[Federal Register Volume 83, Number 44 (Tuesday, March 6, 2018)]
[Rules and Regulations]
[Pages 9580-9633]
[FR Doc No: 2018-03708]

Vol. 83

Tuesday,

No. 44

March 6, 2018

Part II

Department of Energy

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 Federal Energy Regulatory Commission

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18 CFR Part 35

Electric Storage Participation in Markets Operated by Regional
Transmission Organizations and Independent System Operators; Final Rule

Federal Register / Vol. 83 , No. 44 / Tuesday, March 6, 2018 / Rules
and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket Nos. RM16-23-000; AD16-20-000; Order No. 841]

Electric Storage Participation in Markets Operated by Regional
Transmission Organizations and Independent System Operators

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
amending its regulations under the Federal Power Act (FPA) to remove
barriers to the participation of electric storage resources in the
capacity, energy, and ancillary service markets operated by Regional
Transmission Organizations (RTO) and Independent System Operators (ISO)
(RTO/ISO markets).

DATES: This rule will become effective June 4, 2018.

FOR FURTHER INFORMATION CONTACT:
Michael Herbert (Technical Information), Office of Energy Policy and
Innovation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER>, [email protected].
Heidi Nielsen (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426,<PHONE_NUMBER>, [email protected].

SUPPLEMENTARY INFORMATION:  This rule requires each RTO and ISO to
revise its tariff to establish a participation model consisting of
market rules that, recognizing the physical and operational
characteristics of electric storage resources, facilitates their
participation in the RTO/ISO markets. The participation model must (1)
ensure that a resource using the participation model is eligible to
provide all capacity, energy, and ancillary services that the resource
is technically capable of providing in the RTO/ISO markets; (2) ensure
that a resource using the participation model can be dispatched and can
set the wholesale market clearing price as both a wholesale seller and
wholesale buyer consistent with existing market rules that govern when
a resource can set the wholesale price; (3) account for the physical
and operational characteristics of electric storage resources through
bidding parameters or other means; and (4) establish a minimum size
requirement for participation in the RTO/ISO markets that does not
exceed 100 kW. Additionally, each RTO/ISO must specify that the sale of
electric energy from the RTO/ISO markets to an electric storage
resource that the resource then resells back to those markets must be
at the wholesale locational marginal price. We are taking this action
pursuant to our legal authority under section 206 of the FPA to ensure
that RTO/ISO tariffs are just and reasonable.
    In the Notice of Proposed Rulemaking (NOPR), the Commission also
proposed reforms related to distributed energy resource aggregations.
While we continue to believe that removing barriers to distributed
energy resource aggregations in the RTO/ISO markets is important, we
have determined that more information is needed with respect to those
proposals; therefore, we will not take final action on the proposed
distributed energy resource aggregation reforms in this proceeding.
Instead, the Commission will continue to explore the proposed
distributed energy resource aggregation reforms under Docket No. RM18-
9-000. To that end, concurrent with this Final Rule, a Notice of
Technical Conference is being issued in Docket No. RM18-9-000 with
questions related to the participation of distributed energy resource
aggregations in the RTO/ISO markets so that we can gather additional
information to help us determine what action to take on the distributed
energy resource aggregation reforms proposed in the NOPR. All comments
filed in response to the NOPR in this proceeding will be incorporated
by reference into Docket No. RM18-9-000, and any further comments
regarding the proposed distributed energy resource aggregation reforms,
including comments regarding the technical conference, should be filed
henceforth in Docket No. RM18-9-000.

Order No. 841

Final Rule

Table of Contents

                                                         Paragraph Nos.

I. Introduction......................................                  1
II. Background.......................................                  7
III. Need for Reform.................................                 10
    1. Comments......................................                 13
    2. Commission Determination......................                 19
IV. Discussion.......................................                 22
    A. Definition of Electric Storage Resource.......                 22
        1. NOPR Proposal.............................                 22
        2. Comments..................................                 23
        3. Commission Determination..................                 29
    B. Creation of a Participation Model for Electric                 37
     Storage Resources...............................
        1. Participation Model for Electric Storage                   37
         Resources...................................
            a. NOPR Proposal.........................                 37
            b. Comments..............................                 38
            c. Commission Determination..............                 51
        2. Qualification Criteria for the                             57
         Participation Model for Electric Storage
         Resources...................................
            a. NOPR Proposal.........................                 57
            b. Comments..............................                 58
            c. Commission Determination..............                 61
        3. Relationship Between Electric Storage                      66
         Resource Participation Model and Existing
         Market Rules................................
            a. NOPR Proposal.........................                 66
            b. Comments..............................                 67
            c. Commission Determination..............                 68
    C. Eligibility of Electric Storage Resources To                   70
     Participate in the RTO/ISO Markets..............
        1. Eligibility To Provide All Capacity,                       70
         Energy, and Ancillary Services..............
            a. NOPR Proposal.........................                 70
            b. Comments..............................                 71

            c. Commission Determination..............                 76
        2. Ability To De-Rate Capacity To Meet                        82
         Minimum Run-Time Requirements...............
            a. NOPR Proposal.........................                 82
            b. Comments..............................                 83
            c. Commission Determination..............                 94
        3. Energy Schedule Requirement for Provision                 102
         of Ancillary Services.......................
            a. NOPR Request for Comments.............                102
            b. Comments..............................                104
            c. Commission Determination..............                119
        4. NERC Definitions..........................                121
            a. NOPR Request for Comment..............                121
            b. Comments..............................                122
            c. Commission Determination..............                126
    D. Participation in the RTO/ISO Markets as Supply                127
     and Demand......................................
        1. Eligibility To Participate as a Wholesale                 127
         Seller and Wholesale Buyer..................
            a. NOPR Proposal.........................                127
            b. Comments..............................                129
                i. Wholesale Seller/Wholesale Buyer..                129
                ii. Dispatchability..................                136
                iii. Limitations on Price Setting....                138
            c. Commission Determination..............                142
        2. Mechanisms To Prevent Conflicting Dispatch                151
         Instructions................................
            a. NOPR Request for Comments.............                151
            b. Comments..............................                152
            c. Commission Determination..............                162
        3. Make-Whole Payments.......................                166
            a. NOPR Request for Comments.............                166
            b. Comments..............................                167
            c. Commission Determination..............                174
    E. Physical and Operational Characteristics of                   180
     Electric Storage Resources......................
        1. Requirement To Incorporate Bidding                        180
         Parameters as Part of the Electric Storage
         Resource Participation Model................
            a. NOPR Proposal.........................                180
            b. Comments..............................                181
            c. Commission Determination..............                189
        2. State of Charge, Upper and Lower Charge                   195
         Limits, and Maximum Charge and Discharge
         Rates.......................................
            a. NOPR Proposal.........................                195
            b. Comments..............................                196
                i. State of Charge...................                197
                ii. Upper and Lower Charge Limit.....                208
                iii. Maximum Energy Charge and                       209
                 Discharge Rate......................
            c. Commission Determination..............                211
        3. Minimum Charge Time, Maximum Charge Time,                 217
         Minimum Run Time, and Maximum Run Time......
            a. NOPR Proposal.........................                217
            b. Comments..............................                218
            c. Commission Determination..............                220
        4. Additional Physical and Operational                       225
         Characteristics.............................
            a. Comments..............................                225
            b. Commission Determination..............                229
        5. Summary of Physical and Operational                       236
         Characteristics of Electric Storage
         Resources...................................
    F. State of Charge Management....................                237
        1. NOPR Proposal.............................                237
        2. Comments..................................                238
        3. Commission Determination..................                251
    G. Minimum Size Requirement......................                258
            1. NOPR Proposal.........................                258
            2. Comments..............................                259
            3. Commission Determination..............                270
    H. Energy Used To Charge Electric Storage                        277
     Resources.......................................
        1. Price for Charging Energy.................                277
            a. NOPR Proposal.........................                277
            b. Comments..............................                278
            c. Commission Determination..............                294
        2. Metering and Accounting Practices for                     303
         Charging Energy.............................
            a. NOPR Proposal.........................                303
            b. Comments..............................                304
            c. Commission Determination..............                322
    I. Issues Outside the Scope of This Final Rule...                329
        1. Comments..................................                329
        2. Commission Determination..................                331
V. Compliance Requirements...........................                332
    A. NOPR Proposal.................................                332
    B. Comments......................................                335
    C. Commission Determination......................                348
VI. Information Collection Statement.................                351

VII. Environmental Analysis..........................                355
VIII. Regulatory Flexibility Act Certification.......                356
IX. Document Availability............................                361
X. Effective Date and Congressional Notification.....                364
Regulatory Text
Appendix A: Abbreviated Names of Commenters

Order No. 841

Final Rule

(Issued February 15, 2018)

I. Introduction

    1. In this Final Rule, the Federal Energy Regulatory Commission
(Commission) is adopting reforms to remove barriers to the
participation of electric storage resources \1\ in the Regional
Transmission Organization and Independent System Operator markets (RTO/
ISO markets).\2\ For the reasons discussed below, we find that existing
RTO/ISO market rules are unjust and unreasonable in light of barriers
that they present to the participation of electric storage resources in
the RTO/ISO markets, thereby reducing competition and failing to ensure
just and reasonable rates. To help ensure that the RTO/ISO markets
produce just and reasonable rates, pursuant to the Commission's legal
authority under Federal Power Act (FPA) section 206,\3\ the Commission
modifies section 35.28 of its regulations \4\ to require each RTO/ISO
to revise its tariff to establish market rules that, recognizing the
physical and operational characteristics of electric storage resources,
facilitate their participation in the RTO/ISO markets, as discussed
further below.
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    \1\ We define an electric storage resource as a resource capable
of receiving electric energy from the grid and storing it for later
injection of electric energy back to the grid. See infra PP 29-36.
    \2\ For purposes of this Final Rule, we define RTO/ISO markets
as the capacity, energy, and ancillary services markets operated by
the RTOs and ISOs. We note that, in the Notice of Proposed
Rulemaking (NOPR) in this proceeding, the Commission used
``organized wholesale electric markets'' and included that term in
the proposed regulatory text. See Electric Storage Participation in
Markets Operated by Regional Transmission Organizations and
Independent System Operators, Notice of Proposed Rulemaking, FERC
Stats. & Regs. ] 32,718 (2016). We find that using ``RTO/ISO
markets'' is sufficient to describe the markets at issue in this
Final Rule and therefore will no longer use ``organized wholesale
electric markets'' here or include that term in the regulatory text.
    \3\ 16 U.S.C. 824e (2012).
    \4\ 18 CFR 35.28 (2017).
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    2. As the Commission explained in the NOPR, barriers to the
participation of new technologies, such as many types of electric
storage resources, in the RTO/ISO markets can emerge when the rules
governing participation in those markets are designed for traditional
resources and in effect limit the services that emerging technologies
can provide.\5\ For instance, electric storage resources in MISO that
want to sell services other than frequency regulation would not have
bidding parameters for electric storage resources available to them and
it is unclear if or how they would be eligible to purchase energy from
the MISO market.\6\ Where such conditions exist, resources that are
technically capable of providing services are precluded from competing
with resources that are already participating in the RTO/ISO markets.
This restriction on competition can reduce the efficiency of the RTO/
ISO markets, potentially leading an RTO/ISO to dispatch more expensive
resources to meet its system needs. By removing barriers to the
participation of electric storage resources in the RTO/ISO markets, our
actions in this Final Rule will enhance competition and, in turn, help
to ensure that the RTO/ISO markets produce just and reasonable rates.
Furthermore, due to electric storage resources' unique physical and
operational characteristics--including their ability to both inject
energy into the grid and receive energy from it--our actions here will
help support the resilience of the bulk power system.
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    \5\ See NOPR at P 2.
    \6\ See MISO Data Request Response, Docket No. AD16-20-000, at
14, 17 (filed May 16, 2016) (MISO Data Request Response).
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    3. To address barriers to the participation of electric storage
resources in the RTO/ISO markets, in this Final Rule, we require each
RTO/ISO to revise its tariff to establish a participation model
consisting of market rules that, recognizing the physical and
operational characteristics of electric storage resources, facilitates
their participation in the RTO/ISO markets. The RTOs/ISOs generally
have a set of tariff provisions that apply to all market participants.
In addition, the RTOs/ISOs create tariff provisions for specific types
of resources when those resources have unique physical and operational
characteristics or other attributes that warrant distinctive treatment
from other market participants.\7\ These distinct tariff provisions
that are created for a particular type of resource are what we refer to
in this Final Rule as a participation model. Accordingly, the
participation model for electric storage resources that we require in
this Final Rule is a set of tariff provisions that will help facilitate
the participation of electric storage resources in the RTO/ISO markets.
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    \7\ As examples of RTO/ISO participation models, we point to
Non-Generator Resources in CAISO, Alternative Technology Regulation
Resources in ISO-NE, Generation Resources in MISO, Energy Limited
Resources in NYISO, Economic Load Response resources in PJM, and
Variable Energy Resources in SPP. See CAISO Data Request Response,
Docket No. AD16-20-000, at 2 (filed May 16, 2016) (CAISO Data
Request Response); ISO-NE Data Request Response, Docket No. AD16-20-
000, at 3 (filed May 16, 2016) (ISO-NE Data Request Response); MISO
Data Request Response at 4; NYISO Data Request Response, Docket No.
AD16-20-000, at 2-3 (filed May 16, 2016) (NYISO Data Request
Response); PJM Data Request Response, Docket No. AD16-20-000, at 5
(PJM Data Request Response); SPP Data Request Response, Docket No.
AD16-20-000, at 3 (filed May 16, 2016) (SPP Data Request Response).
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    4. For each RTO/ISO, the tariff provisions for the participation
model for electric storage resources must (1) ensure that a resource
using the participation model for electric storage resources is
eligible to provide all capacity, energy, and ancillary services that
it is technically capable of providing in the RTO/ISO markets; (2)
ensure that a resource using the participation model for 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 market rules that govern when a resource can
set the wholesale price; (3) account for the physical and operational
characteristics of electric storage resources through bidding
parameters or other means; and (4) establish a minimum size requirement
for participation in the RTO/ISO markets that does not exceed 100 kW.
Additionally, each RTO/ISO must specify that the sale of electric
energy from the RTO/ISO markets to an electric storage resource that
the resource then resells back to those markets must be at the
wholesale locational marginal price (LMP).
    5. In the NOPR, the Commission also proposed reforms related to
distributed energy resource aggregations.\8\ While we continue to
believe removing barriers to

