reduced for reasons that are not true or verifiable. Id.
---------------------------------------------------------------------------

    97. Additionally, while commenters do not specifically describe any
market power concerns outside the context of physical withholding, to
the extent that market power concerns arise as a result of electric
storage resources de-rating capacity to provide capacity or other
services, each RTO/ISO may consider whether it is appropriate to update
and/or apply existing market power mitigation processes to electric
storage resources to alleviate market power concerns.
    98. In response to California Energy Storage Alliance, we agree
that electric storage resources may provide services in the RTO/ISO
markets without de-rating so long as they meet the requirements to
provide the particular service that they seek to provide. We also
clarify that this Final Rule does not require any specific outage rules
for electric storage resources.
    99. Further, upon consideration of the comments, we clarify the
part of the NOPR proposal stating that the de-rated capacity value for
electric storage resources should be consistent with the quantity of
energy that must be offered into the day-ahead energy market for
resources with capacity obligations. Several commenters suggest that
there may be reasons why the de-rated capacity value for electric
storage resources might not be consistent with the quantity of energy
that must be offered into the day-ahead energy market. For example, an
electric storage resource may choose to de-rate to reflect its capacity
interconnection rights; to reserve capacity for providing retail
services; or because system operators may need the full capacity of
electric storage resources based on real-time system conditions.\122\
We find these points compelling. We also agree with Xcel Energy
Services that the rules governing must-offer quantities vary between
RTOs/ISOs and with Energy Storage Association that where electric
storage resources do not have a must-offer obligation the de-rated
quantity cannot be tied to such an obligation. We therefore provide
each RTO/ISO flexibility either to use its existing rules for must-
offer quantities or to modify its existing rules as necessary to
reflect the physical and operational characteristics of electric
storage resources. However, in response to Avangrid and EEI, we clarify
that, if an electric storage resource elects to de-rate its capacity,
it must not de-rate its capacity below any capacity obligations it has
assumed, such as any applicable must-offer requirement. We also agree
with Energy Storage Association that the de-rated quantity should be
based on the quantity of energy that an electric storage resource can
discharge continuously over the minimum run-time set by the RTO/ISO.
---------------------------------------------------------------------------

    \122\ See, e.g., AES Companies Comments at 16-17; Avangrid
Comments at 5; Energy Storage Association Comments at 8-9; EPRI
Comments at 12-13.
---------------------------------------------------------------------------

    100. In response to those commenters suggesting that the RTO/ISO
resource adequacy constructs provide accommodations for electric
storage resources, we will not require the RTOs/ISOs to make specific
changes to minimum run-time or must-offer requirements associated with
providing capacity. While we agree with commenters that some of the
requirements to participate in the resource adequacy constructs of the
RTOs/ISOs may limit the ability of electric storage resources to
participate, there is significant variation in how each RTO/ISO
approaches resource adequacy. Thus, we do not believe it is appropriate
to establish one standard approach to this issue in the RTO/ISO
markets. However, we do find that it is important for electric storage
resources that can provide value in those resource adequacy constructs
to be eligible to participate. Therefore, in the interest of preserving
flexibility for the RTOs/ISOs to address this issue given their unique
resource adequacy constructs, we require each RTO/ISO to demonstrate on
compliance with this Final Rule that its existing market rules provide
a means for electric storage resources to provide capacity. If an RTO/
ISO does not have existing tariff provisions that enable electric
storage resources to provide capacity, such as the RTO/ISO tariff
provisions described below, we require the RTO/ISO to propose such
rules on compliance with this Final Rule.
    101. To provide guidance for this requirement, we note that several
of the RTOs/ISOs already have developed rules that allow energy-limited
resources to provide capacity. Some of these market rules explicitly
facilitate the participation of electric storage resources. For
example, NYISO has an Energy Limited Resource model that facilitates
the participation of electric storage resources in the capacity market
by limiting their commitments to one four-hour interval per day, while
CAISO requires that flexible resource adequacy resources be available
only during peak hours. Other RTOs/ISOs rely on opportunity costs in
incremental energy offer reference levels, allowing for a resource to
reflect its energy-limited nature through high offers in the energy
market that make it unlikely to be dispatched. For example, ISO-NE's
tariff allows opportunity costs included in an incremental energy
reference level based on costs associated with complying with emissions
limits, water storage limits, and other operating permits that limit
production of energy.\123\ While some of these market rules may apply
to resources using the participation model for electric storage
resources, we require each RTO/ISO to demonstrate how such rules are
applicable to resources using the participation model for electric
storage

resources on compliance with this Final Rule.
---------------------------------------------------------------------------

    \123\ ISO-NE Tariff, Market Rule 1, Appendix A, Sec.
III.A.7.5.1.
---------------------------------------------------------------------------

3. Energy Schedule Requirement for Provision of Ancillary Services
a. NOPR Request for Comments
    102. In the NOPR, the Commission stated that electric storage
resources tend to be capable of faster start-up times and higher ramp
rates than traditional synchronous generators and are therefore able to
provide ramping, spinning, and regulating reserve services without
already being online and running.\124\ However, the Commission
acknowledged that the RTOs/ISOs that co-optimize energy and ancillary
services dispatch and pricing may condition eligibility to provide
ancillary services on having an energy schedule.\125\ The Commission
therefore sought comment on whether the requirement to have an energy
schedule to provide ancillary services could be adjusted so that
electric storage resources and other technically-capable resources
could participate in the ancillary service markets independent of
offering energy to the RTO/ISO.
---------------------------------------------------------------------------

    \124\ See NOPR at P 50.
    \125\ See id. P 51.
---------------------------------------------------------------------------

    103. Specifically, the Commission sought comment on whether
dispatch and pricing of energy and ancillary services would be
internally consistent if a resource were not required to offer to
provide energy in order to offer to provide ancillary services.
Further, the Commission sought comment on whether the capability of
resources to provide an ancillary service absent an energy schedule can
be determined in the regular performance tests that the RTO/ISO
conducts and whether a resource's start-up time and ramp capability are
generally represented in bidding parameters and would adequately
guarantee the resource's ability to provide other services absent
energy market participation. Finally, the Commission sought comment on
the extent of software changes necessary to factor the elimination of
such an energy schedule requirement into the RTO/ISO co-optimization
models.
b. Comments
    104. A number of commenters agree that the RTOs/ISOs should base a
market participant's eligibility to provide a particular ancillary
service on its ability to provide services when called upon, rather
than whether it is online and synchronized to the grid.\126\ They argue
that the requirement to have an energy schedule to provide ancillary
services is no longer technically necessary. For example, Advanced
Energy Economy and Efficient Holdings state that electric storage
resources are able to provide services such as primary frequency
response, even while they are charging and unable to supply energy.
Altametric and Energy Storage Association explain that an electric
storage resource's start-up time and ramp capability are generally
represented in bidding parameters, adequately guaranteeing the
resource's ability to provide other services absent energy market
participation. Altametric adds that an RTO/ISO can validate a
resource's ability to provide ancillary services through its regular
performance, while Energy Storage Association, NRG, and Pacific Gas &
Electric contend that periodic performance testing is sufficient.
Beacon Power notes that regulation resources are already required to
undergo performance testing in PJM, with no requirement that they
participate in the energy market.
---------------------------------------------------------------------------

    \126\ See, e.g., Advanced Energy Economy Comments at 26-27;
Altametric Comments at 6; Beacon Power Comments at 3-4; Efficient
Holdings Comments at 13-14; Energy Storage Association Comments at
10, 12-13; NRG Comments at 15-16; Pacific Gas & Electric Comments at
8.
---------------------------------------------------------------------------

    105. A few commenters address the benefits of removing any
requirement to have an energy schedule to provide ancillary
services.\127\ Specifically, Efficient Holdings, Energy Storage
Association, and Magnum argue that removing any such requirement would
eliminate a barrier to some electric storage resources' ability to
provide ancillary services because they are energy-limited, increasing
competition. Similarly, Starwood Energy states that electric storage
resources should be allowed to participate in the ancillary service
markets regardless of whether they offer energy to the RTO/ISO.
---------------------------------------------------------------------------

    \127\ See., e.g., Efficient Holdings Comments at 13-14; Energy
Storage Association Comments at 12; Magnum Comments at 10; Starwood
Energy Comments at 6.
---------------------------------------------------------------------------

    106. Energy Storage Association and Research Scientists opine that
it is feasible for RTOs/ISOs to remove any requirement to have an
energy schedule to provide ancillary services.\128\ Energy Storage
Association and Research Scientists argue that, even if an electric
storage resource is allowed to provide ancillary services without an
energy schedule, dispatch and pricing of energy and ancillary services
can be co-optimized and will be internally consistent. However,
Research Scientists also note that whether an electric storage resource
offers to provide energy may influence market outcomes, as an energy
offer represents a resource's opportunity cost of providing ancillary
services under the market clearing optimization algorithm. Energy
Storage Association adds that, just as some resources currently provide
only energy, RTOs/ISOs can manage resources that provide only ancillary
services because they will receive enough information about electric
storage resources' capability to provide ancillary services through
their bidding parameters and through regular performance tests.
---------------------------------------------------------------------------

    \128\ See Energy Storage Association Comments at 12-13; Research
Scientists Comments at 5-6.
---------------------------------------------------------------------------

    107. In contrast, EPSA/PJM Power Providers and NRG contend that, if
the Commission requires each RTO/ISO to remove any requirement that a
resource have an energy schedule to provide ancillary services, the
Commission should require each resource that seeks to provide ancillary
services to provide economic offers into the energy market.\129\ They
argue that such offers are necessary to allow for the co-optimization
of energy and ancillary services markets and to price the provision of
ancillary services.
---------------------------------------------------------------------------

    \129\ See EPSA/PJM Power Providers Comments at 17; NRG Comments
at 15-16.
---------------------------------------------------------------------------

    108. While not opining on whether the Commission should require
each RTO/ISO to remove any requirement to have an energy schedule to
provide ancillary services from its tariff, MISO Transmission Owners
comment on the ability of resources to provide ancillary services
without an energy schedule.\130\ MISO Transmission Owners claim that
whether a resource can provide ancillary services without an energy
schedule depends on the particular electric storage technology, the
service being offered, and the ability of the resource to respond
within the timeframe established for that service. Similarly, EPRI and
Research Scientists assert that electric storage resources that
transition from charge to discharge slowly (e.g., pumped-hydro
resources) are unlikely to be able to provide certain ancillary
services without an energy schedule, while electric storage resources
that transition from charge to discharge and change operating levels
quickly can.\131\
---------------------------------------------------------------------------

    \130\ See MISO Transmission Owners Comments at 9.
    \131\ See EPRI Comments at 14-15; Research Scientists Comments
at 5.
---------------------------------------------------------------------------

    109. While Xcel Energy Services agrees that resources do not
necessarily need to be synchronized to the grid to provide ancillary
services, it argues that RTOs/ISOs must establish response time
requirements to ensure that all resources provide those services within
an adequate timeframe.\132\ Xcel Energy

Services further notes that to provide some services, such as voltage
support, resources do not need to submit an energy offer. Xcel Energy
Services concludes that the larger issue is the capability of co-
optimization software to evaluate the option between dispatching an
electric storage resource to charge or discharge.
---------------------------------------------------------------------------

    \132\ See Xcel Energy Services Comments at 22.
---------------------------------------------------------------------------

    110. MISO, PJM, and SPP do not opine on whether the Commission
should require each RTO/ISO to remove any requirement that a resource
have an energy schedule to provide ancillary services, although MISO
and SPP present considerations for the Commission to evaluate should it
move forward on this issue, each discuss the feasibility of removing
any such requirement for some services.\133\ For example, PJM notes
that it already allows market participants to offer to provide
ancillary services without a corresponding energy offer and that no
further software changes are needed to effectuate this outcome.\134\
Likewise, MISO notes that, under its Stored Energy Resource model, the
Stored Energy Resource submits regulation offers but not energy offers,
illustrating the potential for resources to provide ancillary services
without an energy schedule. SPP states that it allows a resource that
is not online or synchronized to provide supplemental reserves. SPP
also explains that a resource that is not qualified to provide energy
can participate in the regulation market; however, that resource would
not be eligible to set the price in the energy market, and its output
could not be substituted for contingency reserves.
---------------------------------------------------------------------------

