electric market clearing process (e.g., to 
address reliability needs), then the RTO's/ISO's control may be 
greater.
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    \40\ Nevada Hydro, 122 FERC ] 61,272 at P 82 (emphasis added).
    \41\ See id.
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    29. We are willing to consider other solutions proposed by an 
electric storage resource owner or operator seeking to recover costs 
through cost-based rates and market-based rates that are shown to be 
effective in avoiding these RTO/ISO independence issues.

III. Document Availability

    30. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5:00 
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC 
20426.
    31. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    32. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

IV. Effective Date

    33. This policy statement will become effective February 6, 2017.

    By the Commission. Commissioner LaFleur is dissenting with a 
separate statement attached.

    Issued: January 19, 2017.
Kimberly D. Bose,
Secretary.

UNITED STATES OF AMERICA

Federal Energy Regulatory Commission

Utilization of Electric Storage Resources for Multiple Services When 
Receiving Cost-Based Rate Recovery

Docket No. PL17-2-000
(Issued January 19, 2017)
LaFLEUR, Commissioner dissenting:

    Today's order addresses whether a storage resource can receive 
cost-based revenues for providing a transmission service while also 
participating in the Commission's wholesale markets. The Commission has 
previously considered related issues in individual cases, such as our 
Western Grid orders from 2010,\1\ and I agree that the Commission 
should be flexible and open to proposals that go beyond the model 
contemplated in those orders. I am open to potential structures that 
compensate storage providing transmission service at a cost-based rate 
while participating in the wholesale markets. However, I am concerned 
about the broad rationale for this approach put forth in the Policy 
Statement, which I believe is both flawed in its conclusions and 
premature in its timing.
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    \1\ Western Grid Dev., LLC, 130 FERC ] 61,056, reh'g denied, 133 
FERC ] 61,029 (2010).
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    I particularly disagree with the Policy Statement's sweeping 
conclusions about the potential impacts of multiple payment streams on 
pricing in wholesale electric markets.\2\ The Policy Statement 
summarily dismisses concerns regarding the impact of such arrangements 
on market competition, and leaves far more than just ``implementation 
details'' to be worked out. Indeed, the Policy Statement provides no 
guidance on how the Commission could evaluate whether a particular 
filing under section 205 of the Federal Power Act successfully avoids 
adverse market impacts.
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    \2\ Utilization of Electric Storage Resources for Multiple 
Services When Receiving Cost-Based Rate Recovery, 158 FERC ] 61,051 
(2017).
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    I am concerned that the Policy Statement, while nominally limited 
to storage resources, could be read to reflect the Commission's views 
about the impact of multiple payment streams on market pricing more 
generally, thus implicating broader regional discussions on state 
policy initiatives and their interaction with competitive markets. 
These issues, which are currently being discussed by several RTO/ISOs 
and their stakeholders, will require careful and holistic consideration 
to ensure that policy advancements can be achieved while the benefits 
of competition are preserved for customers.
    Furthermore, I disagree with the Commission's decision to separate 
this issue from its pending Notice of Proposed Rulemaking on storage 
participation,\3\ which is itself directed to enabling greater 
participation of storage technologies in wholesale markets. The 
conclusions of this Policy Statement regarding market participation of 
storage resources would benefit from being considered and commented on 
as part of that broader discussion.
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    \3\ Electric Storage Participation in Markets Operated by 
Regional Transmission Organizations and Independent System 
Operators, Notice of Proposed Rulemaking, 157 FERC ] 61,121 (2016).
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    Storage is an important and promising resource that warrants 
Commission attention to ensure that our markets are appropriately 
adapted to recognize storage's unique characteristics and 
contributions. However, efforts to accommodate these resources should 
not come at the expense of careful market design after full public 
participation.
    For these reasons, I respectfully dissent.


Cheryl A. LaFleur,
Commissioner
[FR Doc. 2017-02421 Filed 2-3-17; 8:45 am]
 BILLING CODE 6717-01-P