UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION COMMENTS OF THE AMERICAN PUBLIC POWER ASSOCIATION

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Electric Storage Participation in Regions with Organized Wholesale Electric Markets Docket No. AD COMMENTS OF THE AMERICAN PUBLIC POWER ASSOCIATION The American Public Power Association (APPA) welcomes the request by the Commission 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 (RTOs) and Independent System Operators (ISOs). 1 APPA has long supported Commission policies that reduce barriers to entry and increase competition in wholesale electricity markets. Thus, APPA generally supports Commission efforts to enable electric storage resources to interconnect with the transmission grid and participate in capacity, energy, and ancillary services markets. Such participation holds the promise of improving service and reducing the costs borne by load-serving entities in RTO and ISO regions. Indeed, public power systems throughout the nation are evaluating how new electric storage resources can provide benefits to their communities. As the Commission staff reviews the information gathered in this proceeding and considers further Commission action, APPA respectfully urges several guiding 1 Electric Storage Participation in Regions with Organized Wholesale Electric Markets, Docket No. AD (Apr. 11, 2016) (Office of Energy Policy and Innovation notice of request for public comments).

2 principles. First, if wholesale market rules for electric storage resources are to be reformed, the goals should be better service and lower costs to consumers. Second, wholesale market rules should not undercut existing energy storage initiatives and investments by utilities. Third, wholesale market rules should not undercut the ability of state and local authorities to regulate existing and future storage electric storage projects that provide retail- or distribution-level services. Fourth, given the multiple revenue streams that electric storage resources may enjoy, Commission policy should recognize the need to protect against double-recovery of storage costs and cross-subsidies. APPA also has brief comments on the specific questions posed by the Commission staff s notice. APPA appreciates that the notice has singled out for attention the issue of distribution-connected and aggregated storage resources. For ratemaking, operational, reliability, and safety reasons, it is critical that state and local authorities remain the primary regulator of such resources. INTERESTS OF APPA APPA is the national service organization representing the interests of not-forprofit, publicly owned electric utilities in the United States. More than 2,000 public power systems, doing business in every state but Hawaii, account for over 15 percent of all electric energy (kilowatt-hours) sales to ultimate consumers in the nation and collectively serve over 48 million people. APPA member utilities are load-serving entities, with the primary goal of providing the communities they serve with safe, reliable electric service at the lowest reasonable cost, consistent with good environmental stewardship. This orientation aligns the interests of public power systems with the longterm interests of the residents and businesses in their communities. 2

3 Public power systems operate in all of the Commission-approved RTOs and ISOs. Many public power systems participate directly in the wholesale electric markets of an RTO or ISO, while others are served by a wholesale supplier sometimes a joint action agency or another public power system that participates in these markets. Although public power systems own almost 10 percent of the nation s electric generating capacity, they purchase nearly 70 percent of the power used to serve their ultimate customers. Because many APPA member utilities rely on transmission service from RTOs and ISOs and purchases from wholesale electric markets to obtain power supplies they need to serve their customers, APPA has a vital interest in maintaining just and reasonable rates for transmission, capacity, energy, and ancillary services in RTO and ISO regions. APPA has participated actively in numerous Commission proceedings concerning RTO and ISO rates, services, market rules, and related issues. Many public power systems, including those in RTO and ISO regions, are evaluating how new electric storage resources can better enable them to provide safe, reliable, and affordable electric service; integrate new generation resources; comply with environmental and other public-policy directives and goals; and provide new services to their communities. 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. Here are a few examples: Village of Minster (Ohio): A 7-megawatt (MW) energy storage system located in Minster, Ohio, was completed in 2016 by S&C Electric Company and built in conjunction with Half Moon Ventures and the local municipal utility, the Village of Minster. The storage system will allow Half Moon Ventures to sell into the PJM 3

4 Interconnection s frequency regulation market, which helps to provide grid reliability. The Village of Minster will use the energy storage system to defer $350,000 of transmission and distribution costs, improve power quality and shave peak demand. Half Moon Ventures will utilize an S&C Electric storage management system, providing fully integrated storage management and power conversion for lithium ion-batteries with a storage capacity of 3 megawatt-hours (MWh). The system is tied to Half Moon Ventures adjacent 4.2-MW solar plant, allowing Minster to further reduce its peak demand charges in the middle of the day. Imperial Irrigation District (California): In November 2015, construction began on a new Imperial Irrigation District battery energy storage system. The 30-MW, 20-MWh lithium-ion battery storage system will increase reliability across the IID grid by providing the ability to balance power and integrate solar while providing spinning reserve and black start power restoration capabilities. The storage system will be constructed at the El Centro generating station. Snohomish County Public Utility District (Washington): Snohomish County PUD, 1Energy Systems and LG Chem in November 2015 successfully commissioned a 1-MW, 500-kWh advanced battery energy storage system as a core component of the MESA-1 energy storage system. The system utilizes advanced lithium ion batteries. The MESA-1B system was installed at the PUD s Hardeson Substation in Everett, Washington, and builds on Modular Energy Storage Architecture (MESA) Standards Alliance communication standards. Key MESA goals include, among others, standardizing communications and connections, which will accelerate interoperability and scalability of energy storage systems, and reducing project-specific engineering 4