    \133\ See MISO Comments at 12-14; PJM Comments at 17; SPP
Comments at 8-9.
    \134\ But see NextEra Comments at 7, n.8 (asserting that this
option is only available in PJM for regulation service).
---------------------------------------------------------------------------

    111. While MISO agrees that electric storage resources that can
start rapidly should not be required to be online and synchronized to
provide ancillary services, it contends that an RTO must review and
address its system limitations to ensure that it can handle such
resources' fast start and ramp capabilities before removing any such
requirement. According to MISO, reflecting an electric storage
resource's start-up time and ramp capabilities in the clearing engine
is feasible but would require extensive system and software changes.
For an electric storage resource that is managing its own state of
charge, MISO states that it would need the resource's energy schedule
and dispatch range to ensure that it dispatches the resource to provide
ancillary services within that resource's physical limits. MISO further
contends, however, that if it were managing an electric storage
resource's state of charge, it would need to receive offers for all
ancillary services that the resource seeks to provide and that, absent
an energy offer, the optimization model would need to assume that the
resource is a price taker in the energy market if that maximizes its
profit from providing ancillary services.
    112. SPP asserts that any change to an energy schedule requirement
for providing spinning reserve needs to involve the North American
Electric Reliability Corporation (NERC) because NERC defines spinning
reserves as a resource that is synchronized and spinning.
    113. AES Companies argue that, rather than adopting any
prescriptive requirement in a final rule, the Commission should allow
each RTO/ISO to determine whether it can remove or modify any tariff
provision or business practice that requires a resource to have an
energy offer or schedule to provide a specific ancillary service, given
their differing operational characteristics and needs.\135\ That said,
AES Companies note that some RTOs/ISOs permit demand response resources
to provide certain ancillary services without providing energy and that
it is important to remove barriers to the provision of essential
reliability services. AES Companies also mention that periodic testing
of resources is sufficient to determine their ability to provide
ancillary services but that testing and measurement procedures may vary
by technology.
---------------------------------------------------------------------------

    \135\ See AES Companies Comments at 17-19.
---------------------------------------------------------------------------

    114. R Street Institute asserts that, unless they have a must-offer
energy obligation, electric storage resources should not have to submit
an energy schedule to participate in ancillary service markets.\136\
However, R Street Institute contends that, before requiring each RTO/
ISO to remove any requirement that a resource must have an energy
schedule to provide ancillary services, the Commission should weigh the
costs of any software changes necessary to implement such a requirement
against its projected benefits.
---------------------------------------------------------------------------

    \136\ See R Street Institute Comments at 4.
---------------------------------------------------------------------------

    115. CAISO, ISO-NE, and NYISO state that the Commission should not
require each RTO/ISO to remove any requirement that a resource have an
energy offer or schedule to provide ancillary services.\137\ They state
that their markets cannot accommodate resources that seek to provide
ancillary services without offering energy as well. Specifically, they
contend that all other resource types must submit an energy offer or
schedule to provide ancillary services because it is necessary to allow
them to co-optimize their energy and ancillary services markets. They
argue that, without such a requirement, an RTO/ISO may dispatch a
resource to provide ancillary services when it would have been more
economically efficient to dispatch the resource to provide energy or
may not be able to determine which resource(s) that have cleared as
reserves it would be most economically efficient to dispatch for energy
when contingencies arise. They contend that removing this requirement
would therefore decrease overall market efficiency, increasing costs to
consumers and uplift costs.
---------------------------------------------------------------------------

    \137\ See CAISO Comments at 7-8; ISO-NE Comments at 15-17; NYISO
Comments at 7-9.
---------------------------------------------------------------------------

    116. In terms of the technical difficulties of removing the
requirement that a resource have an energy schedule to provide
ancillary services, EPRI notes that some RTOs/ISOs require zero-cost
offers for certain ancillary services in the real-time market.\138\
EPRI states that prices for these ancillary services are based on the
opportunity costs that the marginal ancillary service provider incurs
to provide ancillary services instead of energy. Energy Storage
Association and EPRI contend that, without providing an energy offer,
an electric storage resource will not have a lost opportunity
cost.\139\ EPRI notes that therefore the electric storage resource will
not be able to set the price at a non-zero value when it is the
marginal resource providing ancillary services.
---------------------------------------------------------------------------

    \138\ See EPRI Comments at 15.
    \139\ See Energy Storage Association Comments at 12; EPRI
Comments at 15;
---------------------------------------------------------------------------

    117. Guannan He argues that there is no need for the Commission to
require each RTO/ISO to remove any requirement that a resource have an
energy schedule to provide ancillary services if electric storage
resources specify through their energy schedules when they are online
or offline.\140\
---------------------------------------------------------------------------

    \140\ See Guannan He Comments at 1-2.
---------------------------------------------------------------------------

    118. While Advanced Energy Economy and Electric Vehicle R&D Group
argue that the Commission should require each RTO/ISO to remove any
requirement that an electric storage resource have an energy schedule
to provide ancillary services, they state that, if the Commission
decides to retain the requirement, the Commission should make certain
clarifications in the final rule or require each RTO/ISO to revise its
existing market rules with respect to the provision of ancillary

services.\141\ Specifically, Advanced Energy Economy argues that the
Commission should require each RTO/ISO to revise its tariff to allow an
electric storage resource to account for its charge and discharge
parameters. In addition, Advanced Energy Economy states that the
Commission should provide assurances that an electric storage resource
that manages its state of charge through energy offers will not be
mitigated or deemed engaged in withholding. Electric Vehicle R&D Group
argues that electric storage resources should be allowed to set their
energy schedule to zero or a small negative number to compensate for
losses.
---------------------------------------------------------------------------

    \141\ See Advanced Energy Economy Comments at 27; Electric
Vehicle R&D Group Comments at 1.
---------------------------------------------------------------------------

c. Commission Determination
    119. Upon consideration of the comments, we will not require each
RTO/ISO to modify rules requiring resources to have an energy schedule
to participate in the ancillary service markets. While some electric
storage resources may be technically capable of providing ancillary
services without an energy schedule and could represent those
capabilities in their bidding parameters and performance tests, we are
persuaded by commenters that requiring the RTOs/ISOs to adjust the
requirement to have an energy schedule to provide ancillary services
could result in less efficient dispatch, potentially increasing costs.
Moreover, we recognize the importance of co-optimization in clearing
and dispatch software and appreciate that the RTOs/ISOs have developed
different, individual approaches to co-optimizing their energy and
ancillary service markets. Upon consideration of the comments, we do
not find, on a generic basis, that a requirement to have an energy
schedule to participate in the ancillary service markets is necessarily
an unreasonable requirement for the participation of electric storage
resources in those markets because such a requirement may be necessary
to support economically efficient dispatch within a particular RTO/ISO
market.
    120. However, we agree with commenters that some fast-responding
electric storage resources are technically capable of providing
ancillary services without an energy schedule. We also acknowledge that
some RTO/ISO market rules already allow resources to provide some
ancillary services, namely regulation, without the requirement to
participate in the energy market. Such opportunities for participation
in certain ancillary service markets without an energy schedule suggest
that there may be instances (i.e., for certain ancillary services in
certain RTO/ISO markets) in which allowing a resource to provide an
ancillary service without an energy schedule may enhance market
efficiency. Therefore, we encourage each RTO/ISO to consider whether
fast-responding electric storage resources may be able to provide
certain ancillary services in its markets without an energy schedule.
4. NERC Definitions
a. NOPR Request for Comment
    121. In the NOPR, the Commission noted that it appears that some of
the Glossary of Terms definitions used in NERC reliability standards
were created for synchronous generation.\142\ Therefore, the Commission
sought comment on whether and to what extent the Commission-approved
NERC Glossary of Terms and associated reliability standards or regional
reliability requirements may create barriers to the participation of
electric storage resources or other non-synchronous technologies in the
RTO/ISO markets.
---------------------------------------------------------------------------

    \142\ See NOPR at P 52.
---------------------------------------------------------------------------

b. Comments
    122. Several commenters argue that the NERC reliability standards
and regional reliability requirements do not present a barrier to
electric storage resources participating in wholesale electric
markets.\143\ Both AES Companies and EEI note, however, that
modifications to the reliability standards may be appropriate in the
future. NERC argues that its reliability standards are technology
neutral and provide the responsible entity, usually the balancing
authority, with flexibility to meet their performance-based
requirements.\144\ Furthermore, Imperial Irrigation District and NERC
point to an interpretation of regional Reliability Standard BAL-002-
WECC-2 that acknowledges that non-traditional resources, including
electric storage resources, are capable of meeting the operating
reserves-spinning requirement of the regional standard.\145\
---------------------------------------------------------------------------

    \143\ See AES Companies Comments at 24; CAISO Comments at 8; EEI
Comments at 8; NERC Comments at 2.
    \144\ See NERC Comments at 4-5.
    \145\ See Imperial Irrigation District Comments at 4; NERC
Comments at 6 (citing N. Am. Elec. Reliability Corp., Docket No.
RD17-3-000 (Jan. 24, 2017) (delegated letter order)).
---------------------------------------------------------------------------

    123. Other commenters contend that it may be appropriate to revise
the NERC Glossary of Terms to ensure that the definitions reflect the
physical and operational characteristics of electric storage resources
and other non-synchronous technologies.\146\ NESCOE contends that
certain definitions in the NERC Glossary of Terms may limit electric
storage resources' participation in the reserves markets, while
Massachusetts State Entities assert that Northeast Power Coordinating
Council rules, which Massachusetts State Entities do not specifically
identify, may prohibit inverter-based resources, including electric
storage resources, from providing spinning reserves. Exelon notes that
the NERC definitions were written before the development of electric
storage resources and if those definitions or reliability standards are
being read to exclude certain resources, then those definitions or
reliability standards should be carefully reviewed to determine whether
the exclusionary language is necessary for purposes of reliability.
---------------------------------------------------------------------------

    \146\ See, e.g., ELCON Comments at 5, 9-10 (citing the NOPR's
summary of comments that asserted, for example, that the NERC
Glossary's definitions of Spinning Reserves and Operating Reserve-
Spinning may be barriers to non-synchronous resources seeking to
provide reserve products; see, e.g., NOPR at P 44); EPRI Comments at
15-16; Exelon Comments at 7-8; Massachusetts State Entities Comments
at 15-16; MISO Comments at 14; National Hydropower Association
Comments at 8; NYISO Comments at 7; Tesla/SolarCity Comments at 12-
14.
---------------------------------------------------------------------------

    124. Tesla/SolarCity suggest that (1) NERC should modify the
definitions of ancillary services in its Glossary of Terms to eliminate
any apparent requirement that ancillary service providers must be
``generation'' or ``synchronized;'' (2) in its compliance filing, each
RTO/ISO should identify any reliability standards that prevent it from
making Commission-directed tariff changes to accommodate electric
storage resource participation; and (3) the Commission should make
clear in the final rule that reliability standards that were developed
for or favor conventional generators without technical justification
must be changed to allow the participation of all resources unless
there are technical limitations.
    125. EPRI discusses the following potential revision to the NERC
Glossary of Terms. While EPRI notes that the NERC definition of
Operating Reserve-Spinning includes the phrase ``generation
synchronized to the system,'' according to EPRI, resources providing
spinning/synchronized reserves do not necessarily need to be
synchronous resources but rather must be able to respond as soon as
they are directed to do so. EPRI states that it would be useful to
discuss this clarification with NERC and industry. SPP also notes that
a spinning reserve

product, by definition, means the resource must be synchronized and
spinning.\147\
---------------------------------------------------------------------------

    \147\ See SPP Comments at 8.
---------------------------------------------------------------------------

c. Commission Determination
    126. Upon consideration of the comments, we find that the
Commission-approved NERC reliability standards, the associated Glossary
of Terms, and regional reliability standards do not create barriers to
the participation of electric storage resources or other non-
synchronous technologies in the RTO/ISO markets. We find persuasive
NERC's argument that its reliability standards are technology neutral
and provide electric storage resources with flexibility to meet their
performance-based requirements. Moreover, no commenter has demonstrated
that the NERC Glossary of Terms and associated reliability standards or
regional reliability requirements preclude electric storage resources
or other non-synchronous technologies from providing the services that
they are technically capable of providing in the RTO/ISO markets.

