[Federal Register Volume 81, Number 230 (Wednesday, November 30, 2016)]
[Proposed Rules]
[Pages 86522-86550]
[FR Doc No: 2016-28194]

Vol. 81

Wednesday,

No. 230

November 30, 2016

Part IV

Department of Energy

-----------------------------------------------------------------------

Federal Energy Regulatory Commission

-----------------------------------------------------------------------

18 CFR Part 35

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

Federal Register / Vol. 81 , No. 230 / Wednesday, November 30, 2016 /
Proposed Rules

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket Nos. RM16-23-000; AD16-20-000]

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

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission (Commission) is
proposing to amend its regulations under the Federal Power Act (FPA) to
remove barriers to the participation of electric storage resources and
distributed energy resource aggregations in the capacity, energy, and
ancillary service markets operated by regional transmission
organizations (RTO) and independent system operators (ISO) (organized
wholesale electric markets).

DATES: Comments are due January 30, 2017.

ADDRESSES: Comments, identified by docket number, may be filed in the
following ways:
     Electronic Filing through http://www.ferc.gov. Documents
created electronically using word processing software should be filed
in native applications or print-to-PDF format and not in a scanned
format.
     Mail/Hand Delivery: Those unable to file electronically
may mail or hand-deliver comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.

    Instructions: For detailed instructions on submitting comments and
additional information on this process, see the Comment Procedures
Section of this document.

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_ADDRESS>Heidi Nielsen (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
    A. Electric Storage Resource and Distributed Energy Resource
Aggregation Participation in Organized Wholesale Electric Markets
    B. The Need for Reform
III. Discussion
    A. Elimination of Barriers to Electric Storage Resource
Participation in Organized Wholesale Electric Markets
    1. Creation of a Participation Model for Electric Storage
Resources
    i. Introduction
    ii. Current Rules
    iii. Comments
    iv. Proposed Reforms
    2. Requirements for the Participation Model for Electric Storage
Resources
    a. Eligibility To Participate in Organized Wholesale Electric
Markets
    i. Introduction
    ii. Current Rules
    iii. Comments
    iv. Proposed Reforms
    b. Bidding Parameters for Electric Storage Resources
    i. Introduction
    ii. Current Rules
    iii. Comments
    iv. Proposed Reforms
    c. Eligibility To Participate as a Wholesale Seller and
Wholesale Buyer
    i. Introduction
    ii. Current Rules
    iii. Proposed Reforms
    d. Minimum Size Requirement
    i. Introduction
    ii. Current Rules
    iii. Comments
    iv. Proposed Reforms
    e. Energy Used To Charge Electric Storage Resources
    i. Introduction
    ii. Current Rules
    iii. Comments
    iv. Proposed Reforms
    B. Participation of Distributed Energy Resource Aggregators in
the Organized Wholesale Electric Markets
    1. Introduction
    2. Current Rules
    3. Comments
    4. Proposed Reforms
    a. Eligibility To Participate in the Organized Wholesale
Electric Markets Through a Distributed Energy Resource Aggregator
    b. Locational Requirements for Distributed Energy Resource
Aggregations
    c. Distribution Factors and Bidding Parameters for Distributed
Energy Resource Aggregations
    d. Information and Data Requirements for Distributed Energy
Resource Aggregations
    e. Modifications to the List of Resources in a Distributed
Energy Resource Aggregation
    f. Metering and Telemetry System Requirements for Distributed
Energy Resource Aggregations
    g. Coordination Between the RTO/ISO, the Distributed Energy
Resource Aggregator, and the Distribution Utility
    h. Market Participation Agreements for Distributed Energy
Resource Aggregators
IV. Compliance
V. Information Collection Statement
VI. Regulatory Flexibility Act Certification
VII. Environmental Analysis
VIII. Comment Procedures
IX. Document Availability

I. Introduction

    1. In this Notice of Proposed Rulemaking (NOPR), the Federal Energy
Regulatory Commission (Commission) is proposing reforms to remove
barriers to the participation of electric storage resources \1\ and
distributed energy resource \2\ aggregations in the organized wholesale
electric markets.\3\ Specifically, we propose to require each RTO and
ISO to revise its tariff to (1) establish a participation model
consisting of market rules that, recognizing the physical and
operational characteristics of electric storage resources, accommodates
their participation in the organized wholesale electric markets and (2)
define distributed energy resource aggregators as a type of market
participant that can participate in the organized wholesale electric
markets under the participation model that best accommodates the
physical and operational characteristics of its distributed energy
resource aggregation. We are taking this action pursuant to our legal
authority under section 206 of the FPA to ensure that the RTO/ISO
tariffs are just and reasonable and not unduly discriminatory or
preferential.\4\
---------------------------------------------------------------------------

    \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 electricity back to the grid regardless of where the
resource is located on the electrical system. 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 located on the interstate grid
or on a distribution system.
    \2\ We define distributed energy resources as a source or sink
of power that is located on the distribution system, any subsystem
thereof, or behind a customer meter. These resources may include,
but are not limited to, electric storage resources, distributed
generation, thermal storage, and electric vehicles and their supply
equipment.
    \3\ We define, for present purposes, organized wholesale
electric markets as the capacity, energy, and ancillary service
markets operated by regional transmission organizations (RTO) and
independent system operators (ISO).
    \4\ 16 U.S.C. 824e (2012).
---------------------------------------------------------------------------

    2. Resource participation in the organized wholesale electric
markets is currently governed by (1) participation models \5\
consisting of market rules designed for different types of resources
and (2) the technical requirements for

market services that those resources are eligible to provide. Each RTO/
ISO establishes the participation models for different types of
resources and the technical requirements for providing services in a
slightly different way. Sometimes RTO/ISO participation models place
limitations on the services that certain types of resources are
eligible to provide. For example, Stored Energy Resources are only
allowed to provide regulation service in the Midcontinent Independent
System Operator, Inc. (MISO). In addition, sometimes the technical
requirements for providing a service may limit the types of resources
that are able to provide it, such as the requirement for a resource to
be running and synchronized to the grid to provide spinning reserves.
Many tariffs were originally developed in an era when traditional
generation resources were the only resources participating in the
organized wholesale electric markets. As new and innovative resources
have reached commercial maturity, RTOs/ISOs have updated their tariffs
to establish participation models for these resources and, to some
degree, reviewed the technical requirements for each service or
determined which service the new resource could provide. If an RTO/ISO
is not able to update its market rules before a new resource becomes
commercially able to sell into the organized wholesale electric
markets, the new resource may need to participate under one of the
existing participation models developed for some other type of
resource. Doing so may limit the market opportunities for new resources
and correspondingly limit the potential supply of some services. For
instance, some electric storage resources have chosen to participate as
demand response resources simply because, absent other participation
models, that is the participation model that more closely resembles the
manner in which electric storage resources might participate in the
organized wholesale electric markets. Further, new resources may have
difficulty creating momentum for the market rule changes necessary to
facilitate their participation and may thus need to spend considerable
time and effort to gain entry to the organized wholesale electric
markets. Where rules designed for traditional generation resources are
applied to new technologies, where new technologies are required to fit
into existing participation models, and where participation models
focus on the eligibility of resources to provide services more so than
the technical ability of resources to provide services, barriers can
emerge to the participation of new technologies in the organized
wholesale electric markets. We are therefore issuing this NOPR to
address these barriers to the participation of electric storage
resources and distributed energy resource aggregations in the organized
wholesale electric markets.
---------------------------------------------------------------------------

    \5\ We define a participation model as a set of tariff
provisions that accommodate the participation of resources with
particular physical and operational characteristics in the organized
wholesale electric markets of the RTOs and ISOs.
---------------------------------------------------------------------------

    3. First, we propose to 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, accommodates their participation in the organized
wholesale electric markets. As noted above, in this NOPR, we define a
participation model as a set of tariff provisions that accommodate the
participation of resources with particular physical and operational
characteristics in the organized wholesale electric markets of the RTOs
and ISOs.\6\ For example, the California Independent System Operator
Corporation's (CAISO) tariff defines several participation models,
including those for Participating Generators, Proxy Demand Resources,
Reliability Demand Response Resources, and Non-Generator Resources.
These participation models create unique rules for these different
types of resources where they need to be distinguished from other types
of market participants. For example, the CAISO Tariff defines Non-
Generator Resources as ``[r]esources that operate as either Generation
or Load and that can be dispatched to any operating level within their
entire capacity range but are also constrained by a MWh limit to (1)
generate Energy, (2) curtail the consumption of Energy in the case of
demand response, or (3) consume Energy.'' \7\ Since Non-Generator
Resources are operationally unique, CAISO has created rules for them
that include, but are not limited to, the requirement to enter into
participating generator and participating load agreements to
participate in the CAISO markets,\8\ the ability to participate in the
Regulation Energy Management program,\9\ the conditions under which
payments are rescinded due to MWh constraints,\10\ and the relevant
bidding parameters.\11\ Given the unique attributes of electric storage
resources, establishing a participation model consisting of market
rules that acknowledge their unique attributes will enable them to
effectively participate in the organized wholesale electric markets.
This participation model could adapt existing market rules to
incorporate the reforms proposed below and/or create a new set of rules
to accommodate the participation of electric storage resources,
depending on the existing market construct in each RTO/ISO.
---------------------------------------------------------------------------

    \6\ See supra note 5.
    \7\ CAISO Response at 3 (citing CAISO Tariff, App. A).
    \8\ See CAISO Tariff, sections 4.6 and 4.7.
    \9\ See CAISO Tariff, section <IP_ADDRESS>. Regulation Energy
Management is a market feature for resources located within the
CAISO Balancing Authority Area that require Energy from the Real-
Time Market to offer their full capacity as Regulation. CAISO
Tariff, App. A (Definitions).
    \10\ See CAISO Tariff, sections <IP_ADDRESS> and <IP_ADDRESS>.
    \11\ See CAISO Tariff, section 30.5.6.
---------------------------------------------------------------------------

    4. The proposed participation model must (1) ensure that electric
storage resources are eligible to provide all capacity, energy and
ancillary services that they are technically capable of providing in
the organized wholesale electric markets; (2) incorporate bidding
parameters \12\ that reflect and account for the physical and
operational characteristics of electric storage resources; (3) ensure
that electric storage resources can be dispatched and can set the
wholesale market clearing price as both a wholesale seller and
wholesale buyer consistent with existing market rules that govern when
a resource can set the wholesale price; (4) establish a minimum size
requirement for participation in the organized wholesale electric
markets that does not exceed 100 kW; and (5) specify that the sale of
energy from the organized wholesale electric markets to an electric
storage resource that the resource then resells back to those markets
must be at the wholesale locational marginal price (LMP).
---------------------------------------------------------------------------

    \12\ We refer to bidding parameters as the physical and
operational constraints that a resource would identify per RTO/ISO
requirements when submitting offers to sell capacity, energy, or
ancillary services or bids to buy energy in the organized wholesale
electric markets. Commission Staff referred to these as ``bid
parameters'' in the Data Requests and Request for Comments issued on
April 11, 2016 in Docket No. AD16-20-000.
---------------------------------------------------------------------------

    5. Second, we propose to require each RTO/ISO to revise its tariff
to allow distributed energy resource aggregators,\13\ including
electric storage resources, to participate directly in the organized
wholesale electric markets. Specifically, we propose to require each
RTO/ISO to establish distributed energy resource aggregators as a type
of market participant and allow the distributed energy resource
aggregators to register distributed energy resource aggregations under
the participation model in the