5 costs. The 1-MW MESA-1A system was commissioned in February 2015 and is also located at the Everett, Washington, site. Connecticut Municipal Electric Energy Cooperative: The Connecticut Municipal Electric Energy Cooperative is working with two solar companies to put in place 15 MW of solar power at several different locations in southern Connecticut. The project includes a 1.5-MW energy storage system in Norwich, Connecticut, that will use Tesla s lithium-ion battery technology. CMEEC, a joint action agency based in Norwich, Connecticut, has partnered with SolarCity and another solar company, Brightfields Development LLC, on the project. SolarCity offered details on the project in May CMEEC plans to use the new solar capacity and the energy storage unit to shape its load profile and to provide backup capacity in case of outages. The storage system will be able to provide 1.5 MW of electricity over four hours, for a total capacity of 6 MWh. Community Storage Initiative: Along with these projects, public power is participating in the recently launched Community Storage Initiative, an effort by electric utilities, environmental groups and manufacturers to promote energy storage technologies in communities across the country. 2 APPA and the public power utilities in Marquette, Michigan, and Wellesley, Massachusetts, are among the early participants in the initiative, which was unveiled in April The Wellesley Municipal Light Plant is considering an energy storage project of up to 2 megawatts and the Marquette Board of Light and Power, which has a community solar project, wants to keep track of what is happening with storage. APPA is among the initiative s charter sponsors. 2 For more information, see 5

6 Accordingly, APPA and its member utilities have a strong interest in the Commission s policies concerning the participation of electric storage resources in the wholesale electric markets of RTOs and ISOs. these persons: NOTICES AND COMMUNICATIONS Service in this proceeding should be made on, and communications directed to, Randolph Elliott Senior Regulatory Counsel American Public Power Association 2451 Crystal Drive, Suite 1000 Arlington, VA relliott@publicpower.org Allen Mosher Vice President, Policy Analysis American Public Power Association 2451 Crystal Drive, Suite 1000 Arlington, VA amosher@publicpower.org COMMENTS I. Guiding principles APPA welcomes the 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. 6

7 As the Commission considers the responses and comments it receives in this proceeding and what remedies, if any, it may propose, APPA believes that several key principles should guide the discussion. First, 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 requesting 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. 3 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. Second, wholesale market rules and Commission policy should not undercut existing energy storage projects and operations. Besides investing in new electric storage projects as noted above, 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. 4 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. A related concern is that a constant churn 3 April 11 notice of request for comments at 2 (emphasis added). 4 Existing energy storage resources include facilities beyond the electric storage resources defined in footnote 1 of the request for comments in this docket. See also Comments of the Delaware Public Service Commission, Docket No. AD (filed May 25, 2016) (discussing thermal storage resources). 7

8 of new market rules may have the unintended consequence of creating so much regulatory uncertainty that it stifles investment and innovation. Third, 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 distributionsystem upgrades. Electric storage facilities potentially can provide multiple services and benefits to retail and distribution customers. Wholesale market rules should not frustrate these important local uses of electric storage facilities. As noted below, this issue is particularly important with respect to distribution-connected and aggregated electric storage resources. Fourth, Commission policy should recognize the need to protect against doublerecovery 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. 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. 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 8

9 market-based rates. 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). 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. The Commission 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 (O&M) expense accounts for energy storage devices. 5 These reforms are intended to ensure that the activities and costs of new energy storage operations are sufficiently transparent to allow effective oversight. 6 APPA supported this step for those reasons. 7 The need for such oversight will only grow as more electric storage resources participate in RTO and ISO wholesale markets. II. Comments on specific subjects in the notice A. The Eligibility of Electric Storage Resources to be Market Participants APPA 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. 5 Third-Party Provision of Ancillary Services; Account and Financial Reporting for New Electric Storage Technologies, Order No. 784, 78 Fed. Reg. 46,178 (July 30, 2013), FERC Stats. & Regs. 31,349 (2013), clarified, Order No. 784-A, 146 FERC 61,114 (2014). 6 Id., P 5. 7 Comments of the American Public Power Association, Third-Party Provision of Ancillary Services; Account and Financial Reporting for New Electric Storage Technologies, Docket No. RM (filed Sept. 7, 2012). 9