D. Participation in the RTO/ISO Markets as Supply and Demand

1. Eligibility To Participate as a Wholesale Seller and Wholesale Buyer
a. NOPR Proposal
    127. In the NOPR, the Commission proposed to require each RTO/ISO
to revise its tariff to ensure that electric storage resources can be
dispatched and can set the wholesale market clearing price as both a
wholesale seller and wholesale buyer, consistent with existing rules
that govern when a resource can set the wholesale price.\148\ The
Commission also proposed that, for a resource using the proposed
participation model for electric storage resources to be able to set
prices in the RTO/ISO markets as either a wholesale seller or a
wholesale buyer, it must be available to the RTO/ISO as a dispatchable
resource.\149\ This proposal included the requirements that the RTOs/
ISOs accept wholesale bids from electric storage resources to buy
energy so that the economic preferences of electric storage resources
are fully integrated into the market, the electric storage resource can
set the price as a load resource where market rules allow, and the
electric storage resource can be available to the RTO/ISO as a
dispatchable demand asset.\150\ The Commission noted that these
requirements must not prohibit electric storage resources from
participating in the RTO/ISO markets as price takers, consistent with
the existing rules for self-scheduled load resources. The Commission
also proposed that resources using the participation model for electric
storage resources be able to set the price in the capacity markets,
where applicable.
---------------------------------------------------------------------------

    \148\ See NOPR at P 81.
    \149\ See id. P 84.
    \150\ See id. P 81.
---------------------------------------------------------------------------

    128. Finally, the Commission sought comment on whether any existing
RTO/ISO rules may unnecessarily limit the ability of resources using
the participation model for electric storage resources to set prices in
the RTO/ISO markets.\151\
---------------------------------------------------------------------------

    \151\ See id. P 84.
---------------------------------------------------------------------------

b. Comments
i. Wholesale Seller/Wholesale Buyer
    129. Numerous commenters agree with the Commission's proposal to
require each RTO/ISO to permit electric storage resources to be able to
be dispatched as both supply and demand and to set wholesale market
clearing prices as both a wholesale seller and wholesale buyer.\152\
Commenters state that this proposal appropriately recognizes the full
bidirectional value of electric storage resources, their fast response
times, and limited energy and allows for greater grid efficiency,
greater competition, and downward pressure on wholesale prices and
system costs.\153\ Institute for Policy Integrity also argues that such
participation could reduce peak energy costs by replacing inefficient
thermal units, reduce price volatility by shifting load from peak to
off-peak, improve overall reliability on the electric grid, and reduce
the need for cost-intensive investment in electric transmission
infrastructure.
---------------------------------------------------------------------------

    \152\ See, e.g., Efficient Holdings Comments at 17; Imperial
Irrigation District Comments at 10-11; National Hydropower
Association Comments at 9; NYPA Comments at 11; R Street Institute
Comments at 6; Tesla/SolarCity Comments at 15.
    \153\ See, e.g., Avangrid Comments at 7; Energy Storage
Association Comments at 6-7, 17, 18; Imperial Irrigation District
Comments at 11; Institute for Policy Integrity Comments at 3-4; SPP
Comments at 13.
---------------------------------------------------------------------------

    130. Tesla/SolarCity add that, as more variable energy resources
come online, the value of having dispatchable loads capable of setting
market prices will become greater and this feature of the market will
become increasingly valuable.\154\ Research Scientists agree that the
economic preferences of energy storage resources should be reflected in
the market clearing as both load and supply, in line with other load
resources in the grid.\155\ Magnum supports the ability of electric
storage resources to participate as a dispatchable load but not if it
precludes the generation function of its technology from participating
in market opportunities because the two functions can occur
simultaneously.\156\
---------------------------------------------------------------------------

    \154\ See Tesla/SolarCity Comments at 15.
    \155\ See Research Scientists Comments at 8.
    \156\ See Magnum Comments at 13.
---------------------------------------------------------------------------

    131. Several RTOs/ISOs, including CAISO, ISO-NE, NYISO, and SPP,
also express general support for the Commission's proposals.\157\ MISO
agrees that a resource optimized through the market clearing process
should be allowed to set wholesale prices but states that determining
the rules and conditions under which electric storage resources should
be cleared and optimized in the markets will require significant time
and resources.\158\
---------------------------------------------------------------------------

    \157\ See CAISO Comments at 13; ISO-NE Comments at 21; NYISO
Comments at 10; SPP Comments at 13.
    \158\ See MISO Comments at 7.
---------------------------------------------------------------------------

    132. MISO Transmission Owners caution that state laws may affect an
electric storage resource's status as a seller or buyer, arguing that
states and distribution utilities should retain authority to manage
this aspect of electric storage resources in their areas.\159\ MISO
Transmission Owners also assert that it is technologically challenging
to enforce a requirement for a behind-the-meter electric storage
resource to buy electricity at wholesale. Xcel Energy Services
conditions its support upon resources being dedicated wholesale
resources that do not have the ability to arbitrage wholesale and
retail rates.\160\ EEI supports the proposal on the condition that the
Commission clarify that an electric storage resource bidding into the
wholesale markets that is interconnected to the transmission system
must charge at wholesale rates, while an electric storage resource
interconnected to the distribution system must pay any applicable
charges under state jurisdictional tariffs for its use of state
jurisdictional facilities.\161\
---------------------------------------------------------------------------

    \159\ See MISO Transmission Owners Comments at 11-12.
    \160\ See Xcel Energy Services Comments at 23.
    \161\ See EEI Comments at 12.
---------------------------------------------------------------------------

    133. While Open Access Technology conditionally supports the NOPR
proposal, it requests that the Commission clarify whether a storage
resource in charging mode is considered as negative demand response
(i.e., load increase instead of load reduction).\162\
---------------------------------------------------------------------------

    \162\ See Open Access Technology Comments at 2.
---------------------------------------------------------------------------

    134. Several commenters state that electric storage resources
should have the same ability as other resources to self-schedule within
the requirements of the RTO/ISO and participate in the

RTO/ISO markets as a price taker.\163\ Energy Storage Association
further recommends that the Commission clarify that the option to self-
schedule should apply to storage resources both as buyers and as
sellers and not just as ``load resources.'' APPA/NRECA contend that, if
electric storage resources are not permitted to participate as price
takers on the same basis as any other self-scheduled resource, it will
create a disincentive to load serving entity investment and utilization
of electric storage resources, which will undermine the Commission's
goals.
---------------------------------------------------------------------------

    \163\ See, e.g., APPA/NRECA Comments at 15-16; Avangrid Comments
at 7; Energy Storage Association Comments at 18; NYISO Comments at
10; Tesla/SolarCity Comments at 15.
---------------------------------------------------------------------------

    135. Dominion asserts that, in order to improve price transparency,
the Commission should consider allowing a pumped-hydro resource to
submit its dispatch cost to the RTO while preserving its right to self-
schedule in the real-time market.\164\ While MISO Transmission Owners
generally support the Commission's proposal to allow electric storage
resources to participate as a wholesale buyer and seller, they state
that it is important to consider any unintended consequences regarding
an electric storage resource owner's ability to self-schedule the unit
if needed to meet load demand conditions and maintain power quality and
reliability.\165\ NYISO points out that self-schedule offers will not
allow the resource to participate as a supply and demand resource
simultaneously because self-schedule offers indicate the resource's
desired schedule.\166\ AES Companies argue that the Commission should
not require the RTOs/ISOs to allow electric storage resources to be
price takers; rather, this should be an RTO/ISO-specific decision
because the markets are different and the decision to self-schedule may
have unintended consequences and could skew market results.\167\
---------------------------------------------------------------------------

    \164\ See Dominion Comments at 6.
    \165\ See MISO Transmission Owners Comments at 11.
    \166\ See NYISO Comments at 10.
    \167\ See AES Companies Comments at 25.
---------------------------------------------------------------------------

ii. Dispatchability
    136. Some commenters support the Commission's proposal that an
electric storage resource must be available to the RTO/ISO as a
dispatchable resource to set prices in the RTO/ISO markets.\168\ EPRI
asserts that, assuming an energy storage resource is dispatchable with
a range of output, it should have no limitations to setting the price
as either a wholesale seller or a wholesale buyer when it is marginal.
---------------------------------------------------------------------------

    \168\ See, e.g., EPRI Comments at 24; Imperial Irrigation
District Comments at 11; Starwood Energy Comments at 6.
---------------------------------------------------------------------------

    137. SPP states that, while any resource type may set the price for
any product that the resource is qualified to provide and offers to
provide in the market, the resource must be dispatchable and must have
available range to provide the system's marginal MW.\169\
---------------------------------------------------------------------------

    \169\ See SPP Comments at 15.
---------------------------------------------------------------------------

iii. Limitations on Price Setting
    138. Generally, the RTOs/ISOs do not believe that their rules limit
the ability of an electric storage resource to set prices.\170\ SPP
adds that, other than dispatchability and range requirements described
in the preceding section, it does not have restrictions that would
unnecessarily limit the ability of any resource type, including
electric storage resources, to set price. MISO states that it is
unaware of any rules that limit the ability of pumped-hydro resources
to set prices in its markets. MISO also states that stored energy
resources provide only regulation and are price-takers for energy. MISO
recommends studying the basic participation model(s) for electric
storage resources in more detail before identifying any necessary
adjustments to an RTO/ISO market's price-setting rules.
---------------------------------------------------------------------------

    \170\ See, e.g., ISO-NE Comments at 21; MISO Comments at 18; PJM
Comments at 18; SPP Comments at 15.
---------------------------------------------------------------------------

    139. SoCal Edison and Xcel Energy Services state that they are not
aware of any RTO/ISO rules that would unnecessarily limit the ability
of storage resources to set market prices, except in some cases where
RTO market software does not allow a resource at minimum output to set
price.\171\
---------------------------------------------------------------------------

    \171\ See SoCal Edison Comments at 17; Xcel Energy Services
Comments at 23.
---------------------------------------------------------------------------

    140. Some commenters argue that electric storage resources should
be allowed to set prices if they meet certain requirements, including
the minimum requirements for each service.\172\ PJM Market Monitor
argues that storage resources should be eligible to set price on the
basis of dispatch if the storage resource meets all other relevant
requirements and has the necessary telemetry and metering. Dominion
supports the ability for electric storage resources to set prices in
the energy market when applicable if (1) the current day-ahead market
pricing rules applicable to pumped-hydro optimization are preserved and
(2) the Commission directs each RTO/ISO to create a methodology to
calculate accurate real-time offers and in situations where electric
storage resources designate themselves dispatchable.
---------------------------------------------------------------------------

    \172\ See, e.g., Dominion Comments at 6; NYPA Comments at 11;
PJM Market Monitor Comments at 7.
---------------------------------------------------------------------------

    141. AES Companies assert that the individual RTOs/ISOs and their
stakeholders should decide whether and how electric storage resources
may set prices in the capacity markets because the capacity constructs
in each differ.\173\ Avangrid contends that electric storage resources
should be able to set the capacity clearing price.\174\ However,
Avangrid notes that capacity constructs that are based on real-time
performance (such as ISO-NE's Pay for Performance and PJM's Capacity
Performance) may need to guard against the ability of electric storage
resources to switch from generation to load during a capacity emergency
because it could exacerbate the need for generating capacity. Avangrid
suggests that these resources could be subjected to more severe
penalties than a generator that performs less than its capacity
commitment to guard against such concerns. Relatedly, SPP asks the
Commission to clarify the effects on scarcity pricing when an electric
storage resource moves its capacity instantly from charging to
discharging, eliminating any scarcity.\175\
---------------------------------------------------------------------------