RTO/ISO tariff that best accommodates the physical and operational
characteristics of the distributed energy resource aggregation. We also
propose to require that each RTO/ISO, to accommodate the participation
of distributed energy resource aggregations in the organized wholesale
electric markets, establish market rules on: (1) Eligibility to
participate in the organized wholesale electric markets through a
distributed energy resource aggregator; (2) locational requirements for
distributed energy resource aggregations; (3) distribution factors and
bidding parameters for distributed energy resource aggregations; (4)
information and data requirements for distributed energy resource
aggregations; (5) modifications to the list of resources in a
distributed energy resource aggregation; (6) metering and telemetry
system requirements for distributed energy resource aggregations; (7)
coordination between the RTO/ISO, distributed energy resource
aggregator, and the distribution utility; and (8) market participation
agreements for distributed energy resource aggregators.
---------------------------------------------------------------------------

    \13\ We define distributed energy resource aggregator as an
entity that aggregates one or more distributed energy resources for
purposes of participation in the organized wholesale capacity,
energy, and ancillary service markets of the RTOs and ISOs.
---------------------------------------------------------------------------

II. Background

A. Electric Storage Resource and Distributed Energy Resource
Aggregation Participation in Organized Wholesale Electric Markets

    6. The Commission has an ongoing interest in removing barriers to
resources that are technically capable of participating in the
organized wholesale electric markets and has been monitoring electric
storage resource participation in these markets for some time. In 2010,
Commission Staff issued a Request for Comments Regarding Rates,
Accounting and Financial Reporting for New Electric Storage
Technologies related to alternatives for categorizing and compensating
storage services and, in particular, ideas on how best to develop rate
policies that accommodate the flexibility of storage, consistent with
the FPA.\14\ Following that request, the Commission issued several
rulemakings that have helped alleviate some of the barriers to electric
storage resource participation in organized wholesale electric
markets.\15\ In addition, the Commission has addressed electric
storage-related issues on a case-by-case basis.\16\
---------------------------------------------------------------------------

    \14\ Request for Comments Regarding Rates, Accounting and
Financial Reporting for New Electric Storage Technologies, Docket
No. AD10-13-000 (June 11, 2010).
    \15\ See, e.g., Frequency Regulation Compensation in the
Organized Wholesale Power Markets, Order No. 755, FERC Stats. &
Regs. ] 31,324 (2011), reh'g denied, Order No. 755-A, 138 FERC ]
61,123 (2012) (addressing the provision of frequency regulation in
organized wholesale electric markets); Third-Party Provision of
Ancillary Services; Accounting and Financial Reporting for New
Electric Storage Technologies, Order No. 784, FERC Stats. & Regs. ]
31,349 (2013), order on clarification, Order No. 784-A, 146 FERC ]
61,114 (2014) (addressing third-party sales of ancillary services in
bilateral markets); Small Generator Interconnection Agreements and
Procedures, Order No. 792, 145 FERC ] 61,159 (2013), clarifying,
Order No. 792-A, 146 FERC ] 61,214 (2014) (addressing
interconnection for small generators, including electric storage
resources).
    \16\ See, e.g., California Indep. Sys. Operator Corp., 156 FERC
] 61,110 (2016); Nev. Hydro Co., Inc., 122 FERC ] 61,272 (2008),
reh'g denied, 133 FERC ] 61,155 (2010); Western Grid Development,
LLC, 130 FERC ] 61,056, reh'g denied, 133 FERC ] 61,029 (2010);
Midwest Indep. Trans. Sys. Operator, Inc., 129 FERC ] 61,303 (2009);
New York Indep. Sys. Operator, Inc., 127 FERC ] 61,135 (2009);
California Indep. Sys. Operator Corp., 132 FERC ] 61,211 (2010); PJM
Interconnection L.L.C., 151 FERC ] 61,208, order on reh'g, 152 FERC
] 61,064 (2015), order on reh'g and compliance, 155 FERC ] 61,157,
order on reh'g and compliance, 155 FERC ] 61,260 (2016); PJM
Interconnection, L.L.C., 132 FERC ] 61,203 (2010); Commonwealth
Edison Co., 129 FERC ] 61,185, at P 8 (2009).
---------------------------------------------------------------------------

    7. As the capabilities of electric storage resources and
distributed energy resources continue to improve and their costs
continue to decline, the Commission has become concerned that these
resources may face barriers that limit them from participating in
organized wholesale electric markets. To further examine this issue,
the Commission hosted a panel to discuss electric storage resources at
the November 19, 2015 Commission 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 organized wholesale
electric markets that affect the participation of electric storage
resources (Data Requests).\17\ Concurrently, Commission Staff issued a
Request for Comments, seeking comments on whether barriers exist to the
participation of electric storage resources in the organized wholesale
electric markets that may potentially lead to unjust and unreasonable
wholesale rates (Request for Comments). In addition to the responses
from the RTOs/ISOs, Commission Staff received 44 sets of comments from
the entities identified in Appendix A.
---------------------------------------------------------------------------

    \17\ 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 organized wholesale electric 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 organized wholesale electric
markets.
---------------------------------------------------------------------------

    8. A number of RTOs/ISOs allow participation of distributed energy
resources, including electric storage resources, in the organized
wholesale electric markets through distributed energy resource
aggregations. For example, CAISO's Distributed Energy Resource Provider
model allows for the participation of aggregated distributed energy
resources in the energy and ancillary service markets.\18\ Other RTOs/
ISOs, including PJM Interconnection, L.L.C. (PJM), MISO, New York
Independent System Operator, Inc.'s (NYISO), and SPP, allow aggregation
in limited circumstances, typically linked to the requirement that the
demand-side, generation, and electric storage resources are located
behind the same point of interconnection or pricing node.\19\ ISO New
England Inc. (ISO-NE) also allows limited aggregations of generators,
Alternative Technology Regulation Resources, Asset Related Demands, and
demand resources subject to certain parameters.\20\
---------------------------------------------------------------------------

    \18\ See California Indep. Sys. Operator Corp., 155 FERC ]
61,229 (2016) (conditionally accepting tariff provisions to
facilitate participation of aggregations of distribution-connected
or distributed energy resources in CAISO's energy and ancillary
service markets).
    \19\ See PJM Response at 20; MISO Response at 16; SPP Response
at 7.
    \20\ ISO-NE Response at 26.
---------------------------------------------------------------------------

B. The Need for Reform

    9. The Commission must ensure that the rates, terms and conditions
of jurisdictional services under the FPA are just and reasonable and
not unduly discriminatory or preferential. Our proposal in this
proceeding is a continuation of efforts pursuant to our authority under
the FPA to ensure that the RTO/ISO tariffs and market rules produce
just and reasonable rates, terms and conditions of service.\21\ The
Commission has observed that market rules designed for traditional
generation resources can create barriers to entry for emerging
technologies. The Commission has responded by promulgating rules that
recognize the operational characteristics of non-traditional resources
such as variable energy

resources and demand response.\22\ For example, in Order No. 719, the
Commission required each RTO/ISO to accept bids from demand response
resources, on a basis comparable to any other resources, for ancillary
services that are acquired in a competitive bidding process, if the
demand response resources met certain criteria.\23\ In Order No. 764,
the Commission took action to remedy operational and other challenges
associated with the integration of variable energy resources caused by
existing practices as well as the ancillary services used to manage
system variability that were developed at a time when virtually all
generation on the system could be scheduled with relative precision and
when only load exhibited significant degrees of intra-hour
variation.\24\
---------------------------------------------------------------------------

    \21\ See, e.g., 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).
    \22\ See, e.g., Order No. 764, FERC Stats. & Regs. ] 31,331;
Order No. 719, FERC Stats. & Regs. ] 31,281.
    \23\ Order No. 719, FERC Stats. & Regs. ] 31,281 at PP 19, 47-
48.
    \24\ Order No. 764, FERC Stats. & Regs. ] 31,331.
---------------------------------------------------------------------------

    10. In this proceeding, we propose to require RTOs/ISOs to address
barriers to participation of electric storage resources in the
organized wholesale electric markets. As noted above, in this NOPR, we
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.\25\ 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 located on the interstate grid or on a distribution
system.\26\ Electric storage resources include a number of different
technologies that can serve as a sink for, or source of, electricity.
Electric storage resources' ability to charge and discharge electricity
provides these resources with significant operational flexibility, and
they can be designed to provide a variety of grid services, including
bulk energy services (e.g., capacity and energy) and ancillary services
(e.g., regulation and reserves).\27\
---------------------------------------------------------------------------

    \25\ See supra note 1.
    \26\ Id.
    \27\ Sandia National Laboratories, DOE/EPRI Electricity Storage
Handbook in Collaboration with NRECA, Report No. SAND2015-1002,
Chapter 1 (Feb. 2015) (Sandia Report).
---------------------------------------------------------------------------

    11. The RTOs/ISOs have taken different approaches to integrating
electric storage resources into their organized wholesale electric
markets. While electric storage resources (including batteries,
flywheels, and pumped-hydro facilities) are already providing energy
and ancillary services in some organized wholesale electric markets,
these resources often must use existing participation models designed
for traditional generation or load resources that do not recognize
electric storage resources' unique physical and operational
characteristics. Some organized wholesale electric markets have defined
participation models in their tariffs for electric storage resources,
but those models limit the services that electric storage resources may
provide.\28\ For example, these models often allow eligible electric
storage resources to participate only in the regulation market. Other
organized wholesale electric market rules are designed for electric
storage resources with very specific characteristics, such as pumped-
hydro facilities or resources with less than a one-hour maximum run
time. Smaller electric storage resources are also generally restricted
to participating in the organized wholesale electric markets as demand
response, which can limit their 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 capable
of providing such as operating reserves.
---------------------------------------------------------------------------

    \28\ See, e.g., Midwest Indep. Trans. Sys. Operator, Inc., 129
FERC ] 61,303 at PP 40, 64 (Commission ``note[d] that the Midwest
ISO [SER] proposal is intended to implement a specific technology,
the fly-wheel technology developed by Beacon Power''; and SER
category was ``specifically designed for a specific technology that
provides short-term Stored Resources only in the regulating reserve
market''); 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.''). 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. NYISO Response
at 3-4.
---------------------------------------------------------------------------

    12. We take action in this NOPR so that electric storage resources
will be able to participate in the organized wholesale electric markets
to the extent they are technically capable of doing so based on rules
that take into account their unique characteristics and not based on
market rules designed for the unique characteristics of other types of
resources. Requiring electric storage resources to use participation
models designed for a different type of resource may fail to recognize
electric storage resources' physical and operational characteristics
and their capability to provide energy, capacity and ancillary services
in the organized wholesale electric markets. Current tariffs that do
not recognize the operational characteristics of electric storage
resources serve to limit the participation of electric storage
resources in the organized wholesale electric markets and result in
inefficient use of these resources (i.e., electric storage resources
may be dispatched to provide one service when they could, absent market
rule limitations, provide another service more economically). As a
result, resources, including electric storage resources, do not get
dispatched efficiently, thereby impacting the competitiveness of the
market outcomes. Limiting the services an electric storage resource is
eligible to provide and limiting the efficiency in which it is
dispatched to provide services may also inhibit developers' incentives
to design their electric storage resources to provide all capacity,
energy and ancillary services these resources could otherwise provide.
This further reduces competition for providing those services in the
organized wholesale electric markets. Effective integration of electric
storage resources into the organized wholesale electric markets would
enhance competition and, in turn, help to ensure that these markets
produce just and reasonable rates.
    13. We are also concerned that existing RTO/ISO tariffs impede the
participation of distributed energy resources in the organized
wholesale electric markets by providing limited opportunities for
distributed energy resource aggregations. Distributed energy resources
include a variety of constantly evolving technologies (including, but
not limited to, electric storage resources, distributed generation,
thermal storage, and electric vehicles and their supply equipment) that
are connected to the power grid at distribution-level voltages. While
these distributed energy resources can at times effectively supply the
capacity, energy, and ancillary services that are exchanged in the
organized wholesale electric markets, they can at times be too small to
participate in these markets individually. In addition, responses to
the Data Requests and Request for Comments demonstrate that current
organized wholesale electric market rules often limit the services
distributed energy resources are eligible to provide, in many cases
only allowing these resources to be used as demand response or load-
side resources when they are located behind a customer

meter \29\ or by imposing prohibitively expensive or otherwise
burdensome requirements.\30\
---------------------------------------------------------------------------

