Order No. 841 (Storage Final Rule) Deficiency Letters – The Double Charging Issue

On April 1, 2019, FERC issued deficiency letters to all the ISOs/RTOs that submitted Order No. 841 (Storage Rule) compliance filings: CAISO, ISO-NE, MISO, NYISO, and PJM. Generally such letters ask the RTOs and ISOs to explain in much greater detail how their tariff provisions permit energy storage resources (ESRs) to participate in their markets. It appears that FERC wants each requirement imposed by Order No. 841 to be discussed in the specific context of ESRs, such that if a tariff provision does not specify that ESRs are covered or subject to a provision, the ISO or RTO must explain why the provision nonetheless applies to ESRs. There are only a handful of Order No. 841 compliance deficiency letter issues relevant to distribution-connected ESRs (i.e., a form of DER). The most interesting question actually arguably is relevant to both distributed ESRs and transmission-connected ESRs, although in one deficiency letter (MISO) the question was asked only as to distributed-ESRs. That question is: How is the ISO/RTO is going to prevent ESRs from paying twice for “charging for later discharge” energy? It will be interesting to see what “prevention methods” FERC finds adequate. Under Order No. 841, FERC found that an ESR should pay the wholesale market price (the nodal LMP in particular) for charging energy used for later discharge in the wholesale market. FERC was not “persuaded by commenters who argue that developing metering practices that distinguish between wholesale and retail activity is impractically complex.” Even though FERC expects that wholesale and retail loads typically can be distinguished, it did recognize that, particularly for distributed DERs with retail load, the task may be too complex. In Paragraph 321 of Order No. 841, FERC stated: "we require each RTO/ISO to prevent resources using the participation model for electric storage resources from paying twice for the same charging energy. To the extent that the host distribution utility is unable – due to a lack of the necessary metering infrastructure and accounting practices – or unwilling to net out any energy purchases associated with a resource using the participation model for electric storage resources’ wholesale charging activities from the host customer’s retail bill, the RTO/ISO would be prevented from charging that resource using the participation model for electric storage resources electric wholesale rates for the charging energy for which it is already paying retail rates." This paragraph gives ISOs and RTOs an “out” if a distributed ESR is located within a distribution utility that will not net out wholesale purchases from the retail bill. In such cases, the RTO/ISO should not bill the ESR at wholesale for its charging energy. Indeed, where load is not distinguished, answering FERC’s deficiency letter question may be quite simple. Several ISOs/RTOs explained on compliance that they would not assess a wholesale charge unless the retail and wholesale loads could be distinguished:

• MISO Tariff Attachment HHH, Section 6 states “To the extent the [ESR] is paying retail rates for energy associated with wholesale charging activities, the [ESR] shall complete Appendix 3 to this agreement in order for MISO to exclude settlement at wholesale prices for the same charging energy.”
• The CAISO provided ESRs several options, including one where the CAISO does not charge such ESRs for their charging because the distribution utility already has done so at a retail rate.

The difficult and interesting question is what happens if the ISO/RTO has a method for distinguishing wholesale and retail load. All the ISOs/RTOs indicated that they would provide