10 Eligibility to participate does not appear to be a significant problem, although some clarification of some market rules may be warranted. The Southwest Power Pool, Inc., (SPP) indicates that electric storage resources may qualify as a resource (except a Variable Energy Resource) under its market rules. The New York Independent System Operator, Inc. (NYISO) and ISO New England, Inc., (ISO-NE) both state that they do not have any specific market rules for energy storage resources. The Midcontinent Independent System Operator, Inc. (MISO) states that it has such market rules only for hydroelectric pumped-storage resources. PJM Interconnection, L.L.C., (PJM) also notes that hydroelectric pumped-storage resources can be market participants under its market rules, and it outlines a number of specific market rules enabling electric storage resources to be eligible market participants, albeit with a number of restrictions. B. 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. In this regard, PJM states that there are commercial and/or technical limitations that may currently restrict participation of electric storage resources (and in particular batteries and flywheels) in its wholesale markets. 8 If commercial or technical limitations embedded in wholesale market rules unreasonably restrict market participation by electric storage resources, then the limitations may be unjust and 8 Response of PJM Interconnection, L.L.C., Docket No. AD , at 2 (filed May 2, 2016). 10

11 unreasonable, and the Commission can order changes. This issue is best addressed on a regional, case-by-case basis. C. Bid Parameters for Electric Storage Resources APPA is concerned that bid parameters designed for electric storage devices in wholesale market rules may constrain a load-serving entity s decisions to plan for and operate electric storage resources to meet its system s needs. At this early stage in the development of electric storage technologies, bid-parameter requirements should not be so prescriptive that they determine the technologies that may be deployed, which may end up constraining the ability of a load-serving entity to adopt the least-cost solution. 9 D. Distribution-Connected and Aggregated Electric Storage Resources APPA appreciates the Commission staff s separate attention to the issue of electric storage resources connected at the distribution level and the possible aggregation of distributed storage resources. The responses by the RTOs and ISOs indicate that a number of them are considering the participation of distribution-connected storage resources in their wholesale markets. Electric storage resources connected at the distribution level, whether located in front of or behind a customer s meter, present a host of ratemaking, operational, local reliability, and safety issues for public power systems and other distribution utilities. Hence, the Commission should allow state and local regulatory authorities, who have the responsibility for ensuring safe, reliable, and affordable retail and distribution service, to continue to regulate the planning, installation, 9 One specific issue bears note. To the extent that storage resources have value as a capacity resource, such as when coupled with an intermittent resource to meet capacity performance requirements, the Commission should ensure that RTO or ISO minimum offer-price rules or buyer-side mitigation rules do not interfere with the ability of local utilities and states to develop these resources. 11

12 operation, and use of distribution-level storage resources. At a minimum, state and local regulation must include the authority to decide whether such resources may directly participate in wholesale markets, individually or through an aggregator, much as the Commission has done with demand response resources. 10 E. When Electric Storage Resources Are Receiving Electricity APPA agrees with the Commission staff s observation that depending on where an electric storage resource is connected to the grid and what services it is providing, it may not be clear what price an electric storage resource should pay for the electricity that it receives. 11 The issues are both legal and economic: Who has jurisdiction to determine the appropriate price? What should that price be? The answers are not clear-cut, particularly for electric storage resources connected at the distribution level but participating in wholesale markets. Where a distribution-connected electric storage resource is providing a distribution service or is used make retail sales, there is a strong case that the state or local regulator should have jurisdiction over the rate for electricity received by the facility, as well as the rates for the services provided by the facility. And in any event, an electric storage facility should pay for its use of the distribution system even when it participates in wholesale markets just as it must pay for its use the ISO or RTO transmission system. 10 See 18 C.F.R (g)(1)(iii); Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, 73 Fed. Reg. 64,100 (Oct. 28, 2008), order on reh g, Order No. 719-A, 74 Fed. Reg. 37,776 (July 29, 2009), order on reh g, Order No. 719-B, 129 FERC 61,252 (2009). 11 April 11 notice of request for comments, Attachment at 6. 12

13 CONCLUSION APPA welcomes the Commission s attention to the participation of electric storage resources in the RTO and ISO wholesale electric markets and requests that the Commission consider the above comments as it formulates any new policies and proposed rules. Respectfully submitted, June 6, 2016 /s/ Randolph Elliott Allen Mosher Vice President, Policy Analysis Delia D. Patterson General Counsel Randolph Elliott Senior Regulatory Counsel American Public Power Association 2451 Crystal Drive, Suite 1000 Arlington, VA amosher@publicpower.org dpatterson@publicpower.org relliott@publicpower.org 13