    \29\ See, e.g., MISO Response at 15 (noting that electric
storage resources connected to the distribution system can
participate in its markets as Load Modifying Resources and Demand
Response Resources--Types I or II); PJM Response at 3-6 (stating
that, if an electric storage resource is located behind a customer
meter, then PJM considers it demand response, which is not studied
for deliverability and is not eligible to inject energy into the
distribution or PJM transmission system and noting that any
injection would subject it to generator interconnection
obligations).
    \30\ See Energy Storage Association Comments at 29 (stating that
metering and telemetry requirements and interconnection processes
can pose prohibitively high transaction costs for the small project
sizes that characterize behind-the-meter storage, which creates
undue burdens on behind-the-meter storage participation in most
RTOs/ISOs and noting that the ability to bid aggregated distributed
resources into wholesale markets is not possible in some RTOs/ISOs
and is unclear in others (such as NYISO, which does not allow
aggregations to meet the 1 MW size for a Limited Energy Storage
Resource)). Energy Storage Association also asserts that at present
most RTOs/ISOs do not allow behind-the-meter storage to net inject
power to provide wholesale generator services. Id. See also NextEra
Comments at 11 (stating that every RTO/ISO prohibits behind-the-
meter resources from having net injections to the grid).
---------------------------------------------------------------------------

    14. As with electric storage resources, we preliminarily find that
the barriers to the participation of distributed energy resources
through distributed energy resource aggregations in the organized
wholesale electric markets may, in some cases, unnecessarily restrict
competition, which could lead to unjust and unreasonable rates.
Effective wholesale competition encourages entry and exit and promotes
innovation, incentivizes the efficient operation of resources, and
allocates risk appropriately between consumers and producers. Removing
these barriers will enhance the competitiveness, and in turn the
efficiency, of organized wholesale electric markets and thereby help to
ensure just and reasonable and not unduly discriminatory or
preferential rates for wholesale electric services. We also note that
participation of electric storage resources in the organized wholesale
electric markets allows for more efficient operation of large thermal
generators, enhances reliability, provides congestion relief, improves
integration of variable energy resources, and reduces the burden on the
transmission system.\31\
---------------------------------------------------------------------------

    \31\ Among the benefits cited by a recent report by the Lawrence
Berkeley National Laboratory are (1) a less costly, cleaner, and
more competitive bulk power system and (2) greater reliability
through consumer reliance upon distributed energy resources to
provide resilience from bulk power and system and distribution
service interruptions. Lawrence Berkeley National Laboratory,
Electric Industry Structure and Regulatory Responses in a High
Distributed Energy Resources Future, at 26-28 (Report 1, Nov. 2015),
https://emp.lbl.gov/sites/all/files/lbnl-1003823_0.pdf (Berkeley Lab
Report). See also DNV-GL, A Review of Distributed Energy Resources:
New York Independent System Operator, at 18 (Sept. 2014) (DNV-GL
Report), http://www.nyiso.com/public/webdocs/media_room/publications_presentations/Other_Reports/Other_Reports/A_Review_of_Distributed_Energy_Resources_September_2014 (``Benefit
streams commonly attributed to distributed energy resources include,
among others: Avoided expansion of generation, transmission, or
distribution facilities, power outage mitigation or critical power
support during power outages (resiliency) and power quality
improvement (enhanced reliability); U.S. Department of Energy, The
Potential Benefits of Distributed Generation and Rate-related Issues
that May Impede Their Expansion: A Study Pursuant to Section1817 of
the Energy Policy Act of 2005 (Feb. 2007), https://www.ferc.gov/legal/fed-sta/exp-study.pdf.; IEA, Re-powering Markets: Market
design and regulation during the transition to low-carbon power
systems, at 33 (2016) (``active management of renewable resources
connected to distribution networks can help reduce or delay
distribution network investments'').
---------------------------------------------------------------------------

    15. Distributed energy resource aggregations are often limited to
participating in organized wholesale electric markets as demand
response, which can limit the aggregations' design and operations, as
well as the services they may provide. However, advancements in
metering, telemetry, and communication technologies support the
aggregation of distributed energy resources, allowing these resources
to meet the minimum size requirements to participate in the organized
wholesale electric markets under participation models other than demand
response. Additionally, demand response models often prohibit
distributed energy resources from injecting power back onto the grid or
increasing consumption if there is an operational requirement for such
performance.\32\ By requiring RTOs/ISOs to allow the participation of
distributed energy resource aggregations, aggregators will be able to
bundle distributed energy resources to meet RTO/ISO qualification and
performance requirements, and the RTOs/ISOs will be able to capitalize
on the aggregation's full operational range. The recent proliferation
of, and technological advancements in, distributed energy technologies,
as well as their decreasing costs, create opportunities for distributed
energy resource aggregations to be eligible to provide a variety of
services to the organized wholesale electric markets.\33\
---------------------------------------------------------------------------

    \32\ See PJM Response at 5 (stating that, like other types of
resources that participate in PJM's markets only by providing load
reductions, demand-side electric storage resources are not studied
by PJM through the generation interconnection process and are not
allowed to inject energy beyond the customer's meter and onto the
distribution or transmission system, as applicable).
    \33\ The Berkeley Lab Report notes that technological and
procedural innovation and advancements are leading to substantial
reduction in the cost of some of these resources, such as through a
continued long-term downward trend in the installed cost of solar
PV. Berkeley Lab Report at 50, App. A. It adds that there is a wide
range of forecasts of the potential for distributed energy resources
over the coming decades, some of which suggest that penetrations
could be significant. Estimated increases range from a current 11
percent distributed energy resource penetration rate to 19 percent
of required capacity (MW) in the Eastern Interconnection under a
base case analysis by 2030; and a projection of a 37.5 percent
penetration in the Western Interconnection by 2032. Id. at 51
(citing Western Electricity Coordinating Council, SPSC Study High
EE/DR/DG (Sept. 19, 2013), https://www.wecc.biz/_layouts/15/WopiFrame.aspx?sourcedoc=/Reliability/2032_HighEEDSMDG_StudyReport.docx&action=default&DefaultItemOpen=1;
Navigant Consulting, Inc., Assessment of Demand-Side Resources
Within the Eastern Interconnection, March 2013, http://bit.ly/EISPCdsr).
---------------------------------------------------------------------------

    16. Accordingly, we propose to require the RTOs/ISOs to revise
their tariffs to: (1) Establish a participation model consisting of
market rules that, recognizing the physical and operational
characteristics of electric storage resources, accommodates their
participation in the organized wholesale electric markets and (2)
define distributed energy resource aggregators as a type of market
participant that can participate in the organized wholesale electric
markets under the participation model that best accommodates the
physical and operational characteristics of its distributed energy
resource aggregation. These proposed requirements will clarify how
electric storage resources and distributed energy resources of all
types and sizes may provide services in the organized wholesale
electric markets that they are technically capable of providing.

III. Discussion

A. Elimination of Barriers to Electric Storage Resource Participation
in Organized Wholesale Electric Markets

1. Creation of a Participation Model for Electric Storage Resources
i. Introduction
    17. Resource participation in organized wholesale electric markets
is currently governed by (1) participation models consisting of market
rules designed for different types of resources and (2) the technical
requirements for market services that those resources are eligible to
provide. As noted above, in this NOPR, we define a participation model
as a set of tariff provisions that accommodate the participation of
resources with particular physical and operational characteristics in
the organized wholesale electric markets of the RTOs and ISOs.\34\
While these participation models are designed to

accommodate the unique characteristics of different resources, new
technologies may be required to fit into existing participation models
when market rules for their unique characteristics have not been
developed. Moreover, even where participation models for new
technologies, such as electric storage resources, do exist, they may
unnecessarily limit a resource's ability to qualify for the
participation model or to provide certain services using it, despite
the technical capabilities of the resource.
---------------------------------------------------------------------------

    \34\ See supra note 5.
---------------------------------------------------------------------------

    18. The Commission previously has allowed flexibility for each RTO/
ISO to approach the integration of electric storage resources in its
organized wholesale electric markets differently. RTOs/ISOs developed
most of their participation models before electric storage resources
achieved their current technical capability and commercial viability,
so some markets rely on these existing models for the participation of
electric storage resources. For example, ISO-NE indicates that, for an
electric storage resource to be eligible to provide all wholesale
services, it must register as a Generator Asset,\35\ which is a
participation model designed for traditional generation and which may
not reflect the distinct operational characteristics or capabilities of
electric storage resources. Alternatively, some RTOs/ISOs have created
participation models for electric storage resources that limit the
participation of those resources to the regulation market or are
designed for electric storage resources with very specific
characteristics, such as pumped-hydro facilities or resources with less
than a one-hour maximum run time.\36\ However, other RTOs/ISOs have
created participation models for electric storage resources to provide
a wider variety of services in the organized wholesale electric markets
(such as PJM's Energy Storage Resource model \37\ and CAISO's Non-
Generator Resource model \38\). Establishing a robust participation
model for electric storage resources will help remove barriers to the
participation of electric storage resources in the organized wholesale
electric markets and ensure that electric storage resources can provide
the services that they are technically capable of providing.
---------------------------------------------------------------------------

    \35\ ISO-NE Response at 3-5.
    \36\ MISO Response at 2 (stating that MISO's Stored Energy
Resource model is limited to regulation service); and NYISO Response
at 3-4 (stating that NYISO limits Limited Energy Storage Resources
to providing regulation service only).
    \37\ An Energy Storage Resource is defined 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.'' PJM Response
at 6 (citing PJM Tariff, Att. K, section 1.3.).
    \38\ See supra note 7.
---------------------------------------------------------------------------

ii. Current Rules
    19. In their responses to the Data Requests, the RTOs/ISOs describe
opportunities for electric storage resources to provide various energy
and ancillary service market services. For example, in CAISO, electric
storage resources are eligible to participate in the energy and
ancillary service markets as Participating Generators, Non-Generator
Resources, Pumped Storage Hydro Units, or Demand Response Resources,
even as part of distributed energy resource aggregations.\39\ Under
ISO-NE's market rules, electric storage resources can provide all
services when they qualify as a generator, provide all services except
10-minute spinning and 10-minute non-spinning reserves when they
qualify as demand response, and provide regulation as an Alternative
Technology Regulation Resource.\40\
---------------------------------------------------------------------------

    \39\ CAISO Response at 2-8. See California Indep. Sys. Operator
Corp., 155 FERC ] 61,229.
    \40\ ISO-NE Response at 3-5.
---------------------------------------------------------------------------

    20. In MISO, electric storage resources are eligible to participate
as a Stored Energy Resource (which is only eligible to provide
regulation), a Generation Resource, a Use-Limited Resource that is
unable to operate continuously on a daily basis, and several types of
demand response resources (some of which are limited in the products
that they are eligible to provide).\41\ NYISO allows electric storage
resources to qualify as Energy Limited Resources, Limited Energy
Storage Resources (which are eligible to provide regulation service
only), or demand response resources.\42\ PJM allows electric storage
resources to participate as generation resources or demand-side
resources (which are not eligible to provide non-synchronized
reserves).\43\ Finally, SPP allows electric storage resources to
qualify as Demand Response Resources, Dispatchable Resources, External
Resources, External Dynamic Resources, and Quick-Start Resources, if
they can sustain output for 60 minutes.\44\
---------------------------------------------------------------------------