distributed energy resource aggregations in the RTO/ISO markets is
important, we have determined that more information is needed with
respect to those proposals; therefore, we will not take final action on
the proposed distributed energy resource aggregation reforms in this
proceeding.\9\ Instead, the Commission will continue to explore the
proposed distributed energy resource aggregation reforms under Docket
No. RM18-9-000. To that end, concurrent with this Final Rule, a Notice
of Technical Conference is being issued in Docket No. RM18-9-000 with
questions related to the participation of distributed energy resource
aggregations in the RTO/ISO markets so that we can gather additional
information to help us determine what action to take on the distributed
energy resource aggregation reforms proposed in the NOPR.\10\ All
comments filed in response to the NOPR in this proceeding will be
incorporated by reference into Docket No. RM18-9-000, and any further
comments regarding the proposed distributed energy resource aggregation
reforms, including comments regarding the technical conference, should
be filed henceforth in Docket No. RM18-9-000.\11\
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    \8\ See NOPR at PP 1-16, 103-158.
    \9\ We clarify that the reforms adopted here regarding electric
storage resources represent final agency action subject to rehearing
and appeal.
    \10\ Notice of Technical Conference, Docket No. RM18-9-000 (Feb.
15, 2018).
    \11\ Further comments regarding the proposed distributed energy
resource aggregation reforms should no longer be filed in Docket No.
RM16-23-000.
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    6. As discussed further below, each RTO/ISO must file the tariff
changes needed to implement the requirements of this Final Rule within
270 days of the publication date of this Final Rule in the Federal
Register. We will allow each RTO/ISO a further 365 days from that date
to implement the tariff provisions.

II. Background

    7. Electric storage resources have unique physical and operational
characteristics, namely their ability to both inject energy to the grid
and receive energy from it. Certain electric storage resources, such as
pumped-hydro resources,\12\ have been participating in the RTO/ISO
markets for many years, and, as the RTOs/ISOs have gained experience
with these resources, the RTOs/ISOs have found new ways to facilitate
the participation of pumped-hydro resources.\13\ More recently, other
types of electric storage resources, such as batteries and flywheels,
are participating in the RTO/ISO markets.\14\
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    \12\ Pumped-hydro storage projects move water between two
reservoirs located at different elevations (i.e., an upper and lower
reservoir) to store energy and generate electricity. See https://www.ferc.gov/industries/hydropower/gen-info/licensing/pump-storage.asp.
    \13\ See, e.g., ISO New England Inc., Docket Nos. ER16-954-000
and ER16-954-001 (2016) (delegated letter order).
    \14\ Midwest Indep. Trans. Sys. Operator, Inc., 129 FERC ]
61,303 (2009); NYISO Services Tariff, section 2.12 (defining
``Limited Energy Storage Resource'' as ``[a] Generator authorized to
offer Regulation Service only and characterized by limited Energy
storage, that is, the inability to sustain continuous operation at
maximum Energy withdrawal or maximum Energy injection for a minimum
period of one hour''); PJM Operating Agreement, Schedule 1, section
1.3 (defining an ``Energy Storage Resource'' as ``[a] flywheel or
battery storage facility solely used for short term storage and
injection of energy at a later time to participate in the PJM energy
and/or ancillary services markets as a Market Seller.'')
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    8. As the capabilities of electric storage resources improve and
their costs decline to the point that they may be competitive with
existing resources,\15\ the Commission has become concerned that these
resources face barriers that limit their participation in the RTO/ISO
markets. To further examine this issue, the Commission hosted a panel
to discuss electric storage resources at its November 19, 2015 open
meeting. Subsequently, on April 11, 2016, Commission staff issued data
requests to each of the six RTOs/ISOs seeking information about the
rules in the RTO/ISO markets that affect the participation of electric
storage resources.\16\ Concurrently, Commission staff issued a request
for comments, seeking information from interested persons on whether
barriers exist to the participation of electric storage resources in
the RTO/ISO markets that may potentially lead to unjust and
unreasonable wholesale rates. In addition to the responses from the
RTOs/ISOs, Commission staff received 44 comments.
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    \15\ See, e.g., Lazard's Levelized Cost of Storage Analysis--
Version 3.0 (Nov. 2017), available at https://www.lazard.com/media/450338/lazard-levelized-cost-of-storage-version-30.pdf.
    \16\ Specifically, Commission staff requested information
related to (1) the eligibility of electric storage resources to
participate in the capacity, energy, and ancillary service markets
in the RTOs/ISOs; (2) the technical qualification and performance
requirements for market participants; (3) the bidding parameters for
different types of resources; (4) opportunities for distribution-
level and aggregated electric storage resources to participate in
the RTO/ISO markets; (5) the treatment of electric storage resources
when they are receiving electricity for later injection to the grid;
and (6) any forthcoming rule changes or other stakeholder
initiatives that may affect the participation of electric storage
resources in the RTO/ISO markets.
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    9. On November 17, 2016, the Commission issued the NOPR in this
proceeding, proposing to amend its regulations under the FPA to remove
barriers to the participation of electric storage resources in the RTO/
ISO markets. The Commission received 109 comments on the NOPR proposals
from a diverse set of stakeholders.\17\
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    \17\ See Appendix A for a list of entities that submitted
comments and the shortened names used throughout this Final Rule to
describe those entities.
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III. Need for Reform

    10. In the NOPR, the Commission stated that its proposal in this
proceeding is a continuation of efforts pursuant to its authority under
the FPA to ensure that the RTO/ISO tariffs and market rules produce
just and reasonable rates, terms and conditions of service.\18\
Specifically, the Commission noted that it has observed that market
rules designed for traditional resources can create barriers to entry
for emerging technologies. The Commission explained that it was
proposing to require the RTOs/ISOs to address barriers to the
participation of electric storage resources in the RTO/ISO markets.\19\
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    \18\ See NOPR at P 9 (citing Integration of Variable Energy
Resources, Order No. 764, FERC Stats. & Regs. ] 31,331, order on
reh'g, Order No. 764-A, 141 FERC ] 61,232 (2012), order on reh'g,
Order No. 764-B, 144 FERC ] 61,222 (2013); Wholesale Competition in
Regions with Organized Electric Markets, Order No. 719, FERC Stats.
& Regs. ] 31,281 (2008), order on reh'g, Order No. 719-A, FERC
Stats. & Regs. ] 31,292 (2009), order on reh'g, Order No. 719-B, 129
FERC ] 61,252 (2009)).
    \19\ See id. P 10.
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    11. The Commission acknowledged in the NOPR that electric storage
resources are already providing energy and ancillary services in some
RTO/ISO markets.\20\ However, the Commission explained that these
resources must often use existing participation models designed for
traditional generation or load resources that do not recognize electric
storage resources' unique physical and operational characteristics and
their capability to provide capacity, energy, and ancillary services in
the RTO/ISO markets.\21\ Even where the RTOs/ISOs have established
distinct participation models for electric storage resources, the
Commission stated that those models limit the services that electric
storage resources may provide \22\

or are designed for electric storage resources with very specific
characteristics (such as pumped-hydro facilities or resources with a
maximum run-time that is less than one hour). The Commission also noted
that existing RTO/ISO tariffs generally limit smaller electric storage
resources to participating in the RTO/ISO markets as demand response
resources, which can restrict these electric storage resources' ability
to employ their full operational range, prohibit them from injecting
power onto the grid, and preclude them from providing certain services
that they are technically capable of providing (such as operating
reserves).
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    \20\ See id. P 11.
    \21\ See id. PP 11-12.
    \22\ See id. P 11 (citing Midwest Indep. Trans. Sys. Operator,
Inc., 129 FERC ] 61,303 at PP 40, 64; MISO FERC Electric Tariff,
section 1.S (Stored Energy Resources); NYISO Services Tariff,
section 2.12 (defining Limited Energy Storage Resource as a
``Generator authorized to offer Regulation Service only and
characterized by limited Energy storage, that is, the inability to
sustain continuous operation at maximum Energy withdrawal or maximum
Energy injection for a minimum period of one hour.'')). The
Commission noted that NYISO limits Limited Energy Storage Resources
to providing regulation service only and Demand Side Resources and
Generators that can sustain operation for longer than one hour are
not eligible to be Limited Energy Storage Resources. Id. (citing
NYISO Data Request Response at 3-4).
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    12. Thus, the Commission preliminarily found that current tariffs
that do not recognize the operational characteristics of electric
storage resources limit the participation of electric storage resources
in the RTO/ISO markets and result in inefficient use of these
resources.\23\ As a result, the Commission stated that the RTOs/ISOs
may not efficiently dispatch resources, including electric storage
resources, thereby reducing competition in the RTO/ISO markets. The
Commission stated that limiting the services an electric storage
resource is eligible to provide and limiting the efficiency with which
it is dispatched to provide services could also inhibit developers'
incentives to design their electric storage resources to provide all
capacity, energy, and ancillary services that these resources could
otherwise provide, further reducing competition in the RTO/ISO markets.
The Commission stated that effective integration of electric storage
resources into the RTO/ISO markets would enhance competition and, in
turn, help to ensure that these markets produce just and reasonable
rates.
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    \23\ See id. P 12.
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1. Comments