    \173\ See AES Companies Comments at 25.
    \174\ See Avangrid Comments at 8.
    \175\ See SPP Comments at 14.
---------------------------------------------------------------------------

c. Commission Determination
    142. In this Final Rule, we adopt the NOPR proposal and add section
35.28(g)(9)(i)(B) to the Commission's regulations to require each RTO/
ISO to revise its tariff to ensure that a resource using the
participation model for electric storage resources can be dispatched as
supply and demand and can set the wholesale market clearing price as
both a wholesale seller and wholesale buyer, consistent with rules that
govern the conditions under which a resource can set the wholesale
price. Consistent with the NOPR proposal, we find that, for a resource
using the proposed participation model for electric storage resources
to be able to set prices in the RTO/ISO markets as either a wholesale
seller or a wholesale buyer, it must be available to the RTO/ISO as a
dispatchable resource. Also, consistent with the NOPR, we require that
(1) resources using the participation model for electric storage
resources be able to set the price in the capacity markets, where
applicable; (2) RTOs/ISOs must accept wholesale bids from resources
using the participation model for electric storage resources to buy
energy; and (3) resources using the

participation model for electric storage resources must be allowed to
participate in the RTO/ISO markets as price takers, consistent with the
existing rules for self-scheduled resources.
    143. Improving electric storage resources' opportunity to
participate as both wholesale sellers of services and wholesale buyers
of energy will improve market efficiency and, in turn, competition, by
allowing the RTO/ISO to dispatch these resources in accordance with
their most economically efficient use (i.e., as supply when the market
clearing price for energy is higher than their offer and as demand when
the market clearing price is lower than their bid). Additionally,
allowing electric storage resources to participate in the RTO/ISO
markets as dispatchable load will allow these resources to set the
market clearing price under certain circumstances, thus better
reflecting the value of the marginal resource and ensuring that
electric storage resources are dispatched in accordance with the
highest value service that they are capable of providing during a set
market interval. A wide range of commenters, including most RTOs/ISOs,
generally support this requirement as one that will increase economic
efficiency to the benefit of both electric storage resources and the
RTO/ISO markets in which they will more fully be able to participate.
    144. We reject AES Companies' assertion that an RTO/ISO must decide
whether to allow electric storage resources to be price takers. None of
the RTOs/ISOs have indicated that this need exists. We also find that
AES Companies have not provided support for their assertion that the
decision to self-schedule may have unintended consequences and could
skew market results. To ensure consistent treatment in the RTO/ISO
markets, we find that electric storage resources must maintain the same
ability to self-schedule their resource as other market participants.
    145. In response to EEI's, MISO Transmission Owners', and Xcel
Energy Services' jurisdictional concerns, we find that the Commission
has authority to require the RTOs/ISOs to permit any resource using the
participation model for electric storage resources participating in the
RTO/ISO markets to buy energy from those markets, consistent with the
rules related to wholesale purchasers of energy in each RTO/ISO. As
discussed in the Price for Charging Energy section below,\176\ we find
that the sale of electric energy from the grid that is used to charge
electric storage resources for later resale into the energy or
ancillary service markets constitutes a sale for resale. Therefore, to
better facilitate these wholesale purchases and improve economic
efficiency in the RTO/ISO markets, it is reasonable for the RTOs/ISOs
to allow electric storage resources to choose to participate in the
RTO/ISO markets as both supply and demand. This approach maximizes the
ability of electric storage resources to participate as wholesale
sellers and wholesale buyers in RTO/ISO markets, which will enhance
competition and, in turn, helps to ensure these markets produce just
and reasonable rates. Additionally, we note that we address EEI's
concern about an electric storage resource's use of the distribution
system in the Price for Charging Energy section below.\177\
---------------------------------------------------------------------------

    \176\ See infra P 294.
    \177\ See infra P 301.
---------------------------------------------------------------------------

    146. We disagree with SPP that there is a need to clarify in this
Final Rule the effects on scarcity pricing when an electric storage
resource moves its capacity instantly from charging to discharging.
Scarcity pricing rules vary between RTOs/ISOs and we do not have
information on the record to consider a generic clarification for all
RTOs/ISOs, nor do we find clarification is necessary to ensure that the
reforms in this Final Rule are just and reasonable and can be
implemented. In response to Avangrid, we find that it is not
appropriate to require stricter penalties for electric storage
resources during capacity emergencies. Avangrid has not shown why
electric storage resources should be subject to stricter penalties than
other resources. While we are not establishing a requirement for
resources using the participation model for electric storage resources
to pay stricter penalties during capacity emergencies, we note that
each RTO/ISO is free to evaluate the potential impacts of electric
storage resources during scarcity events and propose in a separate FPA
section 205 filing \178\ any market rules that it believes are
necessary to account for the unique physical and operational
characteristics of electric storage resources.
---------------------------------------------------------------------------

    \178\ See 16 U.S.C. 824d.
---------------------------------------------------------------------------

    147. We also reject MISO's recommendation to study in more detail
the basic participation model(s) for electric storage resources before
identifying any necessary adjustments to an RTO/ISO market's price-
setting rules. We believe that the flexibility that we provide each
RTO/ISO to implement this Final Rule renders moot MISO's assertion that
more study is necessary.
    148. In response to Energy Storage Association's recommendation
that the option to self-schedule should apply to electric storage
resources both as buyers and as sellers, we clarify that the ability of
electric storage resources to participate as price takers will not be
limited to their participation as load. Electric storage resources
should also be able to self-schedule when they participate in the RTO/
ISO markets as a supply resource consistent with rules governing how
other resources self-schedule. This requirement helps to ensure that
electric storage resources are treated consistently with the ability of
self-scheduled load resources and traditional generation resources to
participate in the RTO/ISO markets.
    149. Additionally, in response to Dominion's concerns regarding the
ability of electric storage resources to set prices in the energy
market, particularly as it relates to pumped-hydro resources and the
preservation of existing rules related to their optimization, we
clarify that we are not requiring the RTOs/ISOs to change their
participation models for pumped-hydro resources in response to this
Final Rule. However, we require each RTO/ISO to establish means by
which all electric storage resources, including pumped-hydro resources,
can participate as wholesale sellers and wholesale buyers in the RTO/
ISO markets using a participation model for electric storage resources.
This requirement ensures that the RTO/ISO markets value the
participation of all electric storage resources as both supply and
demand.
    150. Additionally, in response to Open Access Technology, we
clarify that we do not consider electric storage resources in charging
mode to be negative demand response. This Final Rule requires an
electric storage resource to be eligible to participate in the RTO/ISO
markets as a wholesale buyer and for each RTO/ISO to be able to
dispatch them as such. Such a mechanism would entail participation in
the energy markets, not the provision of a new service, recognizing
that electric storage resources may also be dispatched to consume
electricity when they are providing certain ancillary services (such as
frequency regulation).
2. Mechanisms To Prevent Conflicting Dispatch Instructions
a. NOPR Request for Comments
    151. In the NOPR, the Commission preliminarily concluded that the
proposed requirement to participate as a supply and demand resource
simultaneously (i.e., submit bids to buy and offers to sell during the
same market interval) is necessary to maximize the value that electric
storage resources can provide in the RTO/ISO

markets, allowing the markets to identify whether it is more economic
to dispatch an electric storage resource as supply or demand during a
given market interval.\179\ The Commission stated that it expected
that, through its bidding strategy, a resource using the electric
storage resource participation model would be able to prevent any
conflicting dispatch signals to itself. However, the Commission sought
comment on whether there should be a mechanism that identifies bids and
offers coming from the same resource to ensure the price for the offer
to sell is not lower than the price for the bid to buy during the same
market interval so that an RTO/ISO does not accept both the offer and
bid of a resource using the electric storage resource participation
model for that interval.
---------------------------------------------------------------------------

    \179\ See NOPR at P 83.
---------------------------------------------------------------------------

b. Comments
    152. Regarding the issue of preventing conflicting dispatch
signals, AES Companies, Efficient Holdings, and PJM Market Monitor
agree with the Commission that a resource using the electric storage
resource participation model would be able to prevent any conflicting
dispatch signals itself through a bidding strategy and fuel management
plan.\180\
---------------------------------------------------------------------------

    \180\ See AES Companies Comments at 26; Efficient Holdings
Comments at 17; PJM Market Monitor Comments at 8.
---------------------------------------------------------------------------

    153. In contrast, Bonneville, Imperial Irrigation District, and NRG
argue that the Commission should not rely on an electric storage
resource's bidding strategy to prevent conflicting dispatch signals to
itself and argue that a screening mechanism in RTO/ISO software would
be a more robust approach than relying on rational bids and offers
coming from the same resource.\181\ Xcel Energy Services agrees but
seeks assurance that any RTO/ISO mechanism to prevent such conflicts
would work and not create unintended consequences for market dispatch
of the resource.\182\ EPRI states that an RTO/ISO can likely put a
fairly straightforward constraint within its security-constrained unit
commitment or security-constrained economic dispatch model to prevent
conflicting dispatch signals.\183\ R Street Institute and Research
Scientists believe that building logical checks into the market
clearing software could avoid this problem.\184\
---------------------------------------------------------------------------

    \181\ See Bonneville Comments at 5; Imperial Irrigation District
Comments at 11; NRG Comments at 14.
    \182\ See Xcel Energy Services Comments at 23.
    \183\ See EPRI Comments at 23-24.
    \184\ See R Street Institute Comments at 6; Research Scientists
Comments at 8-9.
---------------------------------------------------------------------------

    154. Avangrid, Imperial Irrigation District, and SoCal Edison agree
with the Commission that the RTOs/ISOs should not allow an electric
storage resource to submit a buy bid that is higher than its sell offer
in the same market interval because there is no economic reason to do
so.\185\ Imperial Irrigation District and NRG argue that RTO/ISO
software should ensure that, when an electric storage resource submits
both supply and demand bids, the offer to sell is not lower than the
price for the bid to buy during a single market interval.\186\ SoCal
Edison is also concerned that there may be an incentive for an electric
storage resource to submit conflicting bids and offers in markets that
allow some form of uplift payments.
---------------------------------------------------------------------------

    \185\ See Avangrid Comments at 8; Imperial Irrigation District
Comments at 11; SoCal Edison Comments at 17.
    \186\ See Imperial Irrigation District Comments at 11; NRG
Comments at 14.
---------------------------------------------------------------------------

    155. CAISO states that its Non-Generator Resource participation
model, which was designed with electric storage resources in mind,
allows Non-Generator Resources to submit an economic bid that spans a
negative to positive capacity range.\187\ CAISO explains that this
single bid curve avoids conflicting dispatch. MISO similarly states
that it has a method for Demand Response Resources--Type II that could
be implemented for electric storage resources to allow a smooth
dispatch range between a negative minimum limit and a positive maximum
limit.\188\
---------------------------------------------------------------------------

    \187\ See CAISO Comments at 14.
    \188\ See MISO Comments at 17.
---------------------------------------------------------------------------

    156. SPP agrees that the coordination of a single asset as both
load and generation is important, stating that both the mechanism
utilized and the rules should ensure that the offers for use as load
and generation would be monotonically increasing.\189\ However, SPP
notes that non-LMP components (e.g., start-up costs) may need specific
consideration to avoid a situation where such costs are not considered
in dispatch. ISO-NE does not believe any mechanism is necessary to
avoid conflicting dispatch instructions, noting that to avoid this
problem, starting in December 2018, it plans to use a single dispatch
signal that reflects the net supply and demand dispatch.\190\ ISO-NE
adds that the Commission should not be overly prescriptive in this
area, instead allowing each RTO/ISO to address these sorts of issues as
necessary. NYISO requests that offers for simultaneous participation as
supply and demand include an incremental cost construct that allows an
electric storage resource's offer price for demand to be less than its
offer price for supply and gives each RTO/ISO flexibility to determine
an offer construct that best fits its software design.\191\
---------------------------------------------------------------------------