    \41\ MISO Response at 7-8.
    \42\ NYISO Response at 1-6.
    \43\ PJM Response at 4.
    \44\ SPP Response at 3-4.
---------------------------------------------------------------------------

    21. Some RTOs/ISOs concede that their existing participation models
may fail to address the characteristics of certain electric storage
resources.\45\ CAISO urges the Commission to preserve some flexibility
for the RTOs/ISOs to develop market rules and participation models that
respond to electric storage developments.\46\
---------------------------------------------------------------------------

    \45\ MISO Response at 3; NYISO Response at 17.
    \46\ CAISO Response at 1-2.
---------------------------------------------------------------------------

iii. Comments
    22. Numerous commenters argue that the lack of a participation
model that accommodates the participation of electric storage resources
creates barriers to their participation in organized wholesale electric
markets. For example, Alevo asserts that the lack of a defined asset
class for electric storage resources poses a barrier to their
participation, limiting market efficiency and competition and
increasing costs.\47\ Advanced Energy Economy claims that the failure
to account for the unique attributes, characteristics, and benefits of
advanced energy technologies prevents projects from obtaining
financing.\48\ More specifically, Energy Storage Association asserts
that NYISO's Behind-the-Meter Net Generator design still effectively
excludes participation of electric storage resources because it does
not account for electric storage functionality.\49\
---------------------------------------------------------------------------

    \47\ Alevo Comments at 4, 7-17 (pointing to its analyses of the
benefits that electric storage resource participation could provide
to energy, capacity, and ancillary service markets).
    \48\ Advanced Energy Economy Comments at 7.
    \49\ Energy Storage Association Comments at 29-30.
---------------------------------------------------------------------------

    23. Many commenters request that the Commission require the RTOs/
ISOs to establish a participation model for electric storage resources
that allows them to provide all services.\50\ Alevo argues that such a
participation model should not limit duration of discharge or services
provided,\51\ while NY Battery and Energy Storage Consortium states
that it should utilize appropriate bidding parameters and resource
modeling for electric storage resources.\52\ California Energy Storage
Alliance asks the Commission to direct the RTOs/ISOs to develop a
market model specific to behind-the-meter electric storage resources,
which would allow them to respond to market signals to provide any
wholesale market service (e.g., frequency regulation, demand response,
spinning reserve) without restrictions, with its market participation
governed by minimum performance requirements.\53\ Electric Vehicle R&D
Group supports the creation of a separate participation model for
electric storage resources that

allows for bidirectional power flow.\54\ Duke Energy also encourages
modifications to market rules to facilitate electric storage resource
deployment, subject to reliability requirements and non-preferential
treatment.\55\
---------------------------------------------------------------------------

    \50\ Id. at 8-9, 24; NY Battery and Energy Storage Consortium
Comments at 5; Ormat Comments at 2-3; Electric Vehicle R&D Group
Comments at 3.
    \51\ Alevo Comments at 8.
    \52\ NY Battery and Energy Storage Consortium Comments at 5.
    \53\ California Energy Storage Alliance Comments at 4-5.
    \54\ Electric Vehicle R&D Group Comments at 3.
    \55\ Duke Energy Comments at 4.
---------------------------------------------------------------------------

    Other commenters explain how the existing participation models for
demand response resources, under which electric storage resources
sometimes participate in the organized wholesale electric markets, do
not adequately accommodate electric storage resource participation.
Advanced Microgrid Solutions asserts that the compensation methods
under demand response resource participation models should not be
applied to electric storage resources because, unlike the demand
reductions that demand response resources provide, the energy that
electric storage resources deliver is purchased in the form of energy
consumed during another time such that any net-benefit test is
unnecessary.\56\ Energy Storage Association, SolarCity, and California
Energy Storage Alliance contend that the baselines used to measure
demand response resource deliveries present a barrier to electric
storage resource participation under demand response participation
models and can limit the ability of behind-the-meter electric storage
resources to provide their full capability into wholesale markets.\57\
SolarCity further argues that requiring behind-the-meter electric
storage resources to participate as demand response creates a barrier
for these resources, as they are physically and economically capable of
providing electricity beyond the customer's load.\58\ Tesla contends
that customer-sited resources (such as electric storage resources) are
interactive grid resources that are often relegated to act as less
flexible demand response resources when participating in organized
wholesale electric markets.\59\ Energy Storage Association argues that
wholesale demand response constructs can prohibit behind-the-meter
electric storage resources from offering other services.\60\
---------------------------------------------------------------------------

    \56\ Advanced Microgrid Solutions Comments at 5.
    \57\ Energy Storage Association Comments at 28; SolarCity
Comments at 8; California Energy Storage Alliance Comments at 4.
    \58\ SolarCity Comments at 4.
    \59\ Tesla Comments at 4.
    \60\ Energy Storage Association Comments at 28.
---------------------------------------------------------------------------

    24. Many commenters also state that behind-the-meter electric
storage resources should be permitted to inject power beyond the retail
meter. Energy Storage Association and NextEra argue that no RTO/ISO
allows behind-the-meter storage to net inject power to provide
wholesale generator services.\61\ Similarly, Advanced Energy Economy
and Solar Grid Storage argue that PJM's restriction on the injection of
energy past a customer's retail meter during operations for providing
ancillary services in their markets is a barrier to storage.\62\ Solar
Grid Storage argues that PJM's ``no injection'' barrier effectively
excludes all residential customers with storage from participation in
the PJM ancillary service markets, despite the growing potential of
this customer segment to provide meaningful resources to that organized
market.\63\
---------------------------------------------------------------------------

    \61\ Id. at 29; NextEra Comments at 11. NextEra explains that a
net injection is when the output of an electric storage resource
exceeds the customer's load that it is sited with and the electric
storage resource exports power back to the grid.
    \62\ Advanced Energy Economy Comments at 16-17; Solar Grid
Storage Comments at 2.
    \63\ Solar Grid Storage Comments at 3.
---------------------------------------------------------------------------

    25. Some commenters call for the creation of a ``load increase''
participation model for electric storage resources that allows electric
storage resources to be dispatched to receive electricity from the
grid. For example, National Hydropower Association states that pumped-
storage projects are not adequately valued because they are regarded as
either a generator or a load, which results in the undervaluation of
these projects and no new major plants being built in the last 30
years.\64\ National Hydropower Association asks the Commission to
consider adding pumped-storage as a dispatchable ``load increase''
demand response resource.\65\
---------------------------------------------------------------------------

    \64\ National Hydropower Association Comments at 5-6.
    \65\ Id. at 6.
---------------------------------------------------------------------------

iv. Proposed Reforms
    26. As numerous commenters state, existing RTO/ISO rules that
govern participation of electric storage resources in some organized
wholesale electric markets fail to ensure that electric storage
resources that are technically capable of providing specific services
are permitted to do so. Providing a participation model that recognizes
the unique characteristics of electric storage resources will help
eliminate barriers to their participation in the organized wholesale
electric markets and promote competition and economic efficiency. We
therefore propose 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, accommodates their participation in organized
wholesale electric markets.
    27. As the costs of electric storage resources continue to decline
and their technical potential expands, the ability of these resources
to provide operational and economic benefits to the organized wholesale
electric markets will increase. We preliminarily find that it is
important to remove barriers to participation now so that the
competitive benefits are realized without delay.
    28. We thus preliminarily find that it is necessary to take action
to remove barriers to the participation of electric storage resources
in organized wholesale electric markets by requiring that the RTOs/ISOs
revise their tariffs to establish a participation model consisting of
market rules that, recognizing the physical and operational
characteristics of electric storage resources, accommodates their
participation in the organized wholesale electric markets. In addition,
to accommodate the physical and operational characteristics of electric
storage resources, we propose to require that this participation model
satisfy each of the following requirements (as discussed in detail in
Section III.A.2 of this NOPR):

    a. Electric storage resources must be eligible to provide all
capacity, energy and ancillary services that they are technically
capable of providing in the organized wholesale electric markets;
    b. The bidding parameters incorporated in the participation
model must reflect and account for the physical and operational
characteristics of electric storage resources;
    c. Electric storage resources can be dispatched and can set the
wholesale market clearing price as both a wholesale seller and a
wholesale buyer consistent with existing rules that govern when a
resource can set the wholesale price;
    d. The minimum size requirement for electric storage resources
to participate in the organized wholesale electric markets must not
exceed 100 kW; and
    e. The sale of energy from the organized wholesale electric
markets to an electric storage resource that the resource then
resells back to those markets must be at the wholesale LMP.

    29. To further ensure that the proposed participation model for
electric storage resources will accommodate both existing and future
electric storage resource technologies, we propose that each RTO/ISO
define the criteria in its tariff that a resource must meet to qualify
to use this participation model based on the physical and operational
attributes of electric storage resources, namely their ability to both
charge and discharge energy. As such, the qualification

criteria for the proposed participation model must not limit
participation to any particular type of electric storage resource or
other technology. In addition, those qualification criteria should
ensure that the RTO/ISO is able to dispatch the resource in a way that
recognizes its physical constraints and optimizes its benefits to the
RTO/ISO. We do not at this time propose to define the qualification
criteria that each RTO/ISO use but rather propose to provide the RTOs/
ISOs with flexibility to propose qualification criteria that best suit
their proposed participation models. However, we invite comment on
whether the Commission should establish the qualification criteria and,
if so, what specific qualification criteria the Commission should
require.
    30. We are not proposing to limit the use of this participation
model exclusively to electric storage resources as defined herein.
While the requirements for the proposed participation model set forth
here are designed to accommodate the physical and operational
characteristics of electric storage resources, we acknowledge that
there may be other types of resources whose physical or operational
characteristics could qualify under the proposed participation model.
This may be particularly true for the distributed energy resource
aggregations considered in Section III.B below.\66\
---------------------------------------------------------------------------

    \66\ For example, resources such as thermal storage that can
both increase and decrease their energy consumption could aggregate
with other distributed energy resources with common physical or
operational characteristics and qualify as a market participant
using the participation model proposed here.
---------------------------------------------------------------------------

    31. In addition to including a participation model for electric
storage resources in its tariff, we propose 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 organized wholesale electric 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. CAISO, for example, has adopted numerous
tariff revisions for its Non-Generator Resource participation
model.\67\
---------------------------------------------------------------------------

    \67\ See, e.g., CAISO Tariff, sections 4.6 (Relationship Between
CAISO and supply resources), 4.7 (Relationship between CAISO and
participating loads), <IP_ADDRESS> (availability of Regulation Energy
Management to Scheduling Coordinators for Non-Generator Resources),
<IP_ADDRESS> (Rescission of Ancillary Service Capacity Payments for Non-
Generator Resources), <IP_ADDRESS> (Rescission of Payments for
Regulation Up and Regulation Down Capacity), 11.8 (Bid cost recovery
for scheduling coordinators for Non-Generator Resources), 27.9 (MWh
Constraints for Non-Generator Resources), 30.5.6 (bid components of
Non-Generator Resource bids), 31.2 (Day-ahead market power
mitigation process), 34.1.5 (Mitigating of Bids in the real time
market), <IP_ADDRESS> Flexible Capacity Category--Base Ramping
Resources (addressing inclusion of Non-Generator Resources),
<IP_ADDRESS> Flexible Capacity Category--Peak Ramping Resources
(addressing inclusion of Non-Generator Resources), <IP_ADDRESS>
Flexible Capacity Category--Super-Peak Ramping Resources (addressing
inclusion of Non-Generator Resources), <IP_ADDRESS> (Day-Ahead and
Real-Time Availability providing for certain Non-Generator Resources
bidding requirements).
---------------------------------------------------------------------------

