DER Issues Raised by Storage Compliance Filing Comments

On February 7, 2019, comments were submitted to FERC on the six RTO/ISO Order No. 841 (storage) compliance filings. FERC will need to address several issues regarding energy storage resources (ESRs), which are also distributed energy resources (DERs). This summary does not address issues that apply to all ESRs, such as limits on qualifying for capacity payments, transmission charges being properly excluded, PJM’s 10-hour rule, etc. Rather, it focuses on comments relating to ESRs that are also DERs or are quite likely to be DERs. For example, if an issue raised assumes that the ESR is co-located with retail load, that issue is likely to involve DER ESRs. Overarching DER ESR Concerns The comments relating to DER ESRs reflect many similar concerns – namely that the ISO/RTO is not including in its tariff sufficient information about matters relating to the state-federal jurisdictional overlap. Such alleged “omissions,” however, may reflect a lack of knowledge of the degree to which similar issues have been resolved in the non-ESR DERs context. Moreover, distribution owners (DO) (not the ISO/RTO) should be setting terms and conditions for DER ESRs’ usage of DO systems, in the first instance, subject to state commission or FERC oversight, if the DO is regulated. Advanced Energy Economy, Tesla, and EDF Renewables all raise similar concerns that the ISOs and RTOs has not explained how DER and behind-the-meter (BTM) ESRs will access wholesale markets. This claim is somewhat odd in that DERs and BTM DERs have been accessing wholesale markets for decades in many states. Presumably, DER ESRs (whether BTM or in front-of the meter (IFOM)) will use the same processes and tools to interconnect and obtain service from their local utility to participate in the wholesale market as DERs use today. If such tools do not exist because of a lack of DERs, there are numerous states and DOs that can serve as models. There is nothing special or unusual about DERs participating in wholesale markets other than they (1) typically need to interconnect by asking their DO, rather than their ISO/RTO for interconnection service, (2) need to obtain wholesale distribution service (WDS) to sell some FERC-jurisdictional products to the market, and (3) DER ESRs will need WDS for charging purposes (when charging to resell). Only item (3) is unique to ESRs. Comments such as those submitted by DTE Electric Company (DTE) indicate that some DOs evidently have not had to address market DER participation and are not yet prepared for such participation. For example, DTE is concerned with MISO providing dispatch instructions to DER ESRs due to a lack of visibility. DTE also is concerned with conflicting directions being issued by the DO and MISO. Yet, these are all issues any DER participating in MISO’s wholesale markets today would have to deal with, regardless of Order No. 841. Where a DO is providing a state-jurisdictional service, it can turn to its state commission (or if unregulated, to itself) to propose appropriate rules and protections; where a DO is providing a FERC-jurisdictional WDS, it has the right to set the terms and conditions for such service in the first instance. FERC-jurisdictional interconnection service for DER ESRs, largely will have to abide by the pro forma SGIA, as perhaps modified to reflect the ISO/RTO’s existence. Advanced Energy Economy also raises in all dockets a concern about an ESRs’ opportunity costs where the ESR is co-located with retail load. Advanced Energy Economy argues that “opportunity costs are a key component of an ESR’s reference level” and that certain ESRs are used to ensure that a given [retail] customer’s demand does not exceed a certain threshold level. FERC, however, in developing market mitigation for ESRs should not consider an ESR’s role regarding managing the retail demand charge assessed a co-located retail customer. Wholesale and retail market considerations should be separated. FERC’s concern is wholesale markets, an ESR should not be permitted to set its wholesale opportunity cost based on retail rates. Some of the more specific concerns of DERs and DOs are discussed below. CAISO (ER19-468) The CAISO received relatively few comments on its compliance filing, perhaps because DER ESR participation in markets already is occurring. The comments of Advanced Energy Economy as well as those of the California Energy Storage Alliance contend that the CAISO Tariff did not address FERC’s admonition in Order No. 841 that ESRs using the “participation model” are not to be double charged for energy. Tesla’s comments accuse the CAISO of possibly double-charging for energy where an ESR is acting as demand response (an “NGR” in CAISO terms). But the CAISO explained why double charging would not occur, as either appropriate metering could address the situation, or if an ESR was participating also as demand response, only