    \189\ See SPP Comments at 15.
    \190\ See ISO-NE Comments at 22.
    \191\ See NYISO Comments at 10.
---------------------------------------------------------------------------

    157. Consistent with the single bid curve approach suggested by
some RTOs/ISOs, Energy Storage Association, and NextEra request that
the Commission direct RTOs/ISOs to permit electric storage resources to
enter an energy bid curve with price/quantity pairs for providing and
withdrawing energy (bidding different quantities of positive or
negative MW for different energy prices) in both day-ahead and real-
time markets.\192\
---------------------------------------------------------------------------

    \192\ See Energy Storage Association Comments at 17-18; NextEra
Comments at 10, n.14.
---------------------------------------------------------------------------

    158. Ohio Commission recommends that the market monitors review all
buy bids and sell offers to confirm that a resource is appropriately
providing a marginal cost-based bid and not exercising market
power.\193\ While EEI is not aware of this issue currently, it claims
that it could arise as new technologies buy and sell in the same
interval; therefore, it suggests that the Commission discuss this issue
at a technical conference to determine if adequate monitoring
mechanisms exist.\194\
---------------------------------------------------------------------------

    \193\ See Ohio Commission Comments at 8.
    \194\ See EEI Comments at 13.
---------------------------------------------------------------------------

    159. Efficient Holdings, Energy Storage Association, and NYPA
support requiring electric storage resources to participate
simultaneously as generation and load to maximize the value they can
provide and provide the RTO/ISO with more flexibility to operate its
system.\195\ Efficient Holdings contends that simultaneous buy and sell
offers allow storage operators to absorb extra power when prices are
low, thus lowering operators' fuel costs and adding greater flexibility
to market operations and optimizing energy costs.
---------------------------------------------------------------------------

    \195\ See Efficient Holdings Comments at 17; Energy Storage
Association Comments at 18; NYPA Comments at 9.
---------------------------------------------------------------------------

    160. While Energy Storage Association argues that electric storage
resources should be permitted to participate in the RTO/ISO markets
simultaneously as generation and load, it argues that they should not
have to register as, or be modeled as, two separate resources (i.e.,
generation and load) because it would limit the flexibility of
scheduling and dispatching

the storage resource in several ways.\196\ Energy Storage Association
asserts that this would generally (1) only allow a resource to inject
or withdraw energy on a bidding interval (i.e., hourly) basis, rather
than allowing switching between buying and selling energy on a dispatch
interval (i.e., five-minute) basis; and (2) include transition time for
switching from one mode of operation to another, which newer electric
storage resources do not require. Energy Storage Association believes
that an electric storage resource should be able to both withdraw
energy from, and provide energy to, the grid and switch between states
from one (five-minute) dispatch interval to the next, so it can be
dispatched seamlessly across its full range (i.e., from positive to
negative). Energy Storage Association contends that permitting
resources to indicate their willingness to charge or discharge based on
5-minute pricing will allow RTOs/ISOs to more fully utilize the unique
capabilities of electric storage resources.
---------------------------------------------------------------------------

    \196\ See Energy Storage Association Comments at 13, 18.
---------------------------------------------------------------------------

    161. In contrast, AES Companies argue that there is no reason to
restrict an electric storage resource from both buying and selling in
the same market interval because some electric storage technologies
allow the resource owner to operate separate nodes independently.\197\
Tesla/SolarCity argue that, while it is very likely that many electric
storage resources will participate both as demand and supply resources
in the same intervals during most times, the Commission should not
require this because there are no efficiency gains and some optionality
will be lost.\198\
---------------------------------------------------------------------------

    \197\ See AES Companies Comments at 25-26.
    \198\ See Tesla/SolarCity Comments at 16.
---------------------------------------------------------------------------

c. Commission Determination
    162. While we find that simultaneous participation of resources
using the participation model for electric storage resources as supply
and demand may enable more efficient use of those resources, we also
find that each RTO/ISO must have in place market rules that prevent
conflicting dispatch signals in the same market interval in order to
avoid any operational uncertainties or reliability concerns that could
arise. In addition, while we agree with commenters that conflicting
dispatch instructions will be prevented if market participants
accurately represent their economic preferences in their bids, we find
that relying on the expected behavior of market participants is not
sufficient to alleviate the related operational concerns. Therefore, to
mitigate the potential occurrence of conflicting dispatch instructions
and to implement the new requirement in section 35.28(g)(9)(i)(B) of
the Commission's regulations, on compliance to this Final Rule, we
require each RTO/ISO to either (1) demonstrate that its market design
will not allow for conflicting supply offers and demand bids from the
same resource for the same market interval or (2) modify its market
rules to prevent conflicting supply offers and demand bids from the
same resource for the same market interval.
    163. Several approaches could address conflicting dispatch. We
agree with commenters that allowing electric storage resources to
represent their full economic range (both charging and discharging) in
a single bid could avoid concerns with conflicting dispatch signals and
give electric storage resources the flexibility to participate as
supply, demand, or both through one bid. However, while we agree this
approach could be effective at mitigating conflicting dispatch signals,
there may be other reasonable approaches compatible with existing
market designs in other RTOs/ISOs to prevent conflicting dispatch. For
example, we agree with Bonneville, Imperial Irrigation District, and
NRG that a screening mechanism in RTO/ISO software could also prevent
conflicting dispatch. We also agree with NYISO that a cost construct
that ensures that the price of offers to sell are not lower than the
price for bids to buy may be reasonable. Therefore, we will not require
a specific approach in this Final Rule but require that the approach
chosen by each RTO/ISO mitigates the possibility of conflicting
dispatch instructions. However, we disagree with the Ohio Commission
that it could be the responsibility of the market monitors to review
bids to address conflicting dispatch and clarify that the RTO/ISO is
responsible for preventing conflicting dispatch.
    164. In response to the comment suggesting resources using the
participation model for electric storage resources should be able to
enter an energy bid curve providing and withdrawing energy in both day-
ahead and real-time markets, we clarify that resources using the
participation model for electric storage resources should be able to
submit offers to sell and bids to buy energy consistent with the
opportunities available to other market participants in both the day-
ahead and real-time markets. We also find a technical conference, as
recommended by EEI, is unnecessary at this time given the existence of
viable solutions to this issue identified by other commenters and given
the flexibility that we provide each RTO/ISO and other market
participants to address this issue.
    165. Lastly, we clarify that, while each RTO/ISO should allow
resources using the participation model for electric storage resources
to participate as supply and demand simultaneously (i.e., submit bids
to buy and offers to sell during the same market interval), the RTOs/
ISOs should not require resources using the participation model for
electric storage resources to participate as supply and demand
simultaneously.
3. Make-Whole Payments
a. NOPR Request for Comments
    166. In the NOPR, the Commission noted that a resource using the
proposed participation model for electric storage resources that elects
to submit an economic bid as a wholesale buyer and participate as a
dispatchable demand resource would still be able to self-schedule its
charging and be a price taker.\199\ However, the Commission noted that
it is possible that the RTO/ISO could dispatch an electric storage
resource as load when the wholesale price for energy is above the price
of their bid to buy (a circumstance under which they would lose the
opportunity to earn greater revenues as a supply resource). Therefore,
to help alleviate any potential financial risk to electric storage
resources when being dispatched as a demand resource, the Commission
sought comments on whether the proposed participation model for
electric storage resources should allow make-whole payments when a
resource participating under this participation model is dispatched as
load and the price of energy is higher than the resource's bid price.
---------------------------------------------------------------------------

    \199\ See NOPR at P 85.
---------------------------------------------------------------------------

b. Comments
    167. Several commenters support allowing make-whole payments when
an electric storage resource is dispatched as load and the price of
energy is higher than the resource's bid price.\200\ Avangrid, EEI, and
ISO-NE state that electric storage resources should be treated
comparably to other resources with regard to make-whole payments.\201\
Avangrid states that, if the RTO/ISO uses electric storage resources as
both generation and load, the reasoning for make-whole payments

exists in either direction. California Energy Storage Alliance asks the
Commission to require all electric storage participation models to
include the ability to recover commitment costs and receive make-whole
payments.\202\ Trans Bay asks the Commission to clarify that the NOPR
does not preclude electric storage resources from receiving any non-
market payments, including make-whole payments.\203\ While American
Petroleum Institute does not oppose make-whole payments in principle,
it argues these payments should not subsidize some technologies by
mitigating the higher downside risk that should be managed by the
owners of those resources.\204\
---------------------------------------------------------------------------

    \200\ See, e.g., CAISO Comments at 15; NRG Comments at 19; SoCal
Edison Comments at 17-18; Tesla/SolarCity Comments at 17.
    \201\ See Avangrid Comments at 8; EEI Comments at 13; ISO-NE
Comments at 21-22.
    \202\ See California Energy Storage Alliance Comments at 11.
    \203\ See Trans Bay Comments at 4.
    \204\ See American Petroleum Institute Comments at 6.
---------------------------------------------------------------------------

    168. Several commenters suggest that the Commission should not set
specific requirements for make-whole payments in this final rule but
should provide the RTOs/ISOs flexibility to establish rules for make-
whole payments, if appropriate.\205\ Six Cities state that, if the
Commission allows RTOs/ISOs to propose make-whole payments for electric
storage resources, such payments should only be allowed in limited
circumstances to prevent any undue preference for electric storage
resources. Six Cities assert, if make-whole payments are allowed, they
should be analogous to criteria for bid cost recovery within CAISO or
other analogous payments.
---------------------------------------------------------------------------

    \205\ See MISO Transmission Owners Comments at 12; Six Cities
Comments at 7-8 (citing CAISO Tariff at Sec.  11.8); SoCal Edison
Comments at 18.
---------------------------------------------------------------------------

    169. Several commenters raise concerns about the complexity of
requiring make-whole payments.\206\ MISO requests that the Commission
hold a series of technical conferences to address significant design
and compensation issues. SoCal Edison contends that make-whole payments
need to work in conjunction with other mechanisms (such as market power
mitigation, temporal and product revenue netting, and specific bidding
rules). Xcel Energy Services states that make-whole payments require
further consideration to ensure electric storage resources are treated
comparably to other resources and to avoid unnecessary uplift charges.
---------------------------------------------------------------------------

    \206\ See MISO Comments at 18-19; SoCal Edison Comments at 18;
Xcel Energy Services Comments at 18.
---------------------------------------------------------------------------

    170. Some commenters assert that make-whole payments are not
necessary in certain circumstances.\207\ ELCON and PJM reason that
make-whole payments are not necessary for electric storage resources
when they are dispatched as load and the price of energy is higher than
the resource's bid price. Similarly, Electric Vehicle R&D Group states
that make-whole payments do not seem necessary. ELCON believes that the
resource should bear the financial risk of uneconomic dispatch.
---------------------------------------------------------------------------

    \207\ See ELCON Comments at 5-6; Electric Vehicle R&D Group
Comments at 1; PJM Comments at 18-19.
---------------------------------------------------------------------------

    171. Similar to how self-committed resources may not be able to
receive make-whole payments for start-up costs, EPRI cautions that each
RTO/ISO should consider whether certain costs should be eligible for
make-whole payments when an electric storage resource self-manages its
state-of-charge.\208\ MISO contends that the potential appropriateness
of make-whole payments may depend on whether the state of charge is
managed by an electric storage resource or optimized by the RTO.\209\
NYPA argues that, if the system operator is given state of charge
control over a storage resource, RTO/ISO tariffs must compensate the
resource if and when it is dispatched out of economic merit order.\210\
NYPA asserts that this compensation should apply to: (1) Electric
storage resources that are dispatched as load when the wholesale price
for energy is above the price of their bid to buy and (2) resources
withheld from generating when their energy offer is infra-marginal.
---------------------------------------------------------------------------

    \208\ See EPRI Comments at 26.
    \209\ See MISO Comments at 18-19.
    \210\ See NYPA Comments at 12.
---------------------------------------------------------------------------