    32. Finally, we recognize that there are implementation costs for
creating a new participation model for electric storage resources.
While we believe the participation model and its characteristics
described below will benefit the participation of electric storage
resources in the organized wholesale electric markets, we acknowledge
that the RTOs/ISOs will need to develop rules that govern the
participation model as well as make software changes to reflect how
these resources will be modeled and dispatched when they participate in
the markets. We therefore seek comment from the RTOs/ISOs on the
changes that would be required to implement the proposed participation
model for electric storage resources as well as the associated costs
and how those costs could be minimized.
2. Requirements for the Participation Model for Electric Storage
Resources
a. Eligibility To Participate in Organized Wholesale Electric Markets
i. Introduction
    33. Electric storage resources have the potential to provide a
diverse array of services to the organized wholesale electric markets
and to be designed to meet various technical requirements. However, in
many cases, the existing participation models that electric storage
resources are eligible to use in the RTOs/ISOs preclude electric
storage resources from providing all of the services that they are
technically capable of providing. In other instances, barriers may
emerge as a result of the existing technical requirements for providing
certain services that may not be appropriate for fast and controllable
technologies such as electric storage resources. Market rules that were
designed for traditional generation technologies or that otherwise
prevent new technologies from providing services that they are
technically capable of providing can have detrimental impacts on the
competitiveness of the organized wholesale electric markets.
ii. Current Rules
    34. Several of the RTOs/ISOs identify limitations on the services
that electric storage resources may provide, depending on the
participation model an electric storage resource elects to use. ISO-NE
states that the non-dispatchability of Settlement Only Resources and
non-dispatchable generators prohibits such resources from providing
operating reserves. In addition, resources that cannot provide energy
within 10 minutes cannot provide 10-minute spinning or 10-minute non-
spinning reserves.\68\ ISO-NE also states that demand response
resources with one or more controllable generators, including storage
resources, are not eligible to provide 10-minute spinning reserve. In
ISO-NE, electric storage resources can only provide regulation as an
Alternative Technology Regulation Resource.\69\
---------------------------------------------------------------------------

    \68\ ISO-NE Response at 11.
    \69\ Id. at 3-5.
---------------------------------------------------------------------------

    35. MISO states that a Stored Energy Resource is not qualified for
capacity, energy, ramp capability and contingency reserves.\70\ MISO
states that Demand Response Resource--Type I is not eligible for
regulating reserve and ramp capability products and that Dispatchable
Intermittent Resources are a subset of Generation Resources that are
not eligible to provide regulating reserves and contingency reserves.
MISO states that the Load Modifying Resource category is designed to
provide energy in emergency conditions and is only intended for the
provision of capacity. MISO also states that Emergency Demand Response
can only provide emergency energy, on a voluntary basis.
---------------------------------------------------------------------------

    \70\ MISO Response at 7-8.
---------------------------------------------------------------------------

    36. NYISO states that Limited Energy Storage Resources are limited
to selling only regulation service in the ancillary service market.\71\
NYISO further states that Emergency Demand Response Program resources
are only eligible to provide energy, Special Case Resources are only
eligible to provide energy and capacity, and Demand Side Ancillary
Services Program Resources are only eligible to provide ancillary
services. PJM states that demand response resources, including electric
storage resources, are ineligible to provide non-synchronized reserves
because demand response resources are already synchronized to the grid
when consuming power, and so would always

be classified as sync reserves when curtailing.\72\
---------------------------------------------------------------------------

    \71\ NYISO Response at 6-7.
    \72\ PJM Response at 4.
---------------------------------------------------------------------------

iii. Comments
    37. Many commenters point to organized wholesale electric markets
where electric storage resources cannot participate, or cannot
participate fully, because market rules are either designed for
traditional generation or they place unnecessary limitations on
electric storage resources. Both Advanced Energy Economy and NextEra
argue that a resource's eligibility to provide a particular service
should be based on whether it has the technical attributes necessary to
provide that service rather than on its participation model.\73\ EEI
argues that RTOs/ISOs may need to modify their tariffs to account for
electric storage resources because many existing market rules went into
place prior to the relatively recent advances in electric storage
technology.\74\ Likewise, Alevo contends that applying market rules to
electric storage resources that were designed for transmission,
generation, and demand assets unfairly disadvantages electric storage
resources.\75\ SolarCity claims that market rules that prevent the
participation of electric storage resources in multiple markets,
particularly for ancillary services, discriminate against behind-the-
meter electric storage resources that can provide multiple services
concurrently by preventing them from stacking multiple value
streams.\76\ SolarCity suggests that the provision of one wholesale
market product should not preclude provision of other wholesale market
products when resources are technically capable of providing multiple
services.
---------------------------------------------------------------------------

    \73\ Advanced Energy Economy Comments at 10-11; NextEra Comments
at 5.
    \74\ EEI Comments at 4.
    \75\ Alevo Comments at 8.
    \76\ SolarCity Comments at 5.
---------------------------------------------------------------------------

    38. Some commenters note concerns with the eligibility of electric
storage resources to provide services in specific markets. According to
AES Companies, Indianapolis Power & Light Company's Harding Street
Battery Energy Storage System, a fully-developed grid-scale battery,
cannot participate in MISO's markets because of the limitations placed
on the services Stored Energy Resources are eligible to provide and the
way they are dispatched.\77\ AES Companies further note that MISO's
Stored Energy Resource definition specifically disallows capacity
accreditation, even though some electric storage resources have
sufficient discharge duration to provide capacity and ancillary
services.\78\ Similarly, Minnesota Energy Storage Alliance contends
that none of the participation models that allow electric storage
resources to participate in MISO's capacity, energy, and ancillary
service markets facilitate participation of battery storage
technologies and, in some cases, they limit the products an electric
storage resource can provide.\79\ In contrast, Manitoba Hydro, which
operates hydroelectric facilities with reservoir storage that
participate in the MISO market as Use-Limited Resources, states that
MISO's current market rules are not barriers to electric storage
resource participation.\80\
---------------------------------------------------------------------------

    \77\ AES Companies Comments at 9-10 (citing MISO Response at 3).
    \78\ Id. at 2, 14.
    \79\ Minnesota Energy Storage Alliance Comments at 2, 4. For
example, Minnesota Energy Storage Alliance contends that MISO's
Demand Response Resource--Type I classification is inappropriate for
advanced electric storage resources because it is designed for
resources that respond as a single block, on or off, and cannot
provide regulating reserve and ramping products.
    \80\ Manitoba Hydro Comments at 4.
---------------------------------------------------------------------------

    39. NY Battery and Energy Storage Consortium asserts that NYISO's
market rules prevent electric storage resources from fully
participating in NYISO's markets, noting that electric storage
resources with less than 60 minutes of output duration can only
participate as Limited Energy Storage Resources and can only provide
regulation.\81\ NY Transmission Owners also argue that NYISO's rules do
not reflect the ability of certain electric storage resources to
provide their maximum output for regulation service over a multi-hour
period and do not allow them to participate in the energy and ancillary
service markets.\82\
---------------------------------------------------------------------------

    \81\ NY Battery and Energy Storage Consortium Comments at 5.
    \82\ NY Transmission Owners Comments at 3.
---------------------------------------------------------------------------

    40. According to Energy Storage Association, resources that
participate under CAISO's Proxy Demand Response participation model are
prohibited from providing frequency regulation, even though they may be
technically capable of doing so.\83\ Finally, NextEra notes that ISO-
NE, NYISO, and MISO prohibit an electric storage resource offering
regulation from offering any other service, even though a longer-
duration electric storage resource could provide regulation from a
portion of its capacity while providing other reserve services or
energy from the remainder of its capacity.\84\
---------------------------------------------------------------------------

    \83\ Energy Storage Association Comments at 28.
    \84\ NextEra Comments at 5 (citing MISO Response at 7; ISO NE
Response at 3; NYISO Response at 7).
---------------------------------------------------------------------------

    41. Other commenters focus on technical requirements that limit the
ability of electric storage resource to provide certain services. NRECA
states that minimum technical requirements should not create undue
barriers to resources capable of performing a service.\85\ Similarly,
APPA states that RTOs/ISOs should establish reasonable qualification
criteria on a resource-specific basis.\86\ NY Battery and Energy
Storage Consortium argues that distributed electric storage resources,
both grid-connected and customer-sited, face barriers to market
participation due to eligibility rules and qualification/performance
requirements that should be eliminated.\87\
---------------------------------------------------------------------------

    \85\ NRECA Comments at 6-7.
    \86\ APPA Comments at 10-11.
    \87\ NY Battery and Energy Storage Consortium Comments at 6.
---------------------------------------------------------------------------

    42. Some commenters focus on the technical requirements in the
regulation markets. Viridity explains that, while the rapid ramp rates
of electric storage resources allow them to provide regulation service,
their discharge is of limited duration, so RTOs/ISOs should utilize
these resources for short periods.\88\ According to Viridity, requiring
such resources to provide regulation service over longer periods is
inconsistent with the nature of frequency response and is detrimental
to the life span and effectiveness of these resources. NextEra contends
that, despite implementation of Order No. 755 (which removed certain
barriers to the ability of fast-acting resources to provide frequency
regulation service), MISO and SPP continue to rely on the slow ramping
automatic generation control signal developed for traditional
generation resources for regulation service.\89\ NextEra notes that
advanced electric storage technologies can respond faster than these
slower regulation signals allow. NextEra points out that, in contrast,
NYISO matches the dispatch of regulation resources to the specific
ramping capabilities of each resource.\90\
---------------------------------------------------------------------------

    \88\ Viridity Comments at 3-4.
    \89\ NextEra Comments at 9 (citing https://www.misoenergy.org/Library/Repository/Communication%20Material/Market%20Enhancements/Market%20Roadmap/Market%20Roadmap%20Priorities.pdf) (noting that
MISO is pursuing an automatic generation control enhancement that
would implement a faster signal similar to those used by other RTOs/
ISOs).
    \90\ Id. at 9.
---------------------------------------------------------------------------

    43. Other commenters contend that reliability standards may
preclude electric storage resources from providing certain ancillary
services. Specifically, Energy Storage Association states that NYISO
suggested that the Northeast Power Coordinating Council's (NPCC)
qualification criteria may prohibit grid-connected electric storage

resources from providing synchronized reserves because inverter-based
resources like electric storage cannot comply with the required
settings inherent to synchronous generators.\91\ Similarly, ISO-NE
states that demand response resources are precluded from providing 10-
minute spinning reserve per the ISO-NE tariff definition, which is
based on the NPCC requirement that loads cannot provide synchronized
reserve if the reduction in load is dependent on starting a
generator.\92\
---------------------------------------------------------------------------

    \91\ Energy Storage Association Comments at 14, 27.
    \92\ ISO-NE Response at 11.
---------------------------------------------------------------------------

    44. National Electrical Manufacturers Association argues that, in
ancillary service markets, spinning reserves are limited to online,
synchronized spinning generation resources. According to National
Electrical Manufacturers Association, electric storage systems capable
of providing fast-reacting, synchronized electricity should be allowed
to compete fully to provide spinning reserves.\93\ Wellhead asks the
Commission to require changes to NERC definitions so that non-
synchronous resources are not categorically excluded from providing
reserves. Wellhead notes that, under the NERC definition of ``Spinning
Reserves,'' the phrase ``unloaded generation that is synchronized''
does not clearly allow electric storage resources to participate as
spinning reserves. Wellhead also notes that NERC's definition of
``Operating Reserves--Spinning'' also does not clearly allow for market
participation of electric storage resources because they are not
generation synchronized to the system.\94\
---------------------------------------------------------------------------

    \93\ National Electrical Manufacturers Association Comments at
3.
    \94\ Wellhead Comments at 3-4.
---------------------------------------------------------------------------