    13. In response to the NOPR, commenters elaborate on the degree to
which, and how, existing RTO/ISO market rules pose barriers to the
participation of electric storage resources in the RTO/ISO markets and
the impact of those barriers.\24\ For example, Advanced Energy Economy
and GridWise state that RTO/ISO tariffs often lack participation models
that allow for participation by advanced energy technologies, apply
unnecessary and burdensome technical requirements originally developed
for traditional generation technologies, or impose performance
requirements that arbitrarily exclude advanced technologies.
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    \24\ See Advanced Energy Economy Comments at 14-15; GridWise
Comments at 3.
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    14. Alevo, Eagle Crest, Massachusetts State Entities, and NYISO
Indicated Transmission Owners claim that RTO/ISO market rules hinder
the full participation of electric storage resources by failing to
recognize these resources' unique operating characteristics and
requiring them to use market rules designed for other types of
resources, such as generation.\25\ For example, Massachusetts State
Entities explain that, in ISO-NE, electric storage resources have to
use participation models for pumped-hydro resources, which do not take
advantage of the flexibility of newer electric storage technologies.
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    \25\ See Alevo Comments at 4-6; Eagle Crest Comments at 5;
Massachusetts State Entities Comments at 13-14; NYISO Indicated
Transmission Owners Comments at 3.
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    15. A few commenters emphasize that making market rules technology
neutral will remove barriers to entry for electric storage resources.
For example, several commenters argue that market design should be
technology neutral to ensure equal access to markets \26\ and to reduce
long-term investment risk associated with developing electric storage
resources.\27\ Microgrid Resources Coalition shares the Commission's
concerns that the varying participation models among RTOs/ISOs limit
market opportunities for new technologies.\28\
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    \26\ See AES Companies Comments at 14; Alevo Comments at 7-8;
EEI Comments at 6-7; Efficient Holdings Comments at 2, 5; ELCON
Comments at 2-4; GridWise Comments at 3; Tesla/SolarCity Comments at
10-11.
    \27\ See Massachusetts State Entities Comments at 9.
    \28\ See Microgrid Resources Coalition Comments at 2.
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    16. While commenters addressed concerns with specific aspects of
the NOPR proposals, most commenters, including the RTOs/ISOs, generally
agree that the Commission should act to remove barriers to the
participation of electric storage resources in the RTO/ISO markets.\29\
Further, commenters state that allowing electric storage resources to
fully participate in the RTO/ISO markets could create more reliable and
resilient electric markets and could provide energy security, fuel
diversity, and valuable fast-responding capability to the RTO/ISO
markets.\30\ CAISO explains that there is no reason to exclude an
electric storage resource from providing an existing wholesale electric
service if that resource has the technical capabilities required to do
so.\31\
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    \29\ See, e.g., Advanced Energy Economy Comments at 1, 3-6, 8-
17; American Petroleum Institute Comments at 2; APPA/NRECA Comments
at 1-2; EEI Comments at 2-4; EPRI Comments at 2; EPSA/PJM Power
Providers Comments at 3, 6-9, 11-12; Energy Storage Association
Comments at 3-5; IRC Comments at 2; NARUC Comments at 3; National
Hydropower Association Comments at 2-4; TAPS Comments at 1.
    \30\ See, e.g., IRC Comments at 2; ISO-NE Comments at 1, 4;
NYISO Comments at 2; SPP Comments at 1-2.
    \31\ See CAISO Comments at 3.
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    17. Some commenters note that implementation of the reforms
proposed in the NOPR could improve competition and/or efficiency in the
RTO/ISO markets and provide other system benefits.\32\ More
specifically, Energy Storage Association contends that the benefits
from participation of electric storage resources in the RTO/ISO markets
include avoided capacity payments, lower peak prices, reduced need for
traditional generators to cycle, facilitating effective ramp
management, avoiding generator start-up and shut-down costs, and
absorbing over-generation. Dominion argues that recognizing the
characteristics of electric storage resources can lead to more
efficient dispatch and utilization of resources. In addition, City of
New York, Energy Storage Association, NYISO, Sunrun, and Tesla/
SolarCity suggest that the NOPR reforms will lead to lower costs for
consumers,\33\ while Silicon Valley Leadership Group and Starwood
Energy state that use of electric storage resources will reduce
greenhouse gas emissions.\34\ Institute for Policy Integrity explains
that new storage technologies can reduce dependence on expensive
transmission infrastructure.\35\ Commenters also argue that electric
storage resources can improve grid ``resiliency'' in the event of a
significant weather emergency.\36\
---------------------------------------------------------------------------

    \32\ See, e.g., Dominion Comments at 4-5; Energy Storage
Association Comments at 4 (citing Massachusetts Department of Energy
Resources, State-of-Charge: Massachusetts Energy Storage Initiative
Study (Sept. 2016), available at http://www.mass.gov/eea/docs/doer/state-of-charge-report.pdf); Imperial Irrigation District Comments
at 6; IRC Comments at 2; ISO-NE Comments at 1; Starwood Energy
Comments at 3; TechNet Comments at 1; Telsa/SolarCity Comments at 1.
    \33\ See City of New York Comments at 4; Energy Storage
Association Comments at 4; NYISO Comments at 2; Sunrun Comments at
1; Tesla/SolarCity Comments at 2, 5.
    \34\ See Silicon Valley Leadership Group Comments at 1; Starwood
Energy Comments at 3.
    \35\ See Institute for Policy Integrity Comments at 3.
    \36\ See Advanced Energy Economy Comments at 3; Institute for
Policy Integrity Comments at 3; IRC Comments at 2; Massachusetts
State Entities Comments at 17; SPP Comments at 2.
---------------------------------------------------------------------------

    18. EPSA/PJM Power Providers argue that, because there are many

unanswered questions (such as the cost of software changes), the
Commission should not develop generic requirements for the RTOs/ISOs in
a final rule without a clear record that such specification will not
constrain any particular region.\37\
---------------------------------------------------------------------------

    \37\ EPSA/PJM Power Providers Comments at 12-13.
---------------------------------------------------------------------------

2. Commission Determination

    19. For the reasons discussed below, we find that existing RTO/ISO
market rules are unjust and unreasonable in light of barriers that they
present to the participation of electric storage resources in the RTO/
ISO markets, thereby reducing competition and failing to ensure just
and reasonable rates. Specifically, RTO/ISO market rules that limit the
services that electric storage resources are technically capable of
providing may create barriers to the participation of electric storage
resources in the RTO/ISO markets. Barriers also exist in the RTOs/ISOs
that have already adopted market rules that provide for the
participation of electric storage resources because these participation
models were often designed for electric storage resources with very
specific characteristics (such as pumped-hydro resources or other
electric storage resources with a maximum run-time that is less than
one hour), thus limiting electric storage resources from providing the
full range of services they are technically capable of providing.
    20. These barriers adversely affect competition in the RTO/ISO
markets by limiting the participation of resources that are technically
capable of providing services in those markets. Moreover, these
barriers reduce competition and market efficiency by inhibiting
developers' incentives to design their electric storage resources to
provide all capacity, energy, and ancillary services that these
resources could otherwise provide. We find that better integration of
electric storage resources into the RTO/ISO markets is necessary to
enhance competition and, in turn, help to ensure that these markets
produce just and reasonable rates. Accordingly, as discussed further
below, we require each RTO/ISO to revise its tariffs to remove barriers
to the participation of electric storage resources in the RTO/ISO
markets.
    21. While we agree with EPSA/PJM Power Providers that it is
necessary to provide each RTO/ISO with flexibility in the manner it
incorporates certain aspects of these reforms into its tariff as
explained below, we find that the record in this proceeding provides
sufficient basis for requiring the generic requirements discussed
herein.

IV. Discussion

A. Definition of Electric Storage Resource

1. NOPR Proposal
    22. For the purpose of defining the set of resources for which an
RTO/ISO must create a participation model, in the NOPR, the Commission
proposed to define an electric storage resource as ``a resource capable
of receiving electric energy from the grid and storing it for later
injection of electricity back to the grid regardless of where the
resource is located on the electrical system.'' \38\ The Commission
stated that these resources include all types of electric storage
technologies, regardless of their size, storage medium (e.g.,
batteries, flywheels, compressed air, pumped-hydro, etc.), or whether
the resource is located on the interstate grid or on a distribution
system.
---------------------------------------------------------------------------

    \38\ See NOPR at P 10.
---------------------------------------------------------------------------

2. Comments
    23. The comments received on the proposed definition of electric
storage resources generally ask the Commission to modify or clarify the
definition but disagree on how the Commission should do so. Some
commenters ask the Commission to modify or clarify the definition of
electric storage resource to broaden its application. For example, they
raise concerns with how the Commission's proposed definition treats
behind-the-meter resources. First, Energy Storage Association argues
that the NOPR definition only applies to resources connected directly
to the transmission or distribution system and, therefore, asks the
Commission to extend these reforms to behind-the-meter electric storage
resources that net inject energy to the grid.\39\ Second, some
commenters ask that the Commission extend the NOPR reforms to behind-
the-meter resources that do not inject power back to the grid.\40\
Advanced Microgrid Solutions and Stem note that the definition of an
electric storage resource in the NOPR implies that all such resources
will inject electricity back to the grid. However, Advanced Microgrid
Solutions and Stem argue that behind-the-meter electric storage
resources can provide value to the grid even when they do not inject
electricity to the grid. Advanced Microgrid Solutions and Stem thus ask
the Commission to clarify that behind-the-meter electric storage
resources that do not inject electricity back to the grid can use the
participation model for electric storage resources to participate in
the RTO/ISO markets.
---------------------------------------------------------------------------

    \39\ See Energy Storage Association Comments at 7, 21-22.
    \40\ See Advanced Energy Economy Comments at 18-20; Advanced
Microgrid Solutions Comments at 10; Stem Comments at 6.
---------------------------------------------------------------------------

    24. Advanced Energy Economy expresses a related concern, arguing
that the Commission's proposed definition of an electric storage
resource does not capture all energy storage technologies, such as
thermal and kinetic storage; storage co-located with generation
resources (including variable resources) on the transmission grid; and
other types of technologies that can perform an energy storage function
but may not physically export electricity to the wholesale grid.
Advanced Energy Economy suggests that the Commission remedy this
concern by revising the definition of an electric storage resource to
include all storage technologies that are capable of converting
electric energy into stored energy and later supplying electric energy
(either back to the grid or to a host customer or site).
    25. In contrast, other commenters recommend that the Commission
narrow its proposed definition of an electric storage resource.\41\
Robert Borlick urges the Commission to limit the application of its
proposed reforms to those electric storage resources that directly
connect to transmission systems controlled by RTOs/ISOs, citing
potential adverse impacts of distribution-interconnected resources on
power systems. Xcel Energy Services also suggests that the proposed
reforms should apply only to electric storage resources connected to
the transmission system. While TAPS strongly supports facilitating the
participation of transmission-interconnected storage and believes that
distribution-interconnected storage could yield benefits to the RTO/ISO
markets, it cautions that distribution-interconnected storage should
comply with distribution utility tariffs and rates for delivery of
energy between the transmission system and the resource's point of
interconnection to the distribution system (including provisions
related to losses and other terms and conditions of service), both for
the resource's sales to the RTO/ISO markets and the resource's
purchases of energy from the RTO/ISO markets.\42\
---------------------------------------------------------------------------

    \41\ See Robert Borlick Comments at 2; Xcel Energy Services
Comments at 3-4.
    \42\ See TAPS Comments at 28-29.
---------------------------------------------------------------------------