retail charges would apply, as NGR resources pay for energy at retail. This is exactly what FERC indicated in Paragraph 321 of Order No. 841, and was the appropriate result: i.e., where a local utility (i.e., a DO) will not or cannot separate an ESR’s wholesale and retail usage, retail charges will be applied and the ISO/RTO cannot assess a wholesale charge for energy. MISO (ER19-465) The Midwest TDUs raise the issue of the MISO Tariff not addressing issues relating to ESRs that are also DERs being required to abide by various DO requirements. The Midwest TDUs appear correct that while MISO has produced a form agreement, it does not commit the ESR to having to obtain WDS to charge its DER ESR, although it must obtain such service for discharge. The fact that the MISO has not addressed inbound WDS, however, means that a FERC-jurisdictional DO can make all relevant decisions about that service and propose them to FERC, as is its right under FPA Section 205. The omission does not prevent the DO from charging for a service it provides. A DO may charge for that service, as FERC only ruled on charging for inbound transmission service in Order No. 841 and already confirmed years ago that inbound WDS charges could be applied by a DO. At the least, when the DO studies the interconnection of a DER ESR, it may charge for upgrades to the distribution system needed for the additional load. Indeed, in rejecting SCE’s attempt to offer a free non-firm inbound WDS, the Commission indicated that the charging load had to be treated in a non-discriminatory fashion compared to other wholesale load, which load in most regions does pay for inbound WDS. Other concerns of the Midwest TDUs involve how MISO must react if the DO determines that the ESR is violating any agreement with the DO. That is, if an DER ESR violates its agreement with a DO relating to service provided by the DO, should the ESR’s ability to participate in the wholesale market be impacted automatically. These issues are valid; but the issues can be answered by DOs in their interconnection agreements and WDS tariffs/agreements. As a policy matter, FERC already allows DOs to indemnify themselves from any consequential damages claims resulting from DER ESRs breaching obligations relating to their interconnections; similar policies should apply to a DER ESR’s use of a DO’s distribution system. DOs concerned with such issues should file agreements with FERC that address such concerns. As in the CAISO, the Midwest TDUs have serious concerns over distinguishing when an ESR should be paying for retail versus wholesale energy. This issue also can be addressed by agreements between the ESR and DO, such as requiring the ESR to provide all relevant MISO data concerning the ESR to the DO as a condition of using the DO’s distribution system at a metering point where retail load is co-located. This information should allow the DO to determine exactly how much WDS versus retail distribution service was provided and thus how much energy consumed by the DER ESR should be treated as wholesale (accounting for losses, as needed). Again, for a non-jurisdictional, DO such a requirement can be readily implemented without review. FERC-jurisdictional DOs in some cases may be interconnecting DER ESRs pursuant to state jurisdiction (if the first-use test applies), such that they and the state can control ensure access to information needed to issue accurate retail bills. The MISO’s permission is not necessary to enforce a DO’s own contracts or tariffs. NYISO (ER19-467) The most controversial issue in the NYISO pleadings is the NYISO’s alleged prohibition on dual participation in “wholesale” and “retail” markets. These terms, “wholesale and retail markets” are rather confusing; the real issue is whether an ESR can sell FERC-jurisdictional and state-jurisdictional products and what rules should govern such an ESR’s sales of each if there is the potential that sale of one product will interfere with the sale of another. For example, if both products require dispatch control by the buyer, such conflict must be resolved. Typically, DER ESRs would be the type of entity participating in sales of products subject to state jurisdiction, such as distribution deferral or a state-demand response program. The NYISO’s restriction, however, is not an actual prohibition, but rather a NYISO failure to address dual participation at this juncture. A failure to address an issue is not a prohibition. In any case, the issue seems largely one for the state to address in any case. If the NYISO Tariff is clear as to: (1) what payments will be made for what products; (2) who has title to the product sold; (3) and the degree of control the NYISO must be able to assert over the ESR’s dispatch for the ESR to be entitled to payment, the state can then determine compensation and rules for products subject to its own jurisdiction. For example, if a state wishes to compensate a DER