Regional Transmission Organization

Federal Energy Regulatory Commission’s much-anticipated new rule will enhance the participation of electric storage resources in the organized wholesale electricity markets.

By Michael Gergen, David E. Pettit, and Peter Viola

Nearly a year and a half after issuing its original proposal, the Federal Energy Regulatory Commission (FERC or Commission) has unanimously adopted its final rule—Order No. 841—on Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators (Storage Rule). The Storage Rule is the culmination of FERC’s proceedings following the notice of proposed rulemaking issued in November 2016 (Storage NOPR) whereby FERC originally proposed enhancing the participation of electric storage resources in the organized capacity, energy, and ancillary service auction markets operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).

The Storage Rule recognizes the improving capabilities and cost-competitiveness of electric storage resources (such as batteries, flywheels, pumped-hydro, etc.) and is designed to further pave the way for such resources to participate in the organized wholesale electricity markets alongside conventional energy sources. At the same time, the Commission determined that further information is needed about proposed reforms related to market participation of aggregations of distributed energy resources (DERs) in the RTO/ISO markets. The Commission therefore directed FERC staff to convene a technical conference on April 10-11, 2018 to gather additional information before deciding what action to take on those proposals.

By Michael J. Gergen and Miles B. Farmer

On May 23, 2014, the U.S. Court of Appeals for the D.C. Circuit Court issued a decision in Electric Power Supply Association v. FERC (“EPSA”) vacating and remanding FERC’s Order No. 745, which provides compensation for demand response resources that participate in the energy markets administered by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).  The decision holds that the Federal Energy Regulatory Commission (“FERC” or “Commission”) did not have jurisdiction under the Federal Power Act (“FPA”) to issue Order No. 745 because demand response is part of the retail market, which is exclusively within the states’ jurisdiction to regulate.  Furthermore, the court holds that even if FERC did have jurisdiction under the FPA to issue Order No. 745, the Order would still fail as arbitrary and capricious because FERC failed to properly consider concerns of the petitioner and other parties that Order No. 745 would result in unjust and unreasonable rates because it would overcompensate demand response resources.