    26. Several commenters address the implications of the proposed
definition for state and federal jurisdiction. Connecticut State
Entities state that they welcome the Commission's efforts to

fully provide resources access to wholesale electric markets without
changing existing state and federal jurisdiction.\43\ Some commenters
express concerns regarding the jurisdictional implications of including
electric storage resources connected at the distribution level in the
definition of an electric storage resource.\44\ NARUC asserts that
state authority must remain intact under any final rule. Organization
of MISO States supports the NOPR on the condition that state and other
regulatory jurisdiction is maintained. APPA/NRECA, Maryland and New
Jersey Commissions, MISO Transmission Owners, and NYISO Indicated
Transmission Owners state that RTO/ISO market rules and Commission
policy must maintain the ability of state and local authorities to
regulate existing and future electric storage resources that
interconnect at the distribution level or behind a customer meter and
provide retail- or distribution-level services without the Commission
considering such action as a barrier to participation in wholesale
markets. This request includes Commission confirmation of state
jurisdiction over matters such as distribution system design,
interconnection to the distribution system, distribution system
operations, distribution power quality, the ability of electric storage
resources to participate in programs at the distribution level, and
distribution system costs. APPA/NRECA believe that the NOPR confines
the proposed reforms to the RTO/ISO markets and urge the Commission to
reject requests to expand the scope of this final rule beyond that
limited scope.
---------------------------------------------------------------------------

    \43\ See Connecticut State Entities Comments at 7.
    \44\ See APPA/NRECA Comments at 3-4; Maryland and New Jersey
Commissions Comments at 3; Massachusetts State Entities Comments at
9; MISO Transmission Owners Comments at 6; NARUC Comments at 4;
NYISO Indicated Transmission Owners Comments at 4; Organization of
MISO States Comments at 1-2.
---------------------------------------------------------------------------

    27. DTE Electric/Consumers Energy and MISO Transmission Owners
assert that the Commission should allow states to decide whether
electric storage resources in their state that are located on the
distribution system or behind a retail meter are permitted to
participate in the RTO/ISO markets through the electric storage
resource participation model proposed in the NOPR.\45\ Massachusetts
Municipal Electric asks the Commission to clarify that its proposed
reforms will enable, but not compel, electric storage resources located
behind the meter to participate in the RTO/ISO markets.\46\
---------------------------------------------------------------------------

    \45\ See DTE Electric/Consumers Energy Comments at 7; MISO
Transmission Owners Comments at 4, 7.
    \46\ See Massachusetts Municipal Electric Comments at 2.
---------------------------------------------------------------------------

    28. In contrast, Genbright argues that the Commission must not only
assert primary jurisdiction over electric storage resources' sales of
services in the RTO/ISO markets but also ensure that RTOs/ISOs do not
rely on ad hoc interpretations of retail rules and regulations to erect
barriers to the participation of electric storage resources in those
markets.\47\
---------------------------------------------------------------------------

    \47\ See Genbright Comments at 3-4.
---------------------------------------------------------------------------

3. Commission Determination
    29. Consistent with the NOPR proposal, in this Final Rule, we
revise section 35.38(b) of the Commission's regulations to define an
electric storage resource as ``a resource capable of receiving electric
energy from the grid and storing it for later injection of electric
energy back to the grid.'' We find that removing the phrase
``regardless of where the resource is located on the electrical
system'' from the NOPR proposal and instead clarifying where an
electric storage resources may be located does not change the
applicability of the definition and will also provide a more adaptable
definition for other Commission actions.\48\ We clarify that this
definition is intended to cover electric storage resources capable of
receiving electric energy from the grid and storing it for later
injection of electric energy back to the grid, regardless of their
storage medium (e.g., batteries, flywheels, compressed air, and pumped-
hydro). Additionally, consistent with the NOPR proposal, we clarify
that electric storage resources located on the interstate transmission
system, on a distribution system, or behind the meter fall under this
definition, subject to the additional clarifications provided below. By
including all electric storage technologies, and by allowing resources
that are interconnected to the transmission system, distribution
system, or behind the meter to use the participation model for electric
storage resources, we are ensuring that the market rules will not be
designed for any particular electric storage technology.
---------------------------------------------------------------------------

    \48\ See, e.g., Essential Reliability Services and the Evolving
Bulk-Power System--Primary Frequency Response, Order No. 842, 162
FERC ] 61,128 (2018), Notice of Proposed Rulemaking, FERC Stats. &
Regs. ] 32,718 (2016); Notice of Inquiry, FERC Stats. & Regs. ]
35,576.
---------------------------------------------------------------------------

    30. We observe that an electric storage resource that injects
electric energy back to the grid for purposes of participating in an
RTO/ISO market engages in a sale of electric energy at wholesale in
interstate commerce.\49\ As a result, such an electric storage resource
must fulfill certain responsibilities set forth in the FPA and the
Commission's rules and regulations.\50\
---------------------------------------------------------------------------

    \49\ We note that injections of electric energy back to the grid
do not necessarily trigger the Commission's jurisdiction. See Sun
Edison LLC, 129 FERC ] 61,146 (2009), reh'g granted on other
grounds, 131 FERC ] 61,213 (2010) (the Commission's jurisdiction
would arise only when a facility operating under a state net
metering program produces more power than it consumes over the
relevant netting period); MidAmerican Energy Co., 94 FERC ] 61,340
(2001).
    \50\ Examples of such responsibilities include filing rates
under FPA section 205 (potentially including obtaining market-based
rate authority); submitting FPA sections 203 and 204 filings related
to corporate mergers and other activities; and fulfilling FPA
section 301 accounting obligations and FPA section 305(b)
interlocking directorate obligations. See 16 U.S.C. 824b, 824c,
824d, 825, 825d(b).
---------------------------------------------------------------------------

    31. We disagree with commenters who assert that the definition of
an electric storage resource should be limited to those electric
storage resources that are interconnected to the transmission system.
Electric storage resources interconnected to the distribution system
are already participating in the RTO/ISO markets,\51\ and they should
continue to be able to do so. Such a limitation also would be
inconsistent with the participation of other types of resources because
various types of traditional generation and demand-side resources that
are not connected directly to the transmission system currently
participate in the RTO/ISO markets.
---------------------------------------------------------------------------

    \51\ See, e.g., PJM Interconnection LLC, 149 FERC ] 61,185
(2014), order on reh'g, 151 FERC ] 61,231 (2015).
---------------------------------------------------------------------------

    32. Some commenters argue that the Commission should broaden its
definition of an electric storage resource to apply to behind-the-meter
resources that do not inject electricity onto the grid. We decline to
do so. Through this Final Rule, we seek to ensure that RTO/ISO market
rules account for the unique physical and operational characteristic of
electric storage resources, namely their bidirectional capability to
both inject energy to the grid and receive energy from it. Expanding
the definition of an electric storage resource to include behind-the-
meter resources that do not inject electric energy onto the grid would
not advance this purpose because they would not be injecting electric
energy back to the grid. In addition, we have previously found that
behind-the-meter resources that do not inject electric energy onto the
grid are considered demand response.\52\ There

are existing participation models for demand response that already have
well-established rules that are in some cases unique to demand response
and we do not want the requirements of this Final Rule to disrupt or
otherwise conflict with those rules.\53\
---------------------------------------------------------------------------

    \52\ See ISO New England Inc., 138 FERC ] 61,042, at PP 76-86,
reh'g denied, 139 FERC ] 61,116, at PP 10-12, 26-31 (2012).
    \53\ Participation by demand response resources in an RTO/ISO
market does not involve a sale of electric energy at wholesale in
interstate commerce. See EnergyConnect, Inc., 130 FERC ] 61,031, at
P 30 (2010); see also FERC v. Elec. Power Supply Ass'n, 136 S.Ct.
760 (2016) (RTO/ISO rules governing participation of demand response
resources in the RTO/ISO markets are practices that directly affect
rates in those markets.).
---------------------------------------------------------------------------

    33. We also clarify that, by ``capable of . . . later injection of
electric energy back to the grid,'' we mean that the electric storage
resource is both physically designed and configured to inject electric
energy back onto the grid and, as relevant, is contractually permitted
to do so (e.g., per the interconnection agreement between an electric
storage resource that is interconnected on a distribution system or
behind-the-meter with the distribution utility to which it is
interconnected). Consequently, the definition of an electric storage
resource excludes a resource that is either (1) physically incapable of
injecting electric energy back onto the grid due to its design or
configuration or (2) contractually barred from injecting electric
energy back onto the grid.
    34. While we decline in this Final Rule to expand the definition of
an electric storage resource to include behind-the-meter resources that
do not inject electric energy onto the grid, we note that the
definition in this Final Rule establishes the minimum set of resources
that each RTO/ISO must consider when developing an electric storage
resource participation model to comply with this Final Rule. It does
not preclude any RTO/ISO from proposing a broader definition for
electric storage resources through a separate FPA section 205
filing.\54\
---------------------------------------------------------------------------

    \54\ See 16 U.S.C. 824d. We acknowledge that the definition of
an electric storage resource that we adopt in this Final Rule may
differ from existing, Commission-accepted practices. For example, in
CAISO, a stand-alone electric storage resource or an aggregation of
behind-the-meter electric storage resources that cannot or does not
inject electric energy back to the grid is able to use CAISO's
participation model for electric storage resources (the Non-
Generator Resource model). See California Indep. Sys. Operator
Corp., 132 FERC ] 61,211 (2010). This Final Rule does not require
each RTO/ISO to limit the applicability of its existing
participation models to electric storage resources as they are
defined in this Final Rule or prevent them from arguing on
compliance why its Commission-accepted tariff complies with the
requirements of this Final Rule.
---------------------------------------------------------------------------

    35. Further, this Final Rule requires each RTO/ISO to implement
market rules applicable to electric storage resources, as defined
herein, that voluntarily seek to participate in the RTO/ISO markets;
this Final Rule does not require electric storage resources to
participate in those markets. The Commission has exclusive jurisdiction
over the wholesale markets and the criteria for participation in those
markets, including the wholesale market rules for participation of
resources connected at or below distribution-level voltages.\55\ We
also understand that numerous resources connected to the distribution
system participate in the RTO/ISO markets today.\56\ Under these
circumstances, we are not persuaded to grant the MISO Transmission
Owners' and DTE Electric/Consumers Energy's request that the Commission
allow states to decide whether electric storage resources in their
state that are located behind a retail meter or on the distribution
system are permitted to participate in the RTO/ISO markets through the
electric storage resource participation model.
---------------------------------------------------------------------------

    \55\ See FERC v. Elec. Power Supply Ass'n, 136 S.Ct. 760 (2016);
see also Advanced Energy Economy, 161 FERC ] 61,245, at P 59-60
(2017).
    \56\ See, e.g., Southern California Edison Co., Docket No. ER10-
1356-000 (2010) (accepting Southern California Edison's Wholesale
Distribution Access Tariff); PJM Interconnection, L.L.C., Docket No.
ER11-3148-000 (2011) (delegated letter order) (accepting Wholesale
Market Participation Agreement among PJM, CleanLight Power, L.L.C.
and Public Service Electric and Gas Company); PJM Manual 14C, Sec.
1.3 (discussing requirements of Wholesale Market Participation
Agreements).
---------------------------------------------------------------------------

    36. That said, we emphasize the ongoing, vital role of the states
with respect to the development and operation of electric storage
resources. Such state responsibilities include, among other things,
retail services and matters related to the distribution system,
including design, operations, power quality, reliability, and system
costs. We add that nothing in this Final Rule is intended to affect or
implicate the responsibilities of distribution utilities to maintain
the safety and the reliability of the distribution system or their use
of electric storage resources on their systems.