    45. Commenters also note that the requirement in some RTOs and ISOs
to have an energy schedule to provide ancillary services is a barrier
to electric storage resource participation in ancillary service
markets. Commenting on MISO's market rules, Energy Storage Association
argues that electric storage resources should not have to offer energy
to participate in certain ancillary service markets because, unlike
traditional generators, electric storage resources are able to ramp
immediately to provide spinning reserve and ramping service without
having to provide energy to do so.\95\ Energy Storage Association
explains that requiring an electric storage resource to offer energy
greatly diminishes its capability to provide services in the ancillary
service markets because storage resources are energy-limited.
---------------------------------------------------------------------------

    \95\ Energy Storage Association Comments at 13-14 (citing MISO
Response at 11, n.9 (referring to Business Practice Manual sections
that describe requirements for these products, which state
``Committed Generation Resources'' are eligible to provide these
products), 14, 27).
---------------------------------------------------------------------------

    46. For the capacity markets, commenters ask the Commission to
clarify that an electric storage resource should be allowed to de-rate
its capacity (i.e., offer a quantity less than its nameplate capacity)
to ensure it can satisfy the minimum run-time requirement.\96\ Energy
Storage Association states, for example, that, in the NYISO and MISO
capacity markets, an electric storage resource with a run-time duration
of less than four hours relative to its nameplate capacity should be
able to qualify for capacity at a lower power level than it would be
able to sustain for four hours at nameplate output. More specifically,
NY Battery and Energy Storage Consortium states that a 10 MW/2-hour
storage resource should be able to qualify for 5 MW of capacity as long
as it can sustain 5 MW for 4 hours.
---------------------------------------------------------------------------

    \96\ Id. at 22-23; NY Battery and Energy Storage Consortium
Comments at 6; RES Americas Comments at 4.
---------------------------------------------------------------------------

    47. In contrast, some commenters, such as APPA, state that
eligibility is not a significant problem for electric storage
resources.\97\ Similarly, Electric Power Supply Association argues that
the RTO/ISO responses to the Data Requests show that electric storage
resources can fully participate in the organized wholesale electric
markets.\98\ The PJM Market Monitor also claims there are no market
rules that artificially preclude participation by electric storage
resources in any of PJM's markets.\99\ The PJM Market Monitor states
that electric storage resources can make offers directly into PJM's
wholesale markets to provide energy, capacity, and ancillary services
or can participate as demand response resources.
---------------------------------------------------------------------------

    \97\ APPA Comments at 10.
    \98\ Electric Power Supply Association Comments at 9.
    \99\ PJM Market Monitor Comments at 4.
---------------------------------------------------------------------------

iv. Proposed Reforms
    48. We propose to require RTOs/ISOs to modify their tariffs 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 organized wholesale electric
markets. In addition, we propose that electric storage resources should
be able, as part of the participation model, to be eligible to provide
services that the RTOs/ISOs do not procure through a market mechanism,
such as blackstart, primary frequency response, and reactive power, if
they are technically capable. Where compensation for these services
exists, electric storage resources should also receive such
compensation commensurate with the service provided.
    49. We also propose 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. This proposed requirement will help ensure that electric
storage resources are able to provide all services that they are
technically capable of providing by accommodating their physical and
operational characteristics, while still maintaining the quality and
reliability of services they seek to provide. In RTOs/ISOs with
capacity markets, we propose 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. We preliminarily find that this reform will
remove a barrier to the participation of electric storage resources in
the organized wholesale electric markets related to minimum run-time
requirements and help ensure that the resources that do de-rate their
capacity will be able to meet their capacity supply obligations if
called upon.
    50. We preliminarily conclude that a market participant's
eligibility to provide a particular reserve service should not be
conditioned on requirements that were designed for synchronous
generators, specifically the requirement to be online and synchronized
to the grid to be eligible to provide ancillary services. Newer
technologies, particularly electric storage resources, tend to be
capable of faster start-up times and higher ramp rates than traditional
synchronous generators and are therefore able to provide ramping,
spinning, and regulating reserve services without already being online
and running. Therefore, we preliminarily find that participation in
ancillary service markets should be based on a resource's ability to
provide services when it is called upon rather than on the real-time
operating status of the resource.
    51. However, we acknowledge that all of the RTOs/ISOs co-optimize
energy and ancillary services dispatch and pricing and therefore may
condition eligibility to provide ancillary services on having an energy
schedule. As a result, it is not clear whether

eliminating the requirement for a resource to be online and
synchronized to the grid would be impactful given the continued need to
have an energy schedule. Therefore we seek comment on whether the
requirement to have an energy schedule to provide ancillary services
could be adjusted so that electric storage resources and other
technically-capable resources could participate in the ancillary
service markets independent of offering energy to the RTO/ISO.
Specifically, we seek comment on whether dispatch and pricing of energy
and ancillary services would continue to be internally consistent if a
resource were not required to offer to provide energy in order to offer
to provide ancillary services. Further, we seek comment on whether the
capability of resources to provide an ancillary service absent an
energy schedule can be determined in the regular performance tests that
the RTO/ISO conducts and whether a resource's start-up time and ramp
capability are generally represented in bidding parameters and would
adequately guarantee the resource's ability to provide other services
absent energy market participation. Additionally, we seek comment on
the extent of software changes necessary to factor the elimination of
such an energy schedule requirement into the RTO/ISO co-optimization
models.
    52. Several commenters also identified concerns with how
definitions in the Glossary of Terms used in NERC reliability standards
could potentially limit participation of electric storage resources and
other non-synchronous resources in the reserve markets. While it
appears that some of the Glossary of Terms definitions were created for
synchronous generation, it is unclear the extent to which these
definitions could potentially limit participation of non-synchronous
resources in the organized wholesale electric markets. Therefore, we
seek comment on whether and to what extent the Commission-approved NERC
Glossary of Terms and associated Reliability Standards or regional
reliability requirements may create barriers to the participation of
electric storage resources or other non-synchronous technologies in the
organized wholesale electric markets.
b. Bidding Parameters for Electric Storage Resources
i. Introduction
    53. Bidding parameters allow resources participating in the
organized wholesale markets to identify their physical and operational
characteristics so that the RTO/ISO can model and dispatch the resource
consistent with its operational constraints. Due to an electric storage
resource's ability to both receive and provide electricity at varying
speeds and duration and to transition between operating modes, it may
be more efficient for the RTOs/ISOs to model, optimize, and dispatch
electric storage resources differently than they do traditional
generation. By requiring electric storage resources to use bidding
parameters developed for traditional generators or other supply
resources, RTOs/ISOs may fail to effectively utilize these resources,
possibly precluding electric storage resources from providing all of
the services that they are physically and technically capable of
providing in a way that optimizes their operational capabilities and
maximizes the benefits they provide. This barrier to electric storage
resource participation in organized wholesale electric markets could
lead to over-procurement of less efficient resources and increased cost
to load.
ii. Current Rules
    54. Under current market rules, resource bidding parameters vary
greatly between the RTOs/ISOs. Some RTOs/ISOs require the same bidding
parameters from all resources offering into a specific market,
regardless of the participation model under which these resources
participate, while others tie bidding parameters to specific
participation models. For example, ISO-NE requires the same bidding
parameters from all resources, including electric storage resources,
participating in its capacity, forward reserve, and regulation
markets.\100\ In ISO-NE's energy market, bidding parameters reflect the
physical characteristics of each participation model such as maximum
daily starts, maximum consumption for dispatch asset related demand,
and minimum time between reduction for demand response resources.
Similarly, SPP requires all resources participating in its day-ahead
and real-time markets under any participation model to provide a
specific set of bidding parameters to validate their offers.\101\
---------------------------------------------------------------------------

    \100\ ISO-NE Response at 24-25.
    \101\ SPP Response at 5-6.
---------------------------------------------------------------------------

    55. CAISO's market rules also require a defined list of parameters
for all bids. In addition, however, CAISO requires supplemental
parameters depending on the participation model under which a resource
is participating in its market (i.e., Participating Generator,
Participating Load, or Non-Generator Resource).\102\ Specifically,
CAISO explains that bids for participating loads, which include pumping
load or Pumped-Storage Hydro Units, may include pumping level (in
megawatts (MW)), minimum load bid (generation mode of a pumped-storage
hydro unit), load distribution factor, ramp rate, energy limit, pumping
cost, and pump shut-down costs.\103\ CAISO notes that, unlike under the
generator resource model, these resources must submit lower and upper
charge limits. Moreover, the Commission recently accepted revisions to
CAISO's tariff to allow scheduling coordinators representing non-
generator resources to include state-of-charge as a bidding
parameter.\104\
---------------------------------------------------------------------------

    \102\ CAISO Response at 13-14 (citing CAISO Tariff, section 30).
    \103\ Id. at 13-14 (citing CAISO Tariff, section <IP_ADDRESS>).
    \104\ California Indep. Sys. Operator Corp., 156 FERC ] 61,110.
---------------------------------------------------------------------------

    56. Electric storage resources participating in NYISO's markets
must generally submit the same bidding parameters as other resources,
with some exceptions.\105\ Limited Energy Storage Resources providing
regulation service exchange a ``state of charge management'' signal
with the NYISO to facilitate the efficient use of their capabilities.
NYISO does not require Limited Energy Storage Resources, unlike other
generators, to provide regulation capacity response rates, normal
response rates, or emergency response rates with their regulation
service bids. In addition, in NYISO, electric storage resources acting
as a component of a Demand Side Ancillary Services Program resource may
only submit one normal response rate equaling the electric storage
resource's emergency response rate, while traditional generators may
submit up to three normal response rates.
---------------------------------------------------------------------------

    \105\ NYISO Response at 12 (citing NYISO's Market Participant
User's Guide (Dec. 2015)).
---------------------------------------------------------------------------

    57. In MISO, bidding parameters vary between markets and
participation models. MISO's market rules allow common bidding
parameters for each participation model, with a few exceptions.\106\
For example, since MISO manages the state of charge for Stored Energy
Resources, it requires the following additional bidding parameters for
these resources: Hourly maximum energy storage level; hourly maximum
energy charge rate; hourly maximum energy discharge rate; hourly energy

storage loss rate; and hourly full charge energy withdrawal rate.
---------------------------------------------------------------------------

    \106\ MISO Response at 14-15 (citing MISO FERC Electric Tariff,
section 4.2.6 (Stored Energy Resource Offer)).
---------------------------------------------------------------------------

    58. Bidding parameters in PJM also vary between markets and
participation models.\107\ Additionally, pumped storage resources
offering into the PJM energy markets may either self-schedule or have
PJM dispatch their unit pursuant to the pumped storage optimization
tool. In either case, the resource must submit the following
parameters: initial storage; final storage; maximum storage; minimum
storage; pumping efficiency factor; and min/max generating and pumping
limits.\108\
---------------------------------------------------------------------------

    \107\ PJM Response at 18 (citing PJM Operating Agreement,
Schedule 1, section 6.6(f)).
    \108\ Id. (citing PJM Manual 11, Attachment B).
---------------------------------------------------------------------------

iii. Comments
    59. Some commenters focus on the current bidding parameters for
electric storage resources. NRECA states that the Commission should not
mandate bidding parameters for specific electric storage
resources.\109\ APPA states that, at this early stage of electric
storage resource development, the required bidding parameters should
not be so prescriptive as to determine the technologies allowed to
deploy, which may constrain the ability of load-serving entities to
adopt the least-cost solution.\110\
---------------------------------------------------------------------------

    \109\ NRECA Comments at 7.
    \110\ APPA Comments at 11.
---------------------------------------------------------------------------