    172. Other commenters believe that the Commission should not
require the RTO/ISO to provide make-whole payments to electric storage
resources because they should be able to self-manage in a way that
eliminates the need for make-whole payments and achieves better price
formation.\211\ Acknowledging that make-whole payments are one
potential solution to mitigate potential financial shortfalls, AES
Companies contend that changes to the optimization price determination
and the granting of flexibility for electric storage resources to
manage their fuel use is preferable to make-whole payments. PJM Market
Monitor similarly argues that market participants should decide when it
is economic to buy and sell rather than create rules through which the
market operator could dispatch a storage resource in a way inconsistent
with its economics and then compensate it through an uplift payment.
---------------------------------------------------------------------------

    \211\ See AES Companies Comments at 28; PJM Market Monitor
Comments at 8.
---------------------------------------------------------------------------

    173. Given that PJM does not dispatch load increases, it explains
that, before engaging in this practice, it would need to consult with
stakeholders to analyze whether the benefits would justify the
costs.\212\ NYISO discourages creating price protections for electric
storage resources when they are scheduled as demand because such
treatment would not be comparable to the treatment of other resources
that are scheduled as demand, noting that regional flexibility will
provide the RTOs/ISOs with the opportunity to treat resources
comparably.\213\
---------------------------------------------------------------------------

    \212\ See PJM Comments at 18.
    \213\ See NYISO Comments at 10.
---------------------------------------------------------------------------

c. Commission Determination
    174. Given the unique capability of electric storage resources to
serve as both a supply of, and demand for, energy and to implement the
new requirement in section 35.28(g)(9)(i)(B) of the Commission's
regulations that resources using the participation model for electric
storage resources be able to be dispatched and set the wholesale market
clearing price as both a wholesale seller and wholesale buyer, we find
that the participation model for electric storage resources must allow
make-whole payments when a resource is dispatched as load and the
wholesale price is higher than the resource's bid price and when it is
dispatched as supply and the wholesale price is lower than the
resource's offer price. Therefore, as part of this Final Rule, we
require each RTO/ISO to revise its tariff to ensure that resources
available for manual dispatch as a wholesale buyer and wholesale seller
under the participation model for electric storage resources are held
harmless for manual dispatch by being eligible for make-whole payments.
Any such make-whole payments must be consistent with the rules for
make-whole payments for other dispatchable resources. This requirement
is necessary to ensure that electric storage resources are treated like
dispatchable resources that participate in the RTO/ISO markets. Because
the rules for make-whole payments vary by RTO/ISO and there are
inherent complexities in implementing this requirement, we will not
require a specific method of make-whole payments. Instead, each RTO/ISO
will have the flexibility to establish a methodology under which
resources using the participation model for electric storage resources
can receive make-whole payments.

    175. Recognizing that comprehensive market design changes could be
necessary to implement this requirement, we believe that the compliance
deadline and implementation schedule set forth in the Compliance
Requirements section \214\ should provide sufficient time for the each
RTO/ISO to work with its stakeholders to establish the necessary market
rules for make-whole payments. In addition, given the time provided for
each RTO/ISO to work with its stakeholders on this issue, we decline to
hold the technical conferences requested by MISO.
---------------------------------------------------------------------------

    \214\ See infra P 348.
---------------------------------------------------------------------------

    176. We disagree with commenters who suggest that make-whole
payments are not necessary because electric storage resources should
bear the risk of uneconomic dispatch. Modeling, software, and certain
other limitations are inherent in the complexity of the electric system
and the tools available to maintain reliable operations. Uplift, or
make-whole, payments may be needed to ensure that resources committed
and dispatched out-of-market are able to recover their operating costs.
Electric storage resources participating in the RTO/ISO markets are
subject to the same system conditions as other resources that may cause
them to be dispatched out-of-market and unable to recover their
operating costs. Therefore, resources using the electric storage
resource participation model should be able to receive the same make-
whole payments that other resources receive to remedy the problem. Not
offering make-whole payments to resources using the electric storage
resource participation model could create a barrier to their
participation in the RTO/ISO markets and be inconsistent with the
treatment of other market participants.
    177. Additionally, while the NOPR did not propose a requirement
regarding make-whole payments for resources using the participation
model for electric storage resources that are manually dispatched as
supply, we agree with commenters' concerns that, if a resource using
the participation model for electric storage resources is available to
be used by the RTO/ISO as both a supply and demand resource, then the
RTO/ISO should provide make-whole payments for the resource in both
directions. Therefore, we require each RTO/ISO to modify its tariff to
allow a resource using the participation model for electric storage
resources to be eligible for make-whole payments when acting as a
supply resource consistent with the rules governing the eligibility of
other supply resources to receive make-whole payments. This requirement
will further ensure that resources using the participation model for
electric storage resources are treated like other dispatchable
resources in the RTO/ISO markets and help make resources using the
participation model for electric storage resources available to grid
operators to address any reliability concerns through manual dispatch.
As for NYPA's suggestion to make electric storage resources whole when
they are withheld from generating when their energy offer is infra-
marginal, we find that such payments should only be provided to
resources using the participation model for electric storage resources
to the extent that such payments are already provided to other market
participants.
    178. Regarding state-of-charge management, we agree with commenters
that, if the market participant is controlling its resource, and it has
not been dispatched uneconomically by the RTO/ISO, then it would not be
appropriate for the resource using the participation model for electric
storage resources to receive make-whole payments. Similar to other
market participants, make-whole payments should only be available to
resources using the electric storage resource participation model if
the system operator dispatches that resource in a way that is
inconsistent with its bids to buy and offers to sell energy. We agree
with commenters that self-management could be a means to minimize make-
whole payments. As discussed in the State of Charge Management
section,\215\ in this Final Rule, we require each RTO/ISO to allow
electric storage resources to self-manage their state of charge.
However, to the extent that an RTO/ISO manually dispatches a resource
using the participation model for electric storage resources, that
resource must be able to recover their costs consistent with the manner
in which other market participants are able to recover their costs if
the RTO/ISO dispatches them uneconomically.
---------------------------------------------------------------------------

    \215\ See infra P 253.
---------------------------------------------------------------------------

    179. In response to NYISO and PJM, we note that one of the
requirements of this Final Rule is that each RTO/ISO have the ability
to dispatch electric storage resources as load.\216\ Therefore, in
response to PJM, it is necessary for each RTO/ISO to establish a
methodology under which resources using the participation model for
electric storage resources that participate as load are able to receive
make-whole payments. Additionally, in response to NYISO, because
electric storage resources must be able to be dispatched as load, their
eligibility to receive make-whole payments when dispatched as load
would need to be consistent with other dispatchable resources but would
not need to be consistent with the eligibility of other load resources
that are not dispatchable by the RTO/ISO.
---------------------------------------------------------------------------

    \216\ See supra P 142.
---------------------------------------------------------------------------

E. Physical and Operational Characteristics of Electric Storage
Resources

1. Requirement To Incorporate Bidding Parameters as Part of the
Electric Storage Resource Participation Model
a. NOPR Proposal
    180. In the NOPR, the Commission proposed to require each RTO/ISO
to revise its tariff to include a participation model for electric
storage resources that incorporates bidding parameters that reflect and
account for the physical and operational characteristics of electric
storage resources.\217\ Specifically, the Commission proposed that the
RTOs/ISOs establish state of charge, upper charge limit, lower charge
limit, maximum energy charge rate, and maximum energy discharge rate as
bidding parameters for the participation model for electric storage
resources that participating resources must submit, as applicable.\218\
The Commission also proposed that the participation model for electric
storage resources include the following bidding parameters that market
participants may submit, at their discretion, for their resource based
on its physical constraints or desired operation: Minimum charge time,
maximum charge time, minimum run time, and maximum run time.\219\
---------------------------------------------------------------------------

    \217\ See NOPR at P 66.
    \218\ See id. P 67.
    \219\ See id. P 68.
---------------------------------------------------------------------------

b. Comments
    181. Several commenters support the NOPR proposal to require each
RTO/ISO to establish bidding parameters that reflect and account for
the physical and operational characteristics of electric storage
resources because they assert it will support efficient procurement of
resources in the RTO/ISO markets and reduce system costs.\220\
---------------------------------------------------------------------------

    \220\ See, e.g., Advanced Energy Economy Comments at 24-25;
Energy Storage Association Comments at 14; IRC Comments at 5; MISO
Comments at 6; NESCOE Comments at 11; NYISO Comments at 9; Ohio
Commission Comments at 7; Starwood Energy Comments at 5.
---------------------------------------------------------------------------

    182. Other commenters support the NOPR proposal, subject to
clarification.\221\ EPRI contends that the

definitions of the bidding parameters proposed in the NOPR are
ambiguous and asks the Commission to explicitly define them. Beacon
Power asks the Commission to ensure that, when implementing the
proposed bidding parameters, the RTOs/ISOs do not impose any arbitrary
requirements that limit electric storage resources' participation in
their markets (such as a minimum time period over which energy must be
dispatchable continuously at full capacity).
---------------------------------------------------------------------------

    \221\ See Beacon Power Comments at 5; EPRI Comments at 16-17.
---------------------------------------------------------------------------

    183. Several commenters do not necessarily oppose the NOPR proposal
that each RTO/ISO incorporate certain bidding parameters into its
participation model for electric storage resources but request that the
Commission grant each RTO/ISO flexibility on compliance with respect to
the bidding parameters that it ultimately adopts.\222\ NYISO, Pacific
Gas & Electric, and PJM ask the Commission to give each RTO/ISO
flexibility to develop bidding parameters that are tailored to its
market and reliability needs and to determine how to best use those
bidding parameters in its market. Magnum agrees and further contends
that the Commission should not mandate that each RTO/ISO adopt bidding
parameters for specific types of electric storage resources.
Connecticut State Entities argue that bidding parameters should not be
so prescriptive as to determine prematurely which electric storage
resource technologies to deploy. Connecticut State Entities claim that
overly prescriptive bidding parameters would constrain load-serving
entities' ability to adopt least-cost solutions.
---------------------------------------------------------------------------

    \222\ See Connecticut State Entities Comments at 6; Magnum
Comments at 10-11; NYISO Comments at 9; PJM Comments at 10; Pacific
Gas & Electric Comments at 9.
---------------------------------------------------------------------------

    184. APPA/NRECA also argue for flexibility, stating that the
Commission should allow each RTO/ISO to demonstrate on compliance that
the proposed minimum bidding requirements would harm the participation
of electric storage resources in its markets and to propose a superior
alternative.\223\ Similarly, Imperial Irrigation District asks the
Commission to allow an RTO/ISO to decline to adopt a bidding parameter
if it can demonstrate that it would be unnecessary or impractical.\224\
R Street Institute states that, while the required and optional bidding
parameters are reasonable, each RTO/ISO should incorporate the proposed
optional bidding parameters in its software only if justified by
forward cost/benefit analysis.\225\
---------------------------------------------------------------------------

    \223\ See APPA/NRECA Comments at 14-15.
    \224\ See Imperial Irrigation District Comments at 9.
    \225\ See R Street Institute Comments at 5.
---------------------------------------------------------------------------

    185. Some commenters argue that certain of the physical and
operational characteristics that the Commission proposed as bidding
parameters in the NOPR are better represented through other means.\226\
For example, ISO-NE argues that it is a misnomer to characterize state
of charge as a bidding parameter because it is a physical
characteristic that constantly changes in real time. Likewise, CAISO,
IRC, and Pacific Gas & Electric assert that certain electric storage
resource-specific characteristics (such as charging and discharging
rates, charge limits, and minimum charge times) are physical
characteristics that should be static and not subject to change through
a resource's offer or bid. Pacific Gas & Electric notes that it may be
better to include such physical and operational characteristics in each
resource's data file, while CAISO suggests that they may be accounted
for through other means besides bidding parameters.
---------------------------------------------------------------------------

    \226\ See CAISO Comments at 10-11; IRC Comments at 5; ISO-NE
Comments at 18; Pacific Gas & Electric Comments at 10.
---------------------------------------------------------------------------