B. Creation of a Participation Model for Electric Storage Resources

1. Participation Model for Electric Storage Resources
a. NOPR Proposal
    37. In the NOPR, the Commission proposed to require each RTO/ISO to
revise its tariff to include a participation model consisting of market
rules that, recognizing the physical and operational characteristics of
electric storage resources, facilitates their participation in RTO/ISO
markets.\57\ The Commission further proposed that the electric storage
resource participation model satisfy certain requirements to
accommodate the physical and operational characteristics of electric
storage resources.\58\
---------------------------------------------------------------------------

    \57\ See NOPR at P 26.
    \58\ See id. P 28.
---------------------------------------------------------------------------

b. Comments
    38. Many commenters support the Commission's proposal to require
each RTO/ISO to create a participation model for electric storage
resources.\59\ These commenters agree that there is a need to recognize
the physical, technical and operational characteristics of electric
storage resources,\60\ remove artificial barriers to electric storage
resource participation in the RTO/ISO markets,\61\ and allow electric
storage resources to be adequately and fairly compensated for the
services they provide.\62\ Commenters argue that these reforms will
provide system and consumer benefits \63\ (including increased
competition and lower costs to consumers,\64\ efficiency,\65\ and
system reliability benefits \66\) and will improve air quality.\67\
---------------------------------------------------------------------------

    \59\ See, e.g., Advanced Microgrid Solutions Comments at 3; AES
Companies Comments at 5, 14; Brookfield Renewable Comments at 2;
CAISO Comments at 3-4; EEI Comments at 3-4; Energy Storage
Association Comments at 1, 4-5; EPSA/PJM Power Providers Comments at
4, 11; Massachusetts State Entities Comments at 13-14; NYISO
Comments at 5.
    \60\ See, e.g., Advanced Energy Economy Comments at 22-24; AES
Companies Comments at 3; APPA/NRECA Comments at 11; CAISO Comments
at 3; City of New York Comments at 3; Research Scientists Comments
at 2.
    \61\ See, e.g., City of New York Comments at 3; Energy Storage
Association Comments at 5; Exelon Comments at 4; NYISO Indicated
Transmission Owners Comments at 2-3.
    \62\ See, e.g., Dominion Comments at 4-5; Massachusetts
Municipal Electric Comments at 2; NYISO Indicated Transmission
Owners Comments at 2-3.
    \63\ See, e.g., Alevo Comments at 4-6; NESCOE Comments at 3;
Ohio Commission Comments at 4.
    \64\ See, e.g., Beacon Power Comments at 2, 6; City of New York
Comments at 3-4; EPRI Comments at 2; NESCOE Comments at 3; Union of
Concerned Scientists Comments at 7.
    \65\ See EPRI Comments at 8-9; NESCOE Comments at 5.
    \66\ See, e.g., EPRI Comments at 2; Institute for Policy
Integrity Comments at 4; NESCOE Comments at 5.
    \67\ See City of New York Comments at 3-4.
---------------------------------------------------------------------------

    39. Some commenters, however, condition their support for the
Commission's proposed electric storage resource participation
model.\68\ For example, EEI expresses support contingent on the
proposed

participation model ensuring adequate reliability, not causing undue
discrimination to other market participants, and addressing cost
allocation and double recovery. Similarly, Exelon emphasizes that the
Commission should avoid approving tariff changes that may have a
detrimental effect on reliability, safety, or markets. Xcel Energy
Services supports the participation model if it is feasible and cost-
effective. According to EPSA/PJM Power Providers, any initiatives or
rules to facilitate participation of electric storage resources in the
RTO/ISO markets must be compatible with, and support, the extensive
system of conventional resources that make up the backbone of the bulk
power system and implementation of a participation model for electric
storage resources must preserve efficient operational and investment
signals for all resources.
---------------------------------------------------------------------------

    \68\ See, e.g., EEI Comments at 4-6; EPSA/PJM Power Providers
Comments at 3-4; Exelon Comments at 5-6, 12; Xcel Energy Services
Comments at 14-15.
---------------------------------------------------------------------------

    40. Whether or not they support the Commission's proposal to
require each RTO/ISO to establish a participation model for electric
storage resources, many commenters caution against granting undue
preference in the markets to electric storage resources.\69\ For
example, Independent Energy Producers Association argues that the
electric storage resource participation model should impose comparable
performance obligations (such as penalties for non-performance,
schedule deviations, and replacement obligations) to those required of
other resources participating in the RTO/ISO markets. Similarly,
several commenters contend that the Commission should focus on the
technical requirements of the electric system and remain neutral about
how or from which technology services are provided.\70\ For example,
Massachusetts State Entities urge the Commission to ensure that
participation is not limited based on type, vintage, ownership,
business model, or other criteria unrelated to how well a particular
resource satisfies the physical and operational parameters of a defined
electric market or service.
---------------------------------------------------------------------------

    \69\ See, e.g., Avangrid Comments at 5; EEI Comments at 5; ELCON
Comments at 3; EPSA/PJM Power Providers Comments at 4, 7-8; Exelon
Comments at 2, 12; Independent Energy Producers Association Comments
at 4; New York Utility Intervention Unit Comments at 3.
    \70\ See, e.g., American Petroleum Institute Comments at 2-4;
EEI Comments at 6-7; EPSA/PJM Power Providers Comments at 7-8;
Massachusetts State Entities Comments at 8-9; MISO Transmission
Owners Comments at 7; PJM Market Monitor Comments at 2-3, 4-5.
---------------------------------------------------------------------------

    41. Commenters also address whether the Commission should provide
regional flexibility for each RTO/ISO to comply with the rule by
proposing requirements that accommodate electric storage resources that
comport to their unique circumstances. Several commenters contend that
regional flexibility is appropriate, with EEI, EPSA/PJM Power
Providers, and Exelon noting that the proposed electric storage
resource participation model provides such flexibility.\71\ Connecticut
State Entities suggest that the Commission should create threshold
standards for all RTOs/ISOs but allow regional variations for cost
allocation and rate design.\72\
---------------------------------------------------------------------------

    \71\ See, e.g., APPA/NRECA Comments at 11; EEI Comments at 4;
EPSA/PJM Power Providers Comments at 11-12; Exelon Comments at 2;
NESCOE Comments at 2-3, 9.
    \72\ See Connecticut State Entities Comments at 6.
---------------------------------------------------------------------------

    42. Other commenters argue that the Commission should defer to the
RTOs/ISOs to develop the detailed participation rules that take into
account the unique needs of each market.\73\
---------------------------------------------------------------------------

    \73\ See, e.g., Duke Energy Comments at 3; ISO-NE Comments at
10-14; MISO Comments at 2; National Hydropower Association Comments
at 4.
---------------------------------------------------------------------------

    43. For example, ISO-NE urges the Commission to avoid a one-size-
fits-all approach. Specifically, ISO-NE is concerned that (1) the focus
on participation models and market participant types rather than on
services is inconsistent with its core market design objective of
technology neutrality and (2) the rulemaking could require ISO-NE to
fundamentally change this technology-neutral approach to the detriment
of its markets. ISO-NE argues that adopting participation models could
allow resource owners to engage in participation model ``shopping,'' a
form of tariff rule arbitrage.
    44. Given these concerns, ISO-NE asks the Commission to provide
only general guidance to RTOs/ISOs, requiring them to (1) examine the
requirements associated with providing each wholesale service in their
markets and (2) assess whether and how to revise those requirements to
better accommodate the participation of electric storage resources.
ISO-NE also asks the Commission to clarify that RTOs/ISOs are not
required to adopt a specific participation model construct but instead
may propose to incorporate the participation of electric storage
resources in their markets in a manner consistent with the RTO's/ISO's
existing market constructs.
    45. Similarly, while NESCOE supports the intent of the NOPR, it
observes that further information is required on whether each RTO/ISO
could modify its existing participation model(s) to address any barrier
to the participation of electric storage resources in the RTO/ISO
markets, rather than being required to create a new participation
model.\74\ TeMix also questions the need for a new participation model
for electric storage resources, arguing that such a participation model
will only add to the complexity of the RTO/ISO markets.\75\ TeMix
instead proposes that the Commission encourage reform of retail energy
and distribution tariffs and require the RTOs/ISOs to frequently post
wholesale bids and offers at the retail/wholesale interface to better
allow retail customers to respond to the wholesale price of
electricity.
---------------------------------------------------------------------------

    \74\ See NESCOE Comments at 2, 5.
    \75\ See TeMix Comments at 2-3, 4-5.
---------------------------------------------------------------------------

    46. Some commenters request that the Commission establish detailed
requirements for a participation model for electric storage
resources.\76\ For example, Energy Storage Association argues that
prescriptive requirements for the proposed electric storage resource
participation model are necessary to ensure that the participation
model is adequately defined. Starwood Energy requests that the
Commission require uniform participation models across all of the RTOs/
ISOs to ensure that all electric storage resources have the same
opportunity to fully participate in the RTO/ISO markets, including the
capacity markets, regardless of the region in which they are located.
EPRI suggests that the definition of a participation model include, in
addition to a set of tariff provisions, the set of software provisions
required to represent the physical and operational characteristics of
the particular resource.\77\
---------------------------------------------------------------------------

    \76\ See Energy Storage Association Comments at 8; Starwood
Energy Comments at 7.
    \77\ See EPRI Comments at 2-3.
---------------------------------------------------------------------------

    47. Several commenters suggest that the participation model for
electric storage resources should account for the physical and
operational differences among electric storage technologies because
different electric storage resources (such as pumped-hydro) have
different operating characteristics, provide different services, and
are not intended to serve the same roles within the electric grid.\78\
EPRI suggests that, given the current form of the day-ahead and real-
time energy markets, there may need to be two participation models for
electric storage resources.\79\ EPRI explains that one participation
model would be for resources whose transition

time from charge to discharge, or vice versa, exceeds the market
interval (e.g., pumped-hydro and compressed-air) with the operational
mode of these resources determined by the RTO's/ISO's security
constrained unit commitment model. EPRI further explains that the
second participation model would be for resources that transition from
charge to discharge, or vice versa, within the market interval (e.g.,
batteries and flywheels). EPRI states that it is likely these resources
can be online and responsive at zero power output, and therefore do not
need to be committed to a particular mode of operation, and can be
dispatched as an injector or withdrawer of power.
---------------------------------------------------------------------------

    \78\ See, e.g., Brookfield Renewable Comments at 3; Dominion
Comments at 4-5; DTE Electric/Consumers Energy Comments at 4-5;
National Hydropower Association Comments at 4; NYPA Comments at 5;
San Diego Water Comments at 12-13, 15.
    \79\ See EPRI Comments at 7-8.
---------------------------------------------------------------------------

    48. Other commenters discuss the need to distinguish between
electric storage resources based on their point of interconnection with
the grid.\80\ Organization of MISO States recommends that electric
storage resource participation models differentiate between
transmission-interconnected electric storage resources and
distribution-interconnected electric storage resources due to the
interplay and potential overlap between wholesale and retail rates for
energy use of retail customers. Stem suggests that, in developing their
electric storage resource participation models, RTOs/ISOs should
distinguish between behind-the-meter and front-of-the-meter electric
storage resources, as well as single site and aggregated resources, to
ensure that each resource is being used to its full technical
capabilities and behind-the-meter resources are not precluded from the
most efficient use cases.
---------------------------------------------------------------------------

    \80\ See Organization of MISO States Comments at 3; Stem
Comments at 2-3; TeMix Comments at 3.
---------------------------------------------------------------------------

    49. Two RTOs/ISOs request clarifications with respect to the
Commission's proposal to require them to establish a participation
model for electric storage resources.\81\ ISO-NE and PJM want to ensure
that the requirement that they establish a participation model for
electric storage resources does not preclude electric storage resources
participating in their markets from using other participation models
(such as demand response or Alternative Technology Regulation
Resource). PJM also argues that its current rules for electric storage
resources should be carried forward because it allows electric storage
resources to provide all services that they are capable of providing in
a manner comparable to generation resources of similar size and with
similar operational characteristics.
---------------------------------------------------------------------------

    \81\ See ISO-NE Comments at 29-30; PJM Comments at 6, 9, 11.
---------------------------------------------------------------------------

    50. Finally, several commenters share information on existing RTO/
ISO initiatives to remove barriers to the participation of electric
storage resources in their markets.\82\ California Commission notes
that, in CAISO, most of the NOPR proposals are either already in place
or under development.\83\ Stem suggests that CAISO's current models,
while incomplete, are the best place to start when designing a
participation model for electric storage resources.\84\
---------------------------------------------------------------------------

