[Federal Register: June 25, 2010 (Volume 75, Number 122)]
[Notices]
[Page 36381-36384]
[DOCID:fr25jn10-51]

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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.

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,<PHONE_NUMBER><EMAIL_ADDRESS>
    Christopher Handy (Accounting Information), Office of Enforcement,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>
    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

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

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