    186. A few commenters oppose any requirement that each RTO/ISO
incorporate bidding parameters into its participation model for
electric storage resources.\227\ AES Companies contend that the
proposed bidding parameters may artificially limit the performance of
some electric storage technologies, while MISO Transmission Owners
argue that they have the potential to limit the services that a
resource can provide. AES Companies and MISO Transmission Owners argue
that, in place of the NOPR proposal, the Commission should require each
RTO/ISO to determine the parameters and data requirements necessary for
it to efficiently dispatch a resource given the services offered and
then set performance-based standards for each service. Both AES
Companies and MISO Transmission Owners further suggest that each RTO/
ISO should include these technology-specific bidding parameters in its
business practice manuals rather than its tariff.
---------------------------------------------------------------------------

    \227\ See AES Companies Comments at 5-6; MISO Transmission
Owners Comments at 10-11.
---------------------------------------------------------------------------

    187. In addition, DER/Storage Developers contend that bidding
parameters should be flexible and differ for different services.\228\
DTE Electric/Consumers Energy assert that the proposed bidding
parameters are not clear, may not be applicable to all resource types,
and may not take full advantage of the value of the existing pumped-
hydro resources. Therefore, DTE Electric/Consumers Energy asks the
Commission to allow each RTO/ISO to work with its stakeholders to
develop bidding parameters that accommodate all electric storage
resources or hold a technical conference on the issue.
---------------------------------------------------------------------------

    \228\ See DER/Storage Developers Comments at 4-5.
---------------------------------------------------------------------------

    188. A few commenters opine on the ability of resources using the
electric storage resource participation model to update their bidding
parameters as those values change.\229\ Energy Storage Association
states that the Commission should require each RTO/ISO to allow a
resource using the electric storage resource participation model to
submit the state-of-charge bidding parameter in both the day-ahead and
real-time markets. According to Energy Storage Association, allowing a
resource using the electric storage resource participation model to
update its state-of-charge bidding parameter in the real-time market
will provide the RTO/ISO with better information about such a
resource's limitations and availability in the next market interval.
DER/Storage Developers contend that electric storage resources should
be able to adjust their bidding parameters hourly to account for their
state of charge. Similarly, Tesla/SolarCity assert that, to maintain
feasibility of schedules and increase asset value, electric storage
resources should be able to change their bidding parameters as their
state of charge changes.
---------------------------------------------------------------------------

    \229\ See DER/Storage Developers Comments at 5; Energy Storage
Association Comments at 15; Tesla/SolarCity Comments at 14-15.
---------------------------------------------------------------------------

c. Commission Determination
    189. Upon consideration of the comments, we will modify the NOPR
proposal in this Final Rule to provide greater flexibility for each
RTO/ISO to demonstrate that its participation model for electric
storage resources accounts for the physical and operational
characteristics of electric storage resources. As the Commission stated
in the NOPR, requiring each RTO/ISO to revise its tariff to include a
participation model for electric storage resources that incorporates
bidding parameters that account for the physical and operational
characteristics of electric storage resources will allow such resources
to provide all of the services that they are technically capable of
providing and allow the RTOs/ISOs to procure these services more
efficiently.\230\ We continue to believe that the lack of any means of
accounting for the physical and operational characteristics of electric
storage resources could present

barriers to the participation of these resources in the RTO/ISO
markets, limiting competition and thereby potentially rendering the
resulting rates unjust and unreasonable.
---------------------------------------------------------------------------

    \230\ See NOPR at P 66.
---------------------------------------------------------------------------

    190. We are persuaded, however, by commenters' arguments that there
may be other means of accounting for the physical and operational
characteristics of electric storage resources than bidding parameters.
For example, some of the bidding parameters that the Commission
proposed in the NOPR may account for physical characteristics that do
not change over time, such that an electric storage resource could
report that information when registering as a market participant in an
RTO/ISO without updating that information continually through its
bidding parameters. However, we note that it may only be possible to
represent some of the physical and operational characteristics (such as
a forecasted State of Charge) through bidding parameters. Furthermore,
we agree with commenters that greater regional flexibility than the
Commission proposed in the NOPR is appropriate; different RTOs/ISOs may
be able to more effectively account for the physical and operational
characteristics of electric storage resources through different
mechanisms given their unique market designs.
    191. Therefore, we add section 35.28(g)(9)(i)(C) to the
Commission's regulations to require each RTO/ISO to have tariff
provisions providing a participation model for electric storage
resources that accounts for the physical and operational
characteristics of electric storage resources through bidding
parameters or other means. In its compliance filing, each RTO/ISO must
demonstrate how its proposed or existing tariff provisions account for
the specific physical and operational characteristics of electric
storage resources described below. We find that this requirement will
improve the ability of electric storage resources to provide all of the
services that they are technically capable of providing and allow the
RTOs/ISOs to procure these services more efficiently, which will
enhance competition and, in turn, help to ensure that the RTO/ISO
markets produce just and reasonable rates.
    192. Additionally, as discussed in further detail below, we will
not require the RTOs/ISOs to make the submission of any information by
the resource owner/operator mandatory. Instead, we provide flexibility
to each RTO/ISO to determine whether it is mandatory for resources
using the participation model for electric storage resources to submit
information regarding their physical and operational characteristics,
or whether resources using the participation model for electric storage
resources should be allowed to submit such information at their
discretion. This flexibility will allow each RTO/ISO to accept
information from resources using the participation model for electric
storage resources consistent with how it accepts information from other
market participants. It also may help prevent resources using the
participation model for electric storage resources from having to
submit information that is not applicable given their physical,
operational, or commercial circumstances.
    193. With respect to commenters' request that the RTOs/ISOs should
allow electric storage resources to update their bidding parameters, we
find that, to the extent that an RTO/ISO adopts bidding parameters to
account for the physical and operational characteristics set forth in
this Final Rule, it must permit a resource using the participation
model for electric storage resources to submit those bidding parameters
in both the day-ahead and the real-time markets. To efficiently
dispatch its system, an RTO/ISO must have accurate information about
the physical and operational characteristics of the resources
participating in its markets. Allowing a resource using the
participation model for electric storage resources to provide updated
information through any applicable bidding parameters, consistent with
the opportunities that other market participants have to do so, will
help to ensure that each RTO/ISO has the information necessary to
efficiently dispatch its system, fully accounting for the physical and
operational capabilities of the resources using the participation model
for electric storage resources participating in its markets.
    194. In the following subsections, we set forth the physical and
operational characteristics for which each RTO's/ISO's participation
model for electric storage resources must account, whether through
bidding parameters or other means. We discuss these physical and
operational characteristics in terms of the bidding parameters proposed
in the NOPR, making clarifications as necessary. First, we discuss the
physical and operational characteristics of electric storage resources
associated with the bidding parameters that the Commission proposed a
resource using an electric storage resource participation model must
submit to the RTO/ISO, which were identified as the mandatory bidding
parameters, including state of charge, upper and lower charge limits,
and maximum charge and discharge rates. Second, we discuss the physical
and operational characteristics of electric storage resources
associated with the bidding parameters that the Commission proposed a
resource using an electric storage resource participation model could
submit to the RTO/ISO at the resource's discretion, which were
identified as the optional bidding parameters, including maximum and
minimum charge time and maximum and minimum run time. Finally, we
address the physical and operational characteristics for which each
RTO's/ISO's participation model for electric storage resources must
account that are not associated with any bidding parameter proposed in
the NOPR but instead were suggested by commenters and we believe are
appropriate to adopt here.
2. State of Charge, Upper and Lower Charge Limits, and Maximum Charge
and Discharge Rates
a. NOPR Proposal
    195. In the NOPR, the Commission proposed that each RTO/ISO
establish the following bidding parameters for the participation model
for electric storage resources that participating resources must
submit, as applicable: State of charge, upper charge limit, lower
charge limit, maximum energy charge rate, and maximum energy discharge
rate.\231\ The Commission explained that the state-of-charge bidding
parameter would allow resources using the participation model for
electric storage resources to identify their forecasted state of charge
at the end of a market interval, as defined by the RTO/ISO, while the
upper and lower charge limits would prevent the operator from trying to
give too much energy to or take too much energy from the resource. The
Commission further stated that it expected that the state of charge
would be telemetered in real time when the RTO/ISO is managing the
state of charge so that the upper and lower charge limits are not
exceeded. However, the Commission did not propose any specific
telemetry requirements. Finally, the Commission explained that the
maximum energy charge rate and maximum energy discharge rate would be
used to indicate how quickly the resource can receive energy from or
inject it back to the grid.
---------------------------------------------------------------------------

    \231\ See id. P 67.
---------------------------------------------------------------------------

b. Comments
    196. The Commission received a number of comments on the NOPR
proposal requiring each RTO/ISO to establish state of charge, upper and
lower charge limit, and maximum

energy charge and discharge rate as mandatory bidding parameters for
resources using the electric storage resource participation model.
Below, we present the comments received with respect to three groups of
the proposed bidding parameters: (1) State of Charge, (2) Upper and
Lower Charge Limit, and (3) Maximum Energy Charge and Discharge Rate.
i. State of Charge
    197. Several commenters support the proposed requirement that each
RTO/ISO adopt a state-of-charge bidding parameter.\232\ Advanced Energy
Economy claims that many RTOs/ISOs do not have tariff provisions in
place to account for the state of charge of electric storage resources,
despite the fact that it is a defining characteristic of such
resources.
---------------------------------------------------------------------------

    \232\ See, e.g., Advanced Energy Economy Comments at 24-25;
Massachusetts State Entities Comments at 15; NESCOE Comments at 11;
Ohio Commission Comments at 7; Tesla/SolarCity Comments at 14.
---------------------------------------------------------------------------

    198. Other commenters argue that the Commission should modify the
NOPR proposal so that a resource using the electric storage resource
participation model is not required to submit information for the
state-of-charge bidding parameter to the RTO/ISO, at least under
certain circumstances.\233\ Specifically, CAISO, Energy Storage
Association, NextEra, and NYPA ask the Commission to clarify that an
electric storage resource is only required to use the state of charge
bidding parameter if the resource owner has opted for the RTO/ISO to
manage its state of charge. They argue that an electric storage
resource that opts to manage its own state of charge would do so
through its bidding strategy rather than the RTO/ISO market processes
and that it is therefore unnecessary for such a resource to submit its
state of charge to the RTO/ISO as a bidding parameter. SPP asserts
that, to dispatch and clear the appropriate amount of resources, it
must know the real-time state of charge for an electric storage
resource for which it is managing state of charge.\234\ However, SPP
states that it does not require information on the state of charge of
electric storage resources that are self-managing their state of
charge.
---------------------------------------------------------------------------

    \233\ See CAISO Comments at 11-12; Energy Storage Association
Comments at 14-15; NextEra Comments at 9; NYPA Comments at 9.
    \234\ See SPP Comments at 10.
---------------------------------------------------------------------------

    199. While stating that it supports the NOPR proposal directing
RTOs/ISOs to institute new electric storage resource-related bidding
parameters, Energy Storage Association also explains that requiring
electric storage resources that provide both retail and wholesale
services to use the proposed bidding parameters could adversely affect
their capability to provide retail service.\235\ California Energy
Storage Alliance and Stem contend that certain bidding parameters,
including state of charge, may be difficult or infeasible for some
electric storage resources to provide.\236\ Thus, California Energy
Storage Alliance, National Hydropower Association, and Stem argue that
it should be optional for an electric storage resource to provide its
state of charge to the RTO/ISO.\237\
---------------------------------------------------------------------------

    \235\ See Energy Storage Association Comments at 14. Energy
Storage Association's statement applies equally to the proposed
Upper and Lower Charge Limit and Maximum Energy Charge and Discharge
Rate bidding parameters.
    \236\ See California Energy Storage Alliance Comments at 6-7;
Stem Comments at 15-16.
    \237\ See California Energy Storage Alliance Comments at 6-7;
National Hydropower Association Comments at 8-9; Stem Comments at
15-16. California Energy Storage Alliance's and Stem's statements
apply equally to the proposed Upper and Lower Charge Limit and
Maximum Energy Charge and Discharge Rate bidding parameters.
---------------------------------------------------------------------------