    60. In contrast, NextEra suggests that each RTO/ISO evaluate how
bidding parameters could allow electric storage resources to
participate fully in the energy, ancillary service, and capacity
markets.\111\ NextEra states that the specific bidding parameters
developed for pumped hydro are inadequate for batteries and other
advanced electric storage technologies. California Energy Storage
Alliance also urges evaluation of existing market bidding parameters to
identify revisions focused on the unique characteristics of electric
storage resources and their ability to act as both generation and
load.\112\ Energy Storage Association and NY Battery and Energy Storage
Consortium agree, recommending that RTOs/ISOs establish a participation
model that incorporates appropriate bidding parameters and resource
modeling for electric storage resources.\113\
---------------------------------------------------------------------------

    \111\ NextEra Comments at 10-11.
    \112\ California Energy Storage Alliance Comments at 1-2.
    \113\ Energy Storage Association Comments at 8-12; NY Battery
and Energy Storage Consortium Comments at 5.
---------------------------------------------------------------------------

    61. Some commenters address the physical and operational
characteristics of electric storage resources that create a need for
bidding parameters in a participation model for electric storage
resources that may differ from those required under participation
models for more traditional resources. For example, Alevo argues that
electric storage resources are not certain that they can participate in
RTO/ISO markets given modeling and bidding parameter limitations in the
current RTO/ISO market clearing and dispatch engines.\114\ Alevo and
Energy Storage Association state that the RTOs'/ISOs' market modeling,
which Alevo argues is based on traditional resource types that only
withdraw electricity from or inject electricity to the grid, does not
accommodate electric storage resources' charge and discharge
cycles.\115\ Alevo further contends that no current bidding parameters
offer charge and discharge signals that would allow electric storage
resources to provide peaking services.\116\ Similarly, RES Americas
contends that accounting for injections and withdrawals of energy to
and from the grid in bidding parameters would improve optimization and
dispatch across all asset classes.\117\
---------------------------------------------------------------------------

    \114\ Alevo Comments at 20.
    \115\ Id.; Energy Storage Association Comments at 9.
    \116\ Alevo Comments at 20.
    \117\ RES Americas Comments at 4.
---------------------------------------------------------------------------

    62. A few commenters address bidding parameters in specific
organized wholesale electric markets. Energy Storage Association states
that MISO's Stored Energy Resource, ISO-NE's Alternative Technology
Regulation Resource, and NYISO's Limited Energy Storage Resource
participation models explicitly allow electric storage resource
participation.\118\ According to Energy Storage Association, these
participation models offer the bidding parameters and modeling
mechanisms (such as energy-neutral signal or state-of-charge
management) necessary for electric storage resource participation.
Minnesota Energy Storage Alliance and AES Companies, however, believe
that MISO's current dispatch algorithms do not effectively use electric
storage resources because they were designed for flywheels, while
advanced battery systems have the ability to continuously charge and
discharge.\119\
---------------------------------------------------------------------------

    \118\ Energy Storage Association Comments at 9-10.
    \119\ Minnesota Energy Storage Alliance Comments at 4; AES
Companies Comments at 21.
---------------------------------------------------------------------------

    63. Other commenters discuss bidding parameters that relate to
specific services in the organized wholesale electric markets. National
Hydropower Association states that bidding parameters should reflect
electric storage resources' ability to respond to transients with
automatic voltage regulation, power system stability, and generator
droop.\120\ National Hydropower Association claims that the NERC
standards often require these services, but RTOs/ISOs do not include
them in any bid evaluation parameters.
---------------------------------------------------------------------------

    \120\ National Hydropower Association Comments at 4.
---------------------------------------------------------------------------

    64. Some commenters focus on state of charge as a bidding parameter
for electric storage resources. Alevo, NextEra, SolarCity, and Energy
Storage Association agree that bidding parameters need to reflect an
electric storage resource's state of charge.\121\ Alevo states that the
inability of the RTOs'/ISOs' dispatch and clearing engines to manage
hourly and sub-hourly dispatch and consider electric storage resources'
states of charge is a barrier to electric storage resource
participation.\122\ Alevo and Energy Storage Association recommend
including a state of charge bidding parameter in market engine
optimization and dispatch modeling because an electric storage
resource's energy level at any given moment affects the services it is
capable of providing in the subsequent interval.\123\ NextEra asserts
that, although some RTOs/ISOs manage batteries' state of charge when
providing regulation service, it is unclear how electric storage
resources (or the RTOs/ISOs) can reflect their state of charge in the
unit commitment and dispatch algorithms when providing other
services.\124\
---------------------------------------------------------------------------

    \121\ Alevo Comments at 20; NextEra Comments at 10; SolarCity
Comments at 9; Energy Storage Association Comments at 11.
    \122\ Alevo Comments at 20.
    \123\ Id.; Energy Storage Association Comments at 11.
    \124\ NextEra Comments at 10-11. NextEra points to CAISO's
proposal to allow energy storage resources to submit their state of
charge as a bid parameter in the day-ahead market. This proposal was
accepted by the Commission. See California Indep. Sys. Operator
Corp., 156 FERC ] 61,110 at P 10.
---------------------------------------------------------------------------

    65. Some commenters focus on the ability of electric storage
resources to manage their own state of charge. SolarCity states that
RTOs/ISOs should allow electric storage resources to manage their state
of charge rather than relying on RTO/ISO accounting estimates of their
state of charge, which could lead to faulty dispatch instructions.\125\
Likewise, NextEra recommends that the RTOs/ISOs should allow electric
storage resources to choose between RTO/ISO-management and self-
management of state of charge.\126\ Energy Storage Association asks
that RTOs/ISOs clarify how they would model, optimize, dispatch, and
settle electric storage resources using

negative generation and state of charge parameters so that electric
storage resources understand how they will bid into the market, receive
dispatch signals, respond to those signals, and be compensated.\127\
AES Companies state that electric storage resources should be permitted
to optimize their own state of charge because MISO's operating software
ignores the benefits of constant charge and availability.\128\
---------------------------------------------------------------------------

    \125\ SolarCity Comments at 9.
    \126\ NextEra Comments at 10-11. See also Ormat Comments at 3.
    \127\ Energy Storage Association Comments at 7.
    \128\ AES Companies Comments at 21.
---------------------------------------------------------------------------

iv. Proposed Reforms
    66. We propose to require each RTO/ISO to revise its tariff to
include a participation model for electric storage resources that
incorporates bidding parameters that reflect and account for the
physical and operational characteristics of electric storage resources.
The lack of a state-of-charge bidding parameter and the lack of ability
for electric storage resources to identify their maximum energy charge
rate and maximum energy discharge rate could result in electric storage
resources being dispatched in a manner that limits their operational
effectiveness. While some existing bidding parameters were developed
for older electric storage technologies (such as pumped-hydro
facilities), newer storage technologies (such as battery storage) have
greater flexibility to transition between charging and discharging.
Therefore, bidding parameters designed for slower storage technologies
or other types of generation resources that are not capable of charging
and discharging energy may limit the opportunity for faster electric
storage resources to participate in the organized wholesale electric
markets. Appropriate bidding parameters will allow electric storage
resources to provide all services they are technically capable of
providing and allow the RTOs/ISOs to procure these services more
efficiently.
    67. Specifically, we propose that the RTOs/ISOs establish state of
charge, upper charge limit, lower charge limit, maximum energy charge
rate, and maximum energy discharge rate as bidding parameters for the
participation model for electric storage resources that participating
resources must submit, as applicable. The state of charge will allow
resources using the participation model for electric storage resources
to identify their forecasted state of charge at the end of a market
interval,\129\ as defined by the RTO/ISO, while the upper and lower
charge limits will prevent the operator from trying to give or take too
much energy from the resource. We expect that the state of charge would
be telemetered in real time when the RTO/ISO is managing the state of
charge, as discussed further below, so that the upper and lower charge
limits are not exceeded, but do not propose any specific telemetry
requirements. The maximum energy charge rate and maximum energy
discharge rate will be used to indicate how quickly the resource can
receive electricity from or inject it back to the grid. We
preliminarily find that these are the minimum bidding parameters
necessary for RTOs/ISOs to effectively dispatch electric storage
resources because they provide the RTOs/ISOs with the information about
the physical and operational characteristics of electric storage
resources that allow these resources to provide the services that they
are technically capable of providing.
---------------------------------------------------------------------------

    \129\ See, e.g., CAISO Tariff, Att. A, section 30.5.6 (stating
that scheduling coordinators representing Non-Generator Resources
may submit bids including the state of charge for the day-ahead
market to indicate the forecasted starting physical position of the
Non-Generator Resource.).
---------------------------------------------------------------------------

    68. We also propose to require that the participation models for
electric storage resources include the following bidding parameters
that market participants may submit, at their discretion, for their
resource based on its physical constraints or desired operation:
minimum charge time, maximum charge time, minimum run time, and maximum
run time.\130\ We preliminarily conclude that these optional bidding
parameters are necessary to reflect the wide range of physical and
operational characteristics of existing and future electric storage
technologies. Specifically, electric storage technologies such as
pumped-hydro facilities that seek to provide energy in the organized
wholesale electric markets have some physical and operational
characteristics that are closer to those of traditional generation than
those of small electric storage resources designed primarily to provide
regulation service. The optional bidding parameters that we propose
here would allow electric storage resources to indicate their
operational constraints to the RTO/ISO and would help these resources
to manage any costs or operational constraints that they incur when
transitioning between charging and discharging electricity. For
example, the opportunity to submit these optional bidding parameters
could allow an electric storage resource to prevent excessive
variability in its operations to help optimize the services that it is
available to provide and to preserve the life of the electric storage
resource.
---------------------------------------------------------------------------

    \130\ We acknowledge that some of these optional bidding
parameters may not be necessary for resources participating under
the proposed participation model for electric storage resources that
provide certain information to the RTO/ISO through telemetry.
---------------------------------------------------------------------------

    69. Also, where the RTO/ISO has reserved for itself the right to
manage the state of charge of an electric storage resource, we propose
to require that the RTOs/ISOs allow electric storage resources to self-
manage their state of charge and upper and lower charge limits. An
electric storage resource that opts to self-manage its state of charge
and upper and lower charge limits would keep its state of charge at an
optimal level through its own bidding strategy, rather than the RTO/ISO
market processes ensuring that dispatch does not violate its physical
constraints. The Commission recently accepted revisions to the CAISO
tariff that allow non-generator resources to self-manage their energy
limits and state-of-charge in real-time.\131\
---------------------------------------------------------------------------

    \131\ California Indep. Sys. Operator, Corp., 156 FERC ] 61,110
at P 10.
---------------------------------------------------------------------------

    70. Of course, an electric storage resource that self-manages its
state of charge is subject to any penalties for deviating from a
dispatch schedule to the extent the resource manages its state of
charge by deviating from the dispatch schedule. While RTOs/ISOs may be
in a better position to effectively manage the state of charge for an
electric storage resource that, for example, exclusively provides
regulation service in the organized wholesale electric markets, some
electric storage resources may be interested in providing multiple
service or providing services to another party, such as to a load with
which it is co-located. Affording electric storage resources the option
to manage their state of charge would allow these resources to optimize
their operations to provide all of the services that they are
technically capable of providing, similar to the operational
flexibility that traditional generators have to manage the wholesale
services that they offer. However, we seek comment on whether there are
conditions under which an RTO/ISO should not allow an electric storage
resource to manage its state of charge and upper and lower charge
limits.
    71. While the inclusion of these bidding parameters would allow for
more efficient use of electric storage resources, their implementation
also requires the RTOs/ISOs to program these bidding parameters into
their modeling and dispatch software. The difficulty of implementing
these bidding parameters would likely vary from RTO/ISO to RTO/ISO.
Therefore, we seek

comment on the time and resources that would be necessary for the RTOs/
ISOs to incorporate these bidding parameters, including the optional
bidding parameters, into their modeling and dispatch software.
c. Eligibility To Participate as a Wholesale Seller and Wholesale Buyer
i. Introduction
    72. The ability of electric storage resources to receive and
provide electricity positions them to be both buyers and sellers in the
organized wholesale electric markets. As the Commission has previously
recognized, a market functions effectively only when both supply and
demand can meaningfully participate.\132\ Improving electric storage
resources' opportunity to participate as both wholesale sellers of
services and wholesale buyers of energy could improve market efficiency
by allowing the RTO/ISO to dispatch these resources in accordance with
their most economically efficient use (i.e., as supply when the market
clearing price for energy is higher than their offer and as demand when
the market clearing price is lower than their bid). Moreover, allowing
electric storage resources to participate in the organized wholesale
electric markets as dispatchable load would allow these resources,
under certain circumstances, to set the price in these markets, better
reflecting the value of the marginal resource and ensuring that
electric storage resources are dispatched in accordance with the
highest value service that they are capable of providing during a set
market interval.
---------------------------------------------------------------------------