ESR for distribution deferral that requires DO dispatch control, even if the DO cannot in fact dispatch the ESR due to its NYISO market participation, that remains the state’s choice, subject to reasonableness challenges by utilities, ratepayer advocates, and others who may believe that the state compensation scheme is unjust. As long as the DO knows what NYISO programs an ESR is participating in, as it must, to determine jurisdiction over the ESR’s interconnection and to deal with the provision of WDS, the DO should be in a position to determine and inform the ESR and the state as to the ESR’s eligibility for other programs. For example, a DER ESR enrolled in a net metering program should be subject to an interconnection agreement or tariff that forbids sales of energy or capacity to third parties in order to retain state jurisdiction over the interconnection agreement and prevent double-selling of certain products. An ESR found to violate such interconnection agreement can be disconnected for breach. FERC cannot prohibit a DO from asking an ESR about its wholesale market business plans or if it is part of a qualifying facility, because jurisdiction over interconnection depends on such factors. PJM (ER19-469) A small group of transmission owners raise various issues concerning participation by DER ESRs, arguing that their systems were not designed for two-way power flows. As discussed in the section on over-arching concerns, these comments seem to reflect a lack of experience with high DERs penetration and market participation. These owners the need to update their procedures and practices applicable to DER interconnections. Distribution system upgrades may be needed. Again, some DOs would have such procedures in place, as they already deal with DERs on a regular basis. These transmission owners seek FERC re-confirmation of policies established long ago concerning cost responsibility for distribution upgrades, where a FERC-jurisdictional service is causing the need for the distribution upgrade. There is no need to change such policies. That said, if a state commission decides that that DER ESRs are so vital to its desired resource mix that a DO should invest in modernizing its distribution system, the state commission may encourage or mandate such upgrades allocating costs as it sees fit. DOs, DER ESRs, non-DER generators, and retail ratepayers all will have the opportunity to support or oppose such cost allocation before the state commission. The New Jersey BPU (NJ BPU) also is concerned over issues involving DER interconnections. Implicitly discussing the “first-use” test, it notes that many distribution facilities may become subject to the PJM Tariff’s interconnection procedures and tri-lateral interconnection agreements due to second uses. This is true because the PJM drafted its Order No. 2003 compliance tariff this way (without objection). The PJM could have opted for other models, such as MISO or CAISO, where DOs are wholly responsible for FERC-jurisdictional interconnection agreements with DERs and agreements are bilateral. Indeed, if the interconnection processing of too many DER ESRs overwhelms the PJM queue, it could adopt such an approach at the behest of stakeholders such as the NJ BPU. The Public Interest Organization (PIO) appears confused as to the PJM’s interconnection requirements. It states that an already interconnected DER ESR must go through the PJM interconnection process to participate in the market. Actually, such a DER ESR interconnected under state jurisdiction must request a Wholesale Market Participation Agreement, not an interconnection service agreement (ISA) from PJM. The cited PJM slides say exactly that. A change in jurisdiction over the existing interconnection can occur if the ESR happens to be a qualifying facility, but certainly PJM does not require all DER ESRs to interconnect under its procedures, as the PIO implies. Moreover, PJM does not require already-interconnected DERs to enter into a trilateral ISA just because interconnection jurisdiction has changed. Summary In sum, the ESRs that are DERs, in most cases are not presenting new jurisdictional or substantive issues. They should be treated largely in same manner as other DERs, albeit they raise one new issue that other DERs do not – WDS for their charging load. But, most DOs have WDS load customers (in the form of towns, cities, cooperatives, irrigation districts), and know how to study and address distribution wholesale load interconnections. The ISOs/RTOs should not be in control of all aspects of DER ESR market participation, as DOs have a vital role to play and are entitled to submit their own filings or set their own rules if unregulated to address certain aspects of participation. State commissions likewise have the right to make decisions regarding participation in their own markets that can be challenged by DOs, ESRs, and other stakeholders, if they are problematic.