    200. Pacific Gas & Electric supports the inclusion of a bidding
parameter that a resource using the electric storage resource
participation model can use in the day-ahead markets to indicate its
state of charge at the beginning of the operating day.\238\ However,
Pacific Gas & Electric opposes any requirement for each RTO/ISO to
adopt an hourly or real-time state-of-charge bidding parameter. Pacific
Gas & Electric claims that such a requirement could enable market
manipulation by allowing resources to indicate that they are
unavailable to provide energy to the market without reporting an
outage. To the extent that a resource using the electric storage
resource participation model desires to update its state of charge more
frequently, Pacific Gas & Electric contends that it should manage its
own state of charge through its market bidding.
---------------------------------------------------------------------------

    \238\ See Pacific Gas & Electric Comments at 8-9.
---------------------------------------------------------------------------

    201. ISO-NE opposes the NOPR proposal for a State of Charge bidding
parameter and argues that it is a misnomer to characterize state of
charge as a bidding parameter because it is a physical characteristic
that constantly changes in real time.\239\ Thus, ISO-NE asserts that
the Commission should not require state of charge as a day-ahead or
real-time bidding parameter, nor require any optimization of this type
of parameter in the day-ahead or real-time energy market. ISO-NE
contends that, instead, the Commission should allow RTOs/ISOs to
develop methods to acquire communication of a resource's current state
of charge, use the state of charge data, and potentially require market
participants to manage their state of charge using their energy market
supply offers and demand bids.
---------------------------------------------------------------------------

    \239\ See ISO-NE Comments at 18.
---------------------------------------------------------------------------

    202. AES Companies explain that, for certain electric storage
technologies, dispatching the resource based on a state-of-charge or
upper or lower charge limit bidding parameter could lead to its under-
utilization.\240\ AES Companies add that the proposed state-of-charge
bidding parameter does not reflect the availability of the resource or
the sophisticated software used to optimize the resource's useful life.
Moreover, AES Companies assert that, if a resource is deployed in a
manner that violates its optimal state of charge management, then the
associated costs should be included in market offers and the decision
to offer must be at the asset owner's discretion.
---------------------------------------------------------------------------

    \240\ See AES Companies Comments at 20-22.
---------------------------------------------------------------------------

    203. Research Scientists explain that, to make use of the full
flexibility of electric storage resources, a fixed state-of-charge
target may not be ideal because it limits the dispatch flexibility in
real-time operations.\241\ Research Scientists argue that state-of-
charge range is a better strategy to enable the use of an electric
storage resource to address unexpected system deviations in real time.
---------------------------------------------------------------------------

    \241\ See Research Scientists Comments at 7.
---------------------------------------------------------------------------

    204. In addition, a few commenters, including those that support
the NOPR proposal, take issue with the Commission's statement that the
state-of-charge bidding parameter will allow resources using the
participation model for electric storage resources to identify their
forecasted state of charge at the end of a market interval.\242\ Beacon
Power contends that any state-of-charge bidding parameters should
reflect an actual state of charge at any point in time, rather than a
forecasted state of charge, which would be difficult for the resource
or RTO/ISO to predict. Pacific Gas & Electric argues that allowing an
electric storage resource to target a particular state of charge at the
end of a market interval could enable manipulation in circumstances in
which the RTO/ISO is managing a resource's state of charge because the
RTO/ISO would have to dispatch the resource as necessary to achieve its
specified state of charge regardless of whether such dispatch were
economic.
---------------------------------------------------------------------------

    \242\ See Beacon Power Comments at 6; Pacific Gas & Electric
Comments at 9.
---------------------------------------------------------------------------

    205. Energy Storage Association clarifies that CAISO's tariff
allows electric storage resources to submit a forecasted starting
state-of-charge value

for the day-ahead market, not for the end of a market interval.\243\
NextEra agrees and asks the Commission to clarify that the state-of-
charge bidding parameter is not limited to the resource owner's
forecasted state of charge at the end of the market interval.\244\
Similarly, Research Scientists request clarification on whether the
state-of-charge bidding parameter provides an electric storage
resource's desired state of charge at the beginning or end of a market
interval.\245\ EPRI clarifies that it understands that the state of
charge is the level of energy that an electric storage resource has
available at present or anticipates to have at the start of the market
interval.\246\
---------------------------------------------------------------------------

    \243\ See Energy Storage Association Comments at 14-15.
    \244\ See NextEra Comments at 9.
    \245\ See Research Scientists Comments at 7.
    \246\ See EPRI Comments at 17.
---------------------------------------------------------------------------

    206. Finally, several commenters opine on the Commission's
statement in the NOPR that, when the RTO/ISO is managing the state of
charge, it expects that the state of charge would be telemetered in
real time.\247\ ISO-NE states that an electric storage resource's state
of charge should be telemetered in real time, arguing that this data is
essential for reliable and efficient system operation. IRC agrees that
electric storage resources should provide information about their state
of charge to the RTO/ISO, stating that the state of charge must be
telemetered to the RTO/ISO in real time if other resources are required
to be telemetered. Xcel Energy Services argues that RTOs/ISOs should
have the capability to monitor state of charge so that they can verify
that an electric storage resource could provide ancillary services if
called upon to do so. Beacon Power asserts that an electric storage
resource (whether or not the RTO/ISO is managing its state of charge)
should be required to notify the RTO/ISO of its state of charge on a
timely basis.
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    \247\ See Beacon Power Comments at 6; IRC Comments at 5; ISO-NE
Comments at 18; Xcel Energy Services Comments at 19.
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    207. In contrast, Energy Storage Association also contends that the
Commission should require each RTO/ISO to institute a capability to
continually monitor an electric storage resource's state of charge but
should only perform such monitoring when an electric storage resource
submits its state of charge as a bidding parameter.\248\ Energy Storage
Association contends that monitoring such a resource's state of charge
will allow the RTO/ISO to better optimize the scheduling and dispatch
of the resource.
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    \248\ See Energy Storage Association Comments at 15-16.
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ii. Upper and Lower Charge Limit
    208. ISO-NE, Massachusetts State Entities, and NESCOE support the
proposed requirement that each RTO/ISO establish upper charge limit and
lower charge limit as bidding parameters for resources using the
electric storage resource participation model.\249\ NYPA supports the
proposed bidding parameters conditional on the Commission clarifying in
this Final Rule that an electric storage resource managing its own
state of charge is not required to submit information on its upper and
lower charge limit.\250\ EPRI states that it interprets the upper
charge limit as the maximum amount of power the electric storage
resource can withdraw at any given instant and the lower charge limit
as the minimum amount of power the electric storage resource can
withdraw at any instant in time.\251\
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    \249\ See ISO-NE Comments at 17; Massachusetts State Entities
Comments at 15; NESCOE Comments at 11.
    \250\ See NYPA Comments at 9.
    \251\ See EPRI Comments at 17.
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iii. Maximum Energy Charge and Discharge Rate
    209. Several commenters support the proposed requirement that each
RTO/ISO establish maximum energy charge rate and maximum energy
discharge rate as bidding parameters for the participation model for
electric storage resources.\252\ However, NextEra also states that
electric storage resources can have different charge and discharge
rates depending on their current state of charge and thus requests that
the Commission clarify that it does not propose to require a single,
static charge or discharge rate for an electric storage resource's
entire operating range.\253\ NYPA and Pacific Gas & Electric argue that
maximum charge and discharge rates should be optional bidding
parameters, at least when an electric storage resource is managing its
own state of charge.\254\
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    \252\ See, e.g., IRC Comments at 5-6; ISO-NE Comments at 17;
Massachusetts State Entities Comments at 15; NESCOE Comments at 11;
NextEra Comments at 9; Ohio Commission Comments at 7.
    \253\ See NextEra Comments at 10.
    \254\ See NYPA Comments at 9; Pacific Gas & Electric Comments at
9.
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    210. Finally, EPRI requests clarification of the Commission's
definitions for maximum energy charge and discharge rate.\255\ EPRI
notes that it understands that ``maximum energy charge rate'' is the
speed at which an electric storage resource can change its withdrawn
power amount. EPRI also states that it understands that ``maximum
energy discharge rate'' is the speed at which an electric storage
resource can change its injected power amount, which is identical to
the current ramp rates that generators provide.
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    \255\ See EPRI Comments at 17.
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c. Commission Determination
    211. To implement the new requirement in section 35.28(g)(9)(i)(C)
of the Commission's regulations, in this Final Rule, we adopt the NOPR
proposal, with the modifications discussed below, to require each RTO/
ISO to revise its tariff to include a participation model for electric
storage resources that accounts for the following physical and
operational characteristics of such resources: State of Charge, Minimum
State of Charge, Maximum State of Charge, Minimum Charge Limit and
Maximum Charge Limit. As discussed above in the Requirement to
Incorporate Bidding Parameters as Part of the Electric Storage Resource
Participation Model section,\256\ each RTO's/ISO's participation model
for electric storage resources must account for these physical and
operational characteristics, whether through bidding parameters or
other means. To the extent that an RTO/ISO proposes to comply with this
requirement through its existing bidding parameters or other existing
market mechanisms, it must demonstrate in its compliance filing how its
existing market rules already account for these characteristics of
electric storage resources.
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    \256\ See supra P 191.
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    212. Upon consideration of the comments, however, we will modify
the proposed requirement that a resource using an RTO's/ISO's
participation model for electric storage resources must submit
information concerning these physical and operational characteristics
to the RTO/ISO. As commenters state, not all of these physical and
operational characteristics are applicable to all electric storage
resources, particularly when a resource is managing its own state of
charge and when the resource is providing multiple services. We agree
that the physical and operational characteristics adopted in this Final
Rule may need to acknowledge commercial obligations in addition to
physical and operational limitations. Thus, we find that an RTO/ISO
should have flexibility in how a resource using a participation model
for electric storage resources will be allowed to represent its
physical, operational, and commercial circumstances. This flexibility
will

allow an RTO/ISO to determine, consistent with how it treats other
resources, whether it is mandatory for resources using the
participation model for electric storage resources to submit
information regarding these physical and operational characteristics,
or whether resources using the participation model for electric storage
resources should be allowed to submit this information at their
discretion.
    213. In addition, we clarify the meaning of these proposed physical
and operational characteristics of electric storage resources, as
commenters request. First, we clarify that State of Charge represents
the amount of energy stored in proportion to the limit on the amount of
energy that can be stored, typically expressed as a percentage.
Moreover, we agree with EPRI and other commenters that the State of
Charge as a bidding parameter is the level of energy that an electric
storage resource is anticipated to have available at the start of the
market interval rather than the end. As noted above in the Requirement
to Incorporate Bidding Parameters as Part of the Electric Storage
Resource Participation Model section,\257\ we require each RTO/ISO to
allow a resource using the participation model for electric storage
resources to submit its State of Charge in both day-ahead and real-time
markets. We find that this requirement will provide the RTOs/ISOs with
more accurate market information regarding the resource's actual state
of charge and prevent the RTO/ISO from needing to make assumptions
about the state of charge of an electric storage resource, which is
particularly important if the resource did not receive an award in the
previous market interval. Moreover, it provides the electric storage
resource owner/operator with a usable bidding parameter to reflect the
actual operating conditions of the resource, providing more certainty
to the RTO/ISO about the capabilities of the resource.
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    \257\ See supra P 193.
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    214. Additionally, while the NOPR indicated the Commission's
expectation that the state of charge of a resource using the electric
storage resource participation model would be telemetered in real time
when the RTO/ISO manages that resource's state of charge, as discussed
further below, we provide each RTO/ISO the flexibility to propose
telemetry requirements for such resources in their compliance filings.
This flexibility will allow the RTOs/ISOs to implement the requirements
of this Final Rule consistent with the telemetry requirements for
different services and other market participants in each RTO/ISO. For