    \132\ Demand Response Compensation in Organized Wholesale Energy
Markets, Order No. 745, FERC Stats. & Regs. ] 31,322, at P 1, order
on reh'g, Order No. 745-A, 137 FERC ] 61,215 (2011).
---------------------------------------------------------------------------

ii. Current Rules
    73. Each RTO's/ISO's market rules that govern the eligibility of
electric storage resources to participate in the organized wholesale
electric markets as a demand resource are different. For example, CAISO
explains that an electric storage resource interconnected to the CAISO
grid with a participating generator agreement and participating load
agreement can submit offers to sell and bids to buy energy in the
wholesale market.\133\ According to SPP, submitting bids to purchase
energy in its market is within the resource owner's discretion.\134\
SPP notes that electric storage resources may submit virtual bids in
the day-ahead market at any location and a fixed or price-sensitive bid
at their registered load. In contrast, PJM explains that electric
storage resources do not submit wholesale bids to buy electricity.\135\
---------------------------------------------------------------------------

    \133\ CAISO Response at 16.
    \134\ SPP Response at 7.
    \135\ PJM Response at 22.
---------------------------------------------------------------------------

    74. ISO-NE states that, because it is dispatchable, an electric
storage resource participating as a Dispatchable Asset Related Demand
resource may submit bids to buy energy in both the day-ahead and real-
time energy markets; however, if it is participating as a load asset or
an Asset Related Demand, it may submit bids to buy energy in the day-
ahead market but would be a price taker in real-time.\136\
---------------------------------------------------------------------------

    \136\ ISO-NE Response at 28 (citing ISO-NE Tariff, section
I.2.2).
---------------------------------------------------------------------------

    75. MISO explains that, in the day-ahead market, electric storage
resources may submit bids to buy energy at the LMP when they need to
recharge as dispatchable demand or may submit virtual bids.\137\ MISO
further explains that in the real-time market, most load buys energy as
fixed demand and only Demand Response Resources--Type II can submit
demand response offers to buy energy.
---------------------------------------------------------------------------

    \137\ MISO Response at 16.
---------------------------------------------------------------------------

    76. NYISO states that Energy Limited Resources obtain charging
energy through negative MW value generation offers, rather than a bid
to buy energy.\138\ NYISO explains that demand-side resources
participating in the Special Case Resource Program, Emergency Demand
Response Program, Demand Side Ancillary Services Program, or Day-Ahead
Demand Response Program do not submit bids to buy energy in the
wholesale markets unless the resource is a load-serving entity, in
which case it purchases its entire load. NYISO states that a demand-
side resource may submit price-responsive load bids to take advantage
of off-peak prices to charge its electric storage resource. NYISO adds
that electric storage resources are not required to bid to buy
electricity from the NYISO market, but, like any load, may bid into the
day-ahead market as a price cap load bid.\139\
---------------------------------------------------------------------------

    \138\ NYISO Response at 14-15.
    \139\ Id. at 15 (citing NYISO Services Tariff, section 21.1).
---------------------------------------------------------------------------

    77. The eligibility for an electric storage resource to set the
price in the organized wholesale electric markets also varies among the
RTOs/ISOs. For example, CAISO states that an electric storage resource
that is the marginal resource may set the price of energy and ancillary
services in CAISO's markets based on its economic bid.\140\ PJM states
that, with the exception of demand-side resources in the non-
synchronized reserve market, electric storage resources may set the
price as either a generation or as a demand-side resource in the
capacity, energy, and ancillary service markets.\141\ SPP states that
any resource, including an electric storage resource, qualified to
participate in an SPP market may set the price for the relevant
market.\142\
---------------------------------------------------------------------------

    \140\ CAISO Response at 10.
    \141\ PJM Response at 10.
    \142\ SPP Response at 4.
---------------------------------------------------------------------------

    78. ISO-NE states that, in each of its markets, electric storage
resources may be able to set the clearing price, depending on the
participation model that they are using to participate.\143\ ISO-NE
explains that only dispatchable resources (i.e., dispatchable generator
assets and dispatchable asset related demand) may set the clearing
price in the real-time energy market. ISO-NE explains that, in the day-
ahead energy market, an electric storage resource may set the price by
offering into the market as a generator resource, Asset Related Demand,
or Dispatchable Asset Related Demand. ISO-NE adds that, by qualifying
as a new generator resource or as a demand resource, an electric
storage resource may bid its qualified MWs into the capacity market and
set the clearing price. ISO-NE notes that an electric storage resource
or aggregation of electric storage resources may set the regulation
market clearing prices by offering as an Alternative Technology
Regulation Resource. ISO-NE states that an electric storage resource
may also set the market-clearing regulation price by offering into the
regulation market as a generator resource or Dispatchable Asset Related
Demand.
---------------------------------------------------------------------------

    \143\ ISO-NE Response at 12-13. ISO-NE explains that, today,
Real-Time Demand Response assets are price-takers in the real-time
energy market but that, with the full integration of demand response
into the energy market scheduled for June 1, 2018, demand response
resources will have the potential to set market clearing prices.
---------------------------------------------------------------------------

    79. MISO states that electric storage resources may set prices for
products in the market(s) in which they are eligible to participate.
MISO explains that, for example, an electric storage resource
registered as a Load Modifying Resource may set the price in the
capacity market. MISO states that an electric storage resource
registered as a Stored Energy Resource may set the price for regulating
reserve.\144\
---------------------------------------------------------------------------

    \144\ MISO Response at 10.
---------------------------------------------------------------------------

    80. NYISO explains that supply offers of electric storage resources
that participate as Energy Limited Resources may set the price for
capacity, energy, and ancillary services; Limited Energy Storage
Resources may set the price for regulation service. NYISO explains that
Special Case Resources and Emergency

Demand Response Program resource energy offers do not directly set the
price; rather, when these resources are dispatched, the NYISO's
scarcity pricing rules are triggered in the zone(s) in which they are
activated and may alter energy and certain ancillary services
prices.\145\
---------------------------------------------------------------------------

    \145\ NYISO Response at 8.
---------------------------------------------------------------------------

iii. Proposed Reforms
    81. We propose to require each RTO/ISO to revise its tariff to
ensure that electric storage resources can be dispatched and can set
the wholesale market clearing price as both a wholesale seller and
wholesale buyer consistent with existing rules that govern when a
resource can set the wholesale price. This proposal includes the
requirements that the RTOs/ISOs accept wholesale bids from electric
storage resources to buy energy so that the economic preferences of the
electric storage resources are fully integrated into the market, the
electric storage resource can set the price as a load resource where
market rules allow, and the electric storage resource can be available
to the RTO/ISO as a dispatchable demand asset. However, we note that
these requirements must not prohibit electric storage resources from
participating in organized wholesale electric markets as price takers,
consistent with the existing rules for self-scheduled load resources.
We also clarify that, while resources are not dispatched when they
clear the capacity markets, we are proposing that resources using the
participation model for electric storage resources be able to set the
price in the capacity markets, where applicable.
    82. To optimize the capabilities of electric storage resources and
for the RTOs/ISOs to use them efficiently, it is important for the
RTOs/ISOs to be able to symmetrically utilize the capabilities of these
resources to both receive electricity from the grid and inject it back
to the grid. In other words, they must be able to dispatch electric
storage resources as supply when the market clearing price exceeds
their offers to sell and to dispatch electric storage resources as
demand when their bids to buy exceed the market clearing price. The
bidirectional capabilities of electric storage resources are what make
them unique, and allowing electric storage resources to participate in
the organized wholesale electric markets as both wholesale sellers and
wholesale buyers will help optimize the value that they provide and
enhance price formation, as they will be dispatched in accordance with
their most economic use.
    83. We preliminarily conclude that the proposed requirement to
participate as a supply and demand resource simultaneously (i.e.,
submit bids to buy and offers to sell during the same market interval)
is necessary to maximize the value that electric storage resources can
provide in the organized wholesale electric markets, allowing the
markets to identify whether it is more economic to dispatch an electric
storage resource as supply or demand during a given market interval. We
expect that, through its bidding strategy, a resource using the
electric storage resource participation model would be able to prevent
any conflicting dispatch signals to itself. However, we seek comment on
whether there should be a mechanism that identifies bids and offers
coming from the same resource that ensures the price for the offer to
sell is not lower than the price for the bid to buy during the same
market interval so that an RTO/ISO does not accept both the offer and
bid of a resource using the electric storage resource participation
model for that interval.
    84. Generally, in the organized wholesale electric markets,
resources that cannot be dispatched by the RTO/ISO do not set wholesale
prices. This is because the marginal clearing prices are based on the
shadow price of the next unit of incremental production, and a resource
that cannot be dispatched by the RTO/ISO cannot provide that
incremental unit of production. Therefore, we propose that, for a
resource using the proposed participation model for electric storage
resources to be able to set prices in the organized wholesale electric
markets as either a wholesale seller or a wholesale buyer, it must be
available to the RTO/ISO as a dispatchable resource. We believe this
proposal is consistent with RTO/ISO rules on price setting and are
further proposing that the ability for resources using the
participation model for electric storage resources to set the price be
consistent with existing rules that govern when a resource can set the
wholesale price. However, we seek comment on whether any existing RTO/
ISO rules may unnecessarily limit the ability of resources using the
participation model for electric storage resources to set prices in the
organized wholesale electric markets.
    85. We note that resources using the proposed participation model
for electric storage resources that elect to submit economic bids as a
wholesale buyer and participate as dispatchable demand resources would
still be able to self-schedule their charging and be price takers.
However, it is also possible that the RTO/ISO could dispatch an
electric storage resource as load when the wholesale price for energy
is above the price of their bid to buy (a circumstance under which they
would lose the opportunity to earn greater revenues as a supply
resource). Therefore, to help alleviate any potential financial risk to
these resources when being dispatched as a demand resource, we seek
comments on whether the proposed participation model for electric
storage resources should allow make-whole payments when a resource
participating under this participation model is dispatched as load and
the price of energy is higher than the resource's bid price.
d. Minimum Size Requirement
i. Introduction
    86. Depending on the technology, electric storage resources range
in size from 1 kW to 1 GW,\146\ and most of them tend to be under 1
MW.\147\ RTO/ISO market rules may restrict electric storage resources
from participating in the organized wholesale electric markets based on
minimum size requirements \148\ that may have been designed for
different types of resources. This is particularly true for smaller
electric storage resources, which may be limited to participating in
the organized wholesale electric markets as demand response resources.
Such restrictions can limit these resources' ability to employ their
full operational range because they are prohibited from injecting
electricity into the grid in excess of their host load and preclude
them from providing services such as reserves.
---------------------------------------------------------------------------

    \146\ Sandia Report at 29, Figure 19 (Positioning of Energy