    \82\ See, e.g., NYISO Comments at 4; MISO Comments at 3.
    \83\ See California Commission Comments at 3.
    \84\ See Stem Comments at 2-3.
---------------------------------------------------------------------------

c. Commission Determination
    51. In this Final Rule, we adopt the NOPR proposal and add section
35.28(g)(9)(i) to the Commission's regulations to require each RTO/ISO
to revise its tariff to include a participation model consisting of
market rules that, recognizing the physical and operational
characteristics of electric storage resources, facilitates their
participation in the RTO/ISO markets. We find that requiring each RTO/
ISO to create a participation model that recognizes the unique
characteristics of electric storage resources will help eliminate
barriers to their participation in the RTO/ISO markets, which will
enhance competition and, in turn, help to ensure that these markets
produce just and reasonable rates.
    52. In response to concerns that the creation of a participation
model for electric storage resources may undermine market designs that
are based on services provided rather than resource type, we find that
this Final Rule does not preclude an RTO/ISO from structuring its
markets based on the technical requirements that a resource must meet
to provide needed services. It simply requires that each RTO/ISO
establish a participation model that ensures eligibility to participate
in the RTO/ISO markets in a way that recognizes the physical and
operational characteristics of electric storage resources. As such,
this Final Rule does not grant undue preference to electric storage
resources as a group or to specific electric storage technologies;
rather, it removes barriers to their participation, enhancing
competition among all resources that are technically capable of
providing wholesale services. As noted above, resources that use the
participation model required by this Final Rule must fulfill certain
responsibilities set forth in the FPA and the Commission's rules and
regulations.\85\ Additionally, resources that use this participation
model will be compensated for the wholesale services they provide in
the same manner as other resources that provide these services.
---------------------------------------------------------------------------

    \85\ See supra P 30.
---------------------------------------------------------------------------

    53. With respect to commenters' arguments concerning regional
flexibility in implementation, we find that this Final Rule strikes the
appropriate balance between allowing each RTO/ISO to adopt market rules
that complement its unique market design and providing sufficiently
detailed requirements to ensure that each RTO/ISO eliminates barriers
to electric storage resource participation in its markets.
Specifically, this Final Rule does not adopt prescriptive, uniform
market rules to which each RTO/ISO must adhere. Instead, the
regulations establish minimum requirements (for, among other things,
bidding parameters and resource size) that each RTO/ISO must meet when
proposing market rules to comply with this Final Rule, permitting each
RTO/ISO to propose market rules that comply with these minimum
requirements in the way that best suits its individual market
design.\86\ We therefore decline to adopt additional or more
prescriptive requirements for the participation model at this time.
---------------------------------------------------------------------------

    \86\ For example, we acknowledge that it may be necessary in
some markets to create market rules that differentiate between
electric storage resources interconnected to the grid at different
points (i.e., at the transmission system, the distribution system,
or behind-the-meter). Such differences could include different
metering and accounting practices for certain electric storage
resources, as discussed in the Metering and Accounting Practices for
Charging Energy section. See infra P 322.
---------------------------------------------------------------------------

    54. We are not convinced that separate participation models are
necessary for different types of electric storage resources (e.g.,
slower, faster, or aggregated) because we believe that the physical
differences between electric storage resources can be represented by
complying with the requirements for bidding parameters that are
discussed below and that a single participation model can be designed
to be flexible enough to accommodate any type of electric storage
resource. However, to the extent an RTO/ISO seeks to include in its
tariff additional market rules that accommodate electric storage
resources with specific physical and operational characteristics, the
RTO/ISO may propose such revisions to its tariff through a separate FPA
section 205 filing.\87\
---------------------------------------------------------------------------

    \87\ See 16 U.S.C. 824d.
---------------------------------------------------------------------------

    55. We agree with CAISO that electric storage resources currently
participate in the RTO/ISO markets in a variety of

ways and may use a variety of existing participation models. We clarify
that, where an RTO/ISO already has a separate participation model that
electric storage resources may use (such as participation models for
pumped-hydro resources or demand response), we are not requiring the
RTO/ISO to consolidate that participation model with the participation
model for electric storage resources required by this Final Rule.
However, to the extent an RTO/ISO modifies existing participation
models to comply with this Final Rule, it must ensure that those
resulting participation models are available for all types of electric
storage resources and comply with all of the other requirements set
forth in this Final Rule.
    56. While the participation model for electric storage resources
should be designed to facilitate the participation of all types of
electric storage technologies, we do not require all electric storage
resources to use that participation model. To that end, we clarify that
this Final Rule does not preclude electric storage resources from
continuing to participate in demand response programs, as Alternative
Technology Regulation Resources in ISO-NE, or under other participation
models in any RTO/ISO in which they are eligible to participate.
However, we clarify that, under section 35.28(g)(9) of the Commission's
regulations, section 35.28(g)(9)(i) applies to resources using the
participation model for electric storage resources and section
35.28(g)(9)(ii) applies to all electric storage resources that fall
under the definition established in this Final Rule. Therefore,
electric storage resources that may elect not to use the participation
model for electric storage resources would still be able to pay the
wholesale LMP for the electric energy they purchase from the RTO/ISO
markets and then resell back to those markets.
2. Qualification Criteria for the Participation Model for Electric
Storage Resources
a. NOPR Proposal
    57. To ensure that the proposed participation model for electric
storage resources will facilitate the participation of both existing
and future electric storage resource technologies in the RTO/ISO
markets, the Commission proposed that each RTO/ISO define the criteria
in its tariff that a resource must meet to qualify to use the
participation model for electric storage resources (i.e., qualification
criteria).\88\ The Commission stated that these qualification criteria
must be based on the physical and operational attributes of electric
storage resources, must not limit participation to any particular type
of electric storage resource or other technology, and must ensure that
the RTO/ISO is able to dispatch a resource in a way that recognizes its
physical constraints and optimizes its benefits to the RTO/ISO. The
Commission invited comment on whether it should establish qualification
criteria that each RTO/ISO must adopt and, if so, what specific
criteria the Commission should require. The Commission explained that
it was not proposing to limit the use of the electric storage resource
participation model to electric storage resources as defined in the
NOPR, acknowledging that there may be other types of resources whose
physical and operational characteristics could qualify under the
proposed participation model.\89\
---------------------------------------------------------------------------

    \88\ See NOPR at P 29.
    \89\ See id. P 30.
---------------------------------------------------------------------------

b. Comments
    58. While several commenters support providing each RTO/ISO with
flexibility to propose appropriate qualification criteria on compliance
with this Final Rule,\90\ a few commenters suggest that the Commission
require each RTO/ISO to propose qualification criteria that meet
certain standards.\91\ For example, Exelon, Imperial Irrigation
District, and Magnum assert that qualification criteria should not
limit participation to certain types of electric storage resources.
Imperial Irrigation District argues that the qualification criteria for
a resource to use the electric storage resource participation model
should not be more specific than the physical and operational
attributes cited in the NOPR (i.e., the ability to both charge and
discharge energy). EPRI states that, if an RTO/ISO adopts two different
participation models for electric storage resources, one for slower
responding resources and one for faster responding resources, then that
RTO/ISO may need to establish different qualification criteria for each
electric storage resource participation model.
---------------------------------------------------------------------------

    \90\ See, e.g., AES Companies Comments at 15-16; Bonneville
Comments at 4; CAISO Comments at 4-5; MISO Comments at 9-10; NESCOE
Comments at 9; PG&E Comments at 7; SoCal Edison Comments at 15-16.
    \91\ See, e.g., EPRI Comments at 7-8; Exelon Comments at 4;
Imperial Irrigation District Comments at 6-7; Magnum Comments at 8.
---------------------------------------------------------------------------

    59. Both MISO and SPP point to existing qualification criteria for
providing certain services in their markets that they argue should
apply to resources that use the electric storage resource participation
model to provide those services.\92\ MISO notes that, for certain
services, a resource must be able to sustain provision of the service
for the minimum amount of time (e.g., contingency reserves have a 90-
minute replenishment time and capacity resources must be capable of
providing four hours of continuous energy). SPP makes similar
arguments, noting that some products like regulation may have shorter
output sustainability requirements than other products like energy.
---------------------------------------------------------------------------

    \92\ See MISO Comments at 9-10; SPP Comments at 4.
---------------------------------------------------------------------------

    60. In addition to qualification criteria, Fluidic argues that
RTOs/ISOs should modify their protocols and procedures to include a
uniform accrediting process for determining the capacity of an electric
storage resource for participation in their markets.\93\
---------------------------------------------------------------------------

    \93\ See Fluidic Comments at 4.
---------------------------------------------------------------------------

c. Commission Determination
    61. To implement the new requirement in section 35.28(g)(9)(i) of
the Commission's regulations for a participation model for electric
storage resources, in this Final Rule, we adopt the NOPR proposal to
require each RTO/ISO to define in its tariff the criteria that a
resource must meet to use the participation model for electric storage
resources (i.e., qualification criteria). As proposed in the NOPR,
these criteria must be based on the physical and operational
characteristics of electric storage resources, such as their ability to
both receive and inject electric energy, must not limit participation
under the electric storage resource participation model to any
particular type of electric storage resource or other technology and
must ensure that the RTO/ISO is able to dispatch a resource in a way
that recognizes its physical and operational characteristics and
optimizes its benefits to the RTO/ISO. We find that such criteria are
necessary to ensure that the electric storage resource participation
model will accommodate both existing and future technologies.
    62. Because the qualification criteria must not limit participation
to any particular technology and instead will be based on the physical
and operational characteristics of electric storage resources, these
criteria will allow new electric storage resource technologies to
participate in the RTO/ISO markets without the need for additional
tariff revisions to explicitly permit their participation. This focus
on the physical and operational characteristics of electric storage
resources rather than the specific

technology in use will remove barriers to entry for existing and future
technologies, which will enhance competition in the RTO/ISO markets
and, in turn, help to ensure that these markets produce just and
reasonable rates. In addition, requiring each RTO/ISO to define in its
tariff qualification criteria will provide greater certainty about
which resources will be eligible to use the electric storage resource
participation model in each RTO/ISO.
    63. Also, as proposed in the NOPR, we provide each RTO/ISO with
flexibility to propose qualification criteria that best suit its
proposed participation model for electric storage resources. We decline
to adopt Imperial Irrigation District's suggestion to specify that the
qualification criteria for a resource to use the electric storage
resource participation model should be limited to the physical and
operational characteristics cited in the definition proposed in the
NOPR (i.e., the ability to both charge and discharge energy). We agree
that the qualification criteria should not present barriers to the
participation of any electric storage resource in the RTO/ISO markets.
As long as any qualification criteria that the RTOs/ISOs propose do not
create such barriers and are inclusive of, at a minimum, those
resources set forth under the definition of electric storage resources
in this NOPR, then we do not find that it is necessary to place
additional limitations on any qualification criteria that the RTOs/ISOs
may propose in response to this Final Rule.
    64. In response to Fluidic, we clarify that the qualification
criteria should not include a uniform accrediting process to determine
the capacity of an electric storage resource. As discussed in the
Eligibility to Provide All Capacity, Energy, and Ancillary Services
section,\94\ we understand that, like all other market participants,
resources using the participation model for electric storage resources
will be subject to testing procedures to determine their technical
ability to provide a particular service and that this testing will be
done based on the capacity that the resource wants to offer into the
RTO/ISO markets.
---------------------------------------------------------------------------

    \94\ See infra P 81.
---------------------------------------------------------------------------

    65. With respect to MISO's and SPP's comments, we note that, based
on our understanding, the requirements that MISO and SPP characterize
as qualification criteria are technical requirements to provide a
particular wholesale service. Such technical requirements should not be
used as qualification criteria to determine whether a resource may use
the participation model for electric storage resources. Rather, MISO
and SPP would continue to use these requirements to determine whether
individual resources using the participation model for electric storage
resources are eligible to provide specific services.
3. Relationship Between Electric Storage Resource Participation Model
and Existing Market Rules
a. NOPR Proposal
    66. In the NOPR, the Commission proposed that each RTO/ISO propose
any necessary additions or modifications to its existing tariff
provisions to specify: (1) Whether resources that qualify to use the
participation model for electric storage resources will participate in
the RTO/ISO markets through existing or new market participation
agreements; and (2) whether particular existing market rules apply to
resources participating under the electric storage resource
participation model.\95\
---------------------------------------------------------------------------

