On November 17, 2016, FERC issued a Notice of Proposed Rulemaking (“NOPR”) in which it proposed to amend its regulations to require each Regional Transmission Organization and Independent System Operator (“RTO/ISO”) to revise its tariff to: (i) establish 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; and (ii) define distributed energy resource aggregators as a type of market participant that can participate in organized wholesale electric markets under the participation model that best accommodates the physical and operational characteristics of its distributed energy resource aggregation.FERC stated that it was taking this action “to remove barriers to the participation of electric storage resources and distributed energy resource aggregations” in RTO/ISO markets, pursuant to its statutory obligation under the Federal Power Act (“FPA”) to ensure that RTO/ISO tariffs are just and reasonable and not unduly discriminatory or preferential.

With respect to the first proposal, FERC proposed to require each RTO/ISO to establish “participation models”—meaning sets of tariff provisions that accommodate the participation of resources with particular physical and operational characteristic in wholesale markets—for electric storage resources that would recognize the physical and operational characteristics of those resources. FERC broadly defined the term “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,” and noted that this term includes “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.” FERC’s NOPR proposed that any participation model proposed by an RTO/ISO must meet five distinct criteria. Specifically, a proposed participation model must: (i) 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; (ii) incorporate bidding parameters that reflect and account for the physical and operational characteristics of electric storage resources; (iii) 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; (iv) establish a minimum size requirement for participation in the organized wholesale electric markets that does not exceed 100 kW; and (v) 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”).

With respect to the second proposal, FERC proposed to require each RTO/ISO to revise its tariff to allow distributed energy resource aggregators to participate directly in RTO/ISO markets by permitting such 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. FERC expansively defined the term “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” and noted that these resources may include, but are not limited to, “electric storage resources, distributed generation, thermal storage, and electric vehicles and their supply equipment.” FERC also proposed to require each RTO/ISO to establish market rules to allow distributed energy resource aggregators to participate directly in organized markets, and that these market rules must consider the following principles: (i) eligibility to participate in organized wholesale electric markets through a distributed energy resource aggregator; (ii) locational requirements for distributed energy resource aggregations; (iii) distribution factors and bidding parameters for distributed energy resource aggregations; (iv) information and data requirements for distributed energy resource aggregations; (v) modifications to the list of resources in a distributed energy resource aggregation; (vi) metering and telemetry system requirements for distributed energy resource aggregations; (vii) coordination between the RTO/ISO, distributed energy resource aggregator, and the distribution utility; and (viii) market participation agreements for distributed energy resource aggregators.

Also on November 17, 2016, FERC issued a parallel NOPR in which it proposed to revise its regulations to require all newly interconnecting large and small generating facilities, both synchronous and non-synchronous, to install and enable primary frequency response capability as a condition of interconnection (see November 21, 2016 edition of the WER).

Comments are due within 60 days of publication of the NOPR in the Federal Register. A copy of the NOPR is available here.