    \95\ See NOPR at P 31.
---------------------------------------------------------------------------

b. Comments
    67. CAISO supports the NOPR proposal.\96\ In contrast, ISO-NE
requests that the Commission omit any specific directive about market
participation agreements from a final rule.\97\ ISO-NE notes that, in
New England, all market participants use the same Market Participation
Service Agreement regardless of resource type, and it does not
interpret the NOPR to preclude its continued use of a single agreement.
SPP remains silent as to whether it supports the NOPR proposal but
states that it will modify both its tariff and market protocols to
accommodate the participation of electric storage resources, noting
that it will structure any new rules consistent with SPP balancing
authority needs and requirements, while providing as much flexibility
and opportunity for the participation of electric storage resources as
possible.\98\
---------------------------------------------------------------------------

    \96\ See CAISO Comments at 5.
    \97\ See ISO-NE Comments at 56.
    \98\ See SPP Comments at 5.
---------------------------------------------------------------------------

c. Commission Determination
    68. To implement the new requirement in section 35.28(g)(9)(i) of
the Commission's regulations for a participation model for electric
storage resources, in this Final Rule, we adopt the NOPR proposal to
require each RTO/ISO to propose any necessary additions or
modifications to its existing tariff provisions to specify: (1) Whether
resources that qualify to use the participation model for electric
storage resources will participate in the RTO/ISO markets through
existing or new market participation agreements and (2) whether
particular existing market rules apply to resources participating under
the electric storage resource participation model. We find that these
requirements are necessary to provide certainty to resources using the
electric storage resource participation model about the market rules
that will govern their participation in each RTO/ISO market, thus
removing barriers to their participation.
    69. With respect to ISO-NE's concern that the RTOs/ISOs should not
be precluded from using a single market participation agreement for all
market participants, we clarify that this Final Rule allows the use of
one or more existing agreements so long as the agreement(s) complies
with the terms of this Final Rule.

C. Eligibility of Electric Storage Resources To Participate in the RTO/
ISO Markets

1. Eligibility To Provide All Capacity, Energy, and Ancillary Services
a. NOPR Proposal
    70. In the NOPR, the Commission proposed to require each RTO/ISO to
modify its tariff to establish a participation model consisting of
market rules for electric storage resources under which a participating
resource is eligible to provide any capacity, energy, and ancillary
service that it is technically capable of providing in the RTO/ISO
markets.\99\ The Commission also proposed that electric storage
resources should be eligible, as part of the participation model, to
provide services that the RTOs/ISOs do not procure through a market
mechanism, such as blackstart service, primary frequency response
service, and reactive power service, if they are technically capable.
The Commission specified that, where compensation for these services
exists, electric storage resources should also receive such
compensation commensurate with the service provided.
---------------------------------------------------------------------------

    \99\ See NOPR at P 48.
---------------------------------------------------------------------------

b. Comments
    71. Many commenters generally support the NOPR proposal.\100\ In
particular, several commenters support the NOPR proposal that electric
storage resources, if technically capable, must

be eligible to provide services that the RTOs/ISOs do not procure
through a market mechanism, such as blackstart service, primary
frequency response service, and reactive power service.\101\ However,
APPA/NRECA suggest that the Commission give each RTO/ISO flexibility to
demonstrate on compliance the extent to which an electric storage
resource may not be technically capable of providing a given service
reliably, efficiently, and cost-effectively.\102\
---------------------------------------------------------------------------

    \100\ See, e.g., Advanced Energy Economy Comments at 23-25;
American Petroleum Institute Comments at 3; EEI Comments at 6;
Mensah Comments at 2; MISO Comments at 4; National Hydropower
Association Comments at 7.
    \101\ See, e.g., Advanced Energy Economy Comments at 29; APPA/
NRECA Comments at 12-13; Exelon Comments at 6; National Hydropower
Association Comments at 7; Xcel Energy Services Comments at 21.
    \102\ See APPA/NRECA Comments at 13.
---------------------------------------------------------------------------

    72. Several of the RTOs/ISOs explain their ongoing efforts to
improve the opportunities for electric storage resources to participate
in their markets.\103\ MISO states that the NOPR proposal aligns with
its tariff, which classifies resources based on their technical
capabilities, including any technical limitations that they have.
Moreover, MISO states that it is exploring the potential to enhance the
opportunities for electric storage resources to participate in its
markets, noting, however, that implementing such enhancements may
require significant changes to its settlement systems and software.
NYISO explains that, to ensure that its market rules are fully
accessible to new electric storage technologies, it is working with
stakeholders on a comprehensive review and reform of the rules related
to electric storage resource participation in its markets.
---------------------------------------------------------------------------

    \103\ See CAISO Comments at 5-6; MISO Comments at 4-6; NYISO
Comments at 5-6; SPP Comments at 7.
---------------------------------------------------------------------------

    73. CAISO points out that electric storage resources participating
in CAISO's market have the opportunity to provide energy and ancillary
services, including those that CAISO may procure outside of its market
processes, if they meet the technical criteria to do so. Likewise, SPP
notes that electric storage resources may provide non-market based
services such as blackstart service and reactive power service if they
meet the relevant technical requirements.
    74. While ISO-NE states that it will revise its market rules in
compliance with a final rule in this proceeding to eliminate barriers
to the participation of electric storage resources in their markets,
and SPP states that, prior to the issuance of the NOPR, it was planning
to do so,\104\ they each request clarification of the NOPR proposal
that a resource using the electric storage resource participation model
must be eligible to provide any capacity, energy, and ancillary service
that it is technically capable of providing. According to ISO-NE,
electric storage resources should not receive different treatment than
other technology types. ISO-NE and SPP thus ask the Commission to
clarify that an electric storage resource must be eligible to provide a
service only if it meets the same requisite performance requirements to
provide that service that apply to all other resources.
---------------------------------------------------------------------------

    \104\ See ISO-NE Comments at 14-15; SPP Comments at 3-4, 6-7.
---------------------------------------------------------------------------

    75. Energy Storage Association contends that it is imperative that
RTOs/ISOs establish a process for resources to demonstrate that they
are technically capable of providing a specific service.\105\ Energy
Storage Association asserts that such a process must be transparent and
documented to create more certainty for new resources and to ensure
that all resources that are technically capable of providing a
particular service can do so.
---------------------------------------------------------------------------

    \105\ See Energy Storage Association Comments at 10-11.
---------------------------------------------------------------------------

c. Commission Determination
    76. In this Final Rule, we adopt the NOPR proposal and add section
35.28(g)(9)(i)(A) to the Commission's regulations to require each RTO/
ISO to establish market rules so that a resource using the
participation model for electric storage resources is eligible to
provide all capacity, energy, and ancillary services that it is
technically capable of providing, including services that the RTOs/ISOs
do not procure through an organized market. To provide clarity, we add
the phrase ``technically capable of providing'' to the regulatory text
we proposed in the NOPR. To be eligible to provide capacity, energy,
and ancillary services, a resource using the participation model for
electric storage resources will still need to meet the technical
requirements for any of the services that it wants to provide. We
recognize that the RTOs/ISOs have ongoing efforts to enhance
opportunities for electric storage resources to participate in their
markets and encourage each RTO/ISO to build upon these efforts when
developing tariff revisions to comply with this Final Rule.
    77. In response to ISO-NE, we clarify that each RTO/ISO is required
to revise its tariff to allow a resource using the electric storage
resource participation model to be eligible to provide a service only
if that resource is technically capable of doing so. To the extent that
an RTO/ISO has developed a standard set of technical requirements that
all resources must meet to provide a given service, those requirements
would also apply to a resource using the electric storage resource
participation model if it wants to provide that service.
    78. In response to ISO-NE and SPP, we clarify that ``technically
capable'' of providing a service means that a resource can meet all of
the technical, operational, and/or performance requirements that are
necessary to reliably provide that service. For example, these
requirements may include a minimum run-time to provide energy or the
ability to respond to automatic generation control to provide frequency
regulation. While we are clarifying the definition of ``technically
capable'' here, we note that we are not considering in this proceeding
the requirements that determine whether resources are technically
capable of providing individual wholesale services.\106\
---------------------------------------------------------------------------

    \106\ To the extent that an RTO/ISO seeks to revise its tariff
provisions setting forth the technical requirements for providing
any specific wholesale service, the RTO/ISO may propose such
revisions to its tariff through a separate FPA section 205 filing.
See 16 U.S.C. 824d.
---------------------------------------------------------------------------

    79. We decline to adopt APPA/NRECA's suggestion that the Commission
give each RTO/ISO flexibility to demonstrate on compliance the extent
to which an electric storage resource may not be technically capable of
providing a given service reliably, efficiently, and cost-effectively.
Each individual electric storage resource must still meet the technical
requirements of providing any specific service, which would be
determined by the RTO/ISO on a case-by-case basis.
    80. As part of the requirement that each RTO/ISO develop a
participation model for electric storage resources that allows electric
storage resources to be eligible to provide services in all of its
capacity, energy, and ancillary service markets, we also require that
such participation model allow electric storage resources to be
eligible to provide services that the RTOs/ISOs do not procure through
an organized market mechanism (such as blackstart service, primary
frequency response service, and reactive power service) if they are
technically capable of providing those services. As noted above, we are
not requiring each RTO/ISO to revise or revisit the technical
requirements or compensation provisions of those markets.
    81. We will not require the RTOs/ISOs to establish new processes
through which a resource using the participation model for electric
storage resources can demonstrate that it is technically

capable of providing a specific service in their markets. The RTOs/ISOs
already have technical requirements and testing procedures in place to
ensure that market participants can provide the particular services
that they seek to provide. We expect that these requirements and
procedures will apply to resources using the electric storage resource
participation model, just as they do to all other resources. However,
as part of developing a participation model for electric storage
resources, we encourage each RTO/ISO to consider whether any
modifications or additions to the existing technical requirements,
testing protocols, or other qualification procedures are necessary to
facilitate the participation of electric storage resources in its
markets.
2. Ability To De-Rate Capacity To Meet Minimum Run-Time Requirements
a. NOPR Proposal
    82. In the NOPR, the Commission proposed to require each RTO/ISO to
revise its tariff to clarify that an electric storage resource may de-
rate its capacity to meet minimum run-time requirements to provide
capacity or other services.\107\ In RTOs/ISOs with capacity markets,
the Commission proposed that the de-rated capacity value for electric
storage resources be consistent with the quantity of energy that must
be offered into the day-ahead energy market for resources with capacity
obligations.
---------------------------------------------------------------------------

    \107\ See NOPR at P 49.
---------------------------------------------------------------------------

b. Comments
    83. Many commenters generally support the proposal to require each
RTO/ISO to revise its tariff to clarify that an electric storage
resource may de-rate its capacity to meet minimum run-time requirements
to provide capacity or other services.\108\ Additionally, while many
commenters either support or do not oppose the NOPR proposal, multiple
entities request that the Commission clarify the proposal or raise
specific issues about the proposal and its interaction with the RTO/ISO
markets.
---------------------------------------------------------------------------

    \108\ See, e.g., AES Companies Comments at 16; Avangrid Comments
at 5; City of New York Comments at 6-7; Energy Storage Association
Comments at 8; Minnesota Energy Storage Alliance Comments at 3; MISO
Comments at 12; NESCOE Comments at 10-11; NRG Comments at 14-15; R
Street Institute Comments at 5; Xcel Energy Services Comments at 21.
---------------------------------------------------------------------------

    84. Multiple commenters raised issues surrounding performance
requirements for electric storage resources in the RTO/ISO
markets.\109\ NRG agrees that the final rule should allow flexibility
to de-rate in capacity markets but argues that the Commission should
clarify that electric storage resources participating in capacity
markets must meet the same performance metrics and criteria as other
resources. American Petroleum Institute similarly supports allowing
electric storage resources to de-rate to meet their capacity
requirements but asserts that this should not affect the ability of
these resources to participate in energy and ancillary services markets
up to their nominal capacity. American Petroleum Institute also
contends that electric storage resources should be subject to the same
penalties for non-performance as generators and demand response.
---------------------------------------------------------------------------

    \109\ See, e.g., AES Companies Comments at 17; American
Petroleum Institute Comments at 7-8; NRG Comments at 15.
---------------------------------------------------------------------------

    85. Some entities raise issues about the interaction of the
Commission's de-rating proposal with resource obligations.\110\ Both
Avangrid and EEI seek clarification that the proposal is intended to
ensure that the resource's de-rate is consistent with obligations that
the resource has in organized wholesale markets. AES Companies note
that, because some electric storage resources may only provide
wholesale services when there is excess available after serving retail
load, their nameplate capacity may not be the same as the capacity
available for wholesale services and would need to be reduced by the
capacity reserved for providing retail services. Xcel Energy Services
agrees that resources must reserve sufficient capacity to meet any
applicable capacity obligations, but it also notes that there are
regional differences in how capacity obligations are treated (e.g.,
CAISO does not ``count'' storage capacity, while other RTOs/ISOs have a
four-hour run-time requirement).
---------------------------------------------------------------------------

    \110\ See, e.g., Avangrid Comments at 5; EEI Comments at 7; Xcel
Energy Services Comments at 21-22.
---------------------------------------------------------------------------

    86. Energy Storage Association raises concerns regarding the
Commission's proposal that the de-rated capacity value for an electric
storage resource should be consistent with the quantity of energy that
must be offered into the day-ahead energy market for resources with
capacity obligations.\111\ Energy Storage Association asserts that,
because some RTOs/ISOs explicitly exempt electric storage resources
from a day-ahead energy market must-offer obligation, there would not
be a basis for determining a storage resource's capacity value.
Instead, Energy Storage Association recommends that RTOs/ISOs assign
electric storage resources a capacity value based on the quantity of
energy that they can discharge continuously over the minimum run-time
set by the RTO/ISO. SPP also supports the ability to de-rate the
maximum capacity of an electric storage resource in order to qualify
for provision of other products but requests that the Commission find
that a storage resource de-rating its capacity to meet minimum run-time
requirements is not physical withholding.\112\
---------------------------------------------------------------------------

    \111\ See Energy Storage Association Comments at 8-9.
    \112\ See SPP Comments at 7.
---------------------------------------------------------------------------

    87. Several other commenters consider the interaction between the
Commission's de-rating proposal and market power issues.\113\ For
example, EEI asserts that the RTO/ISO or market monitor would need to
verify minimum run-times and parameters to ensure that there is a
reasonable basis for the de-rate. Exelon agrees that electric storage
resources should be treated the same as generators providing capacity,
which can de-rate, and states that the market monitor can investigate a
market participant if there is a concern about an exercise of market
power. NYISO also raises general concerns about market power issues,
asking the Commission to consider the potential market power
implications of allowing a resource to hold back energy through its
offer, even if its intent is to discharge the energy at a later time.
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    \113\ See, e.g., EEI Comments at 7; Exelon Comments at 7; NYISO
Comments at 7.
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    88. Other commenters consider whether electric storage resources
need to de-rate in all circumstances.\114\ For example, California
Energy Storage Alliance asks the Commission to confirm that shorter-
duration electric storage resources should be eligible to participate
in the markets and provide services, when reasonable, without de-
rating. California Energy Storage Alliance argues that each RTO/ISO
should make determinations regarding de-rating capacity based on market
needs. CAISO contends that the Commission should not require any
specific outage rules for electric storage resources and that the
general outage management rules that apply to all other resources in
individual RTO/ISO markets should also apply to electric storage
resources.
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    \114\ See, e.g., CAISO Comments at 6; California Energy Storage
Alliance Comments at 10-11.
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    89. EPRI raises concerns about the effectiveness of the
Commission's proposal. EPRI asserts that the Commission's de-rating
proposal is potentially an improved approximation of an electric
storage resource's capacity value.\115\ However, EPRI states that the
proposal may not be entirely accurate because it assumes that an
electric

storage resource would contribute less than its maximum capacity to
provide energy across the entire four-hour minimum duration required
for providing capacity in many RTOs/ISOs. EPRI asserts that, during
periods where the RTO/ISO requires maximum capacity, an electric
storage resource with a two-hour duration at maximum discharge may
exhaust all energy production during the first two hours. EPRI argues
that the Commission's proposal also does not guarantee that an electric
storage resource will have full energy levels when the maximum capacity
period begins. EPRI contends that, where the load typically peaks
during just one hour of the highest load days, an electric storage
resource with less than the minimum duration requirement of the
capacity market may actually be providing greater capacity value than
the proposed de-rated value. EPRI asserts that, depending on the
ability of an electric storage resource to provide capacity when its
duration of energy storage is less than the minimum duration
requirement of the capacity market, must-offer rules for the day-ahead
energy market must be fairly determined. EPRI adds that the hours which
an electric storage resource must bid as an injector of energy per day
and how much capacity it must bid for those days must be determined.
EPRI adds that those rules should be consistent with other principles
of must-offer rules for capacity providers and ensure that they lead to
the electric storage resource's ability to perform during critical peak
conditions.
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    \115\ See EPRI Comments at 12-13.
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    90. Several commenters consider whether reforms beyond the
Commission's proposal are needed. For example, some commenters argue
for either exempting electric storage resources from minimum run-time
requirements in some circumstances or developing new capacity products
with shorter minimum run-time requirements.\116\ Alevo argues that the
Commission should require each RTO/ISO to have additional capacity
market products that better reflect the capabilities of electric
storage resources because minimum run-time requirements present a
barrier to electric storage resource participation in capacity markets.
R Street Institute states that capacity products and performance
requirements may not be well-suited to extracting the full economic
value of electric storage resources for resource adequacy purposes. R
Street Institute states that these rules can create barriers to
capacity market participation for electric storage resources but, at
the same time, relaxing them too aggressively may raise reliability
concerns. R Street Institute further explains that it may be useful for
capacity constructs to distinguish between short- and long-duration
resource needs. R Street Institute encourages the Commission to seek
additional detailed comments on methodologies for electric storage
resources to participate in capacity markets, stating that reforms may
be best left to individual RTO/ISO compliance filings or individual
RTO/ISO proceedings.
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    \116\ See, e.g., Alevo Comments at 8; R Street Institute
Comments at 5.
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    91. NextEra asserts that, in most RTOs/ISOs, reserve product
commitment requirements systematically discriminate against electric
storage resources by restricting their ability to offer their full
capacity into the market and that de-rating capacity to meet existing
requirements diminishes the value of electric storage resources and
arbitrarily restricts competition.\117\ In contrast, EPRI contends that
each RTO/ISO should perform additional analysis to provide guidance on
the amount of capacity that can be relied upon from limited-duration
electric storage resources for particular services in each market.\118\
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    \117\ See NextEra Comments at 7.
    \118\ See EPRI Comments at 12-13.
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    92. A few commenters address the must-offer requirements that are
often associated with a resource's capacity supply obligation.\119\
Energy Storage Association argues that electric storage resources
should be exempt from, or otherwise allowed to manage, must-offer
obligations. Advanced Energy Economy argues that must-offer
requirements fail to account for the physical and operational
characteristics of electric storage resources and arbitrarily exclude
them from providing wholesale services that they are technically
capable of providing. Advanced Energy Economy asserts that must-offer
requirements were developed to prevent the exercise of market power and
electric storage resources have no incentive or ability to exercise
market power.
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    \119\ See, e.g., Advanced Energy Economy Comments at 25-26, 28-
29; AES Companies Comments at 16-17; Energy Storage Association
Comments at 6, 12.
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    93. AES Companies claim that it may be necessary to modify RTO/ISO
must-offer requirements to allow electric storage resources to
participate in capacity markets while also providing non-dispatched
services (such as primary frequency response and voltage control). AES
Companies add that most must-offer requirements apply to a capacity
resource during all dispatch intervals, even though specific services
may only be needed for a set number of hours in a day.
c. Commission Determination
    94. To implement section 35.28(g)(9)(i)(A) of the Commission's
regulations, in this Final Rule, we adopt the NOPR proposal, as
modified and clarified below, to require each RTO/ISO to revise its
tariff to allow electric storage resources to de-rate their capacity to
meet minimum run-time requirements. We find that allowing resources
using the participation model for electric storage resources to de-rate
their capacity to meet minimum run-time requirements to provide
capacity or other services will help to ensure that electric storage
resources are eligible to provide all services that they are
technically capable of providing by taking into account their physical
and operational characteristics, while still maintaining the quality
and reliability of services they seek to provide. For example, this
requirement would allow a 10MW/20MWh electric storage resource to offer
5MW of capacity into a capacity market with a 4-hour minimum run-time
because that is the maximum output that the resource can sustain for
the duration of the minimum run-time. Absent the opportunity to de-rate
its capacity, the 10MW/20MWh electric storage resource would not be
able to participate in that capacity market, despite its ability to
reliably provide 5MW of capacity for the duration of the minimum run-
time.
    95. We also clarify several aspects of the NOPR proposal in
response to commenters. In response to NRG, we clarify that this Final
Rule does not exempt electric storage resources that participate in
RTO/ISO capacity markets from meeting the performance metrics and
criteria that apply to all other resources that participate in those
markets. In fact, along with other requirements in this Final Rule that
require an RTO's/ISO's participation model for electric storage
resources to account for the physical and operational characteristics
of electric storage resources,\120\ allowing electric storage resources
to de-rate their capacity to meet minimum run-time requirements should
make it possible for energy-limited electric storage resources to
satisfy relevant performance metrics in the RTO/ISO markets. In
response to American Petroleum Institute, we

clarify that this Final Rule does not exempt an electric storage
resource that is participating in RTO/ISO capacity markets from any
applicable penalties for non-performance.
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    \120\ See, e.g., Physical and Operational Characteristics of
Electric Storage Resources and State of Charge Management sections,
infra PP 189-194, 251-257.
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    96. In response to SPP, we clarify that an electric storage
resource de-rating its capacity to provide capacity or other services
is not engaging in physical withholding if it is de-rating to meet
minimum run-time requirements. In the case of an electric storage
resource that de-rates its capacity to meet minimum run-time
requirements, this resource would be de-rating its capacity for true
and verifiable technical reasons pertaining to the market rules for
providing various services. However, as the Commission has previously
explained, physical withholding may include a market participant
declaring that an electric facility has been de-rated, forced out of
service, or otherwise been made unavailable for technical reasons that
are unrelated to physical or legitimate commercial issues or that
cannot be verified.\121\ Thus, we find that each RTO/ISO may request
that its market monitor verify whether an electric storage resource de-
rated its capacity to meet a minimum run-time requirement to ensure
that these resources are not engaging in physical withholding, as
defined by the Commission.
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    \121\ See Sw. Power Pool, Inc., 141 FERC ] 61,048, at P 451
(2012), order on reh'g, 142 FERC ] 61,205 (2013). Other examples of
physical withholding that the Commission has identified, which we do
not believe apply to de-rating to meet minimum run-time
requirements, include: (1) Refusing to provide offers or schedules
for an electric facility when it is required to offer into the
market when it would otherwise have been in the economic interest to
do so without market power; (2) operating a generation resource in
real time to produce an output level that is less than dispatch
targets; (3) de-rating a transmission facility or interface for
technical reasons that are not true or verifiable; (4) operating a
transmission facility in a manner that is not economic and that
causes a binding transmission constraint or binding reserve zone
constraint or local reliability issue; and (5) declaring that the
capability of resources to provide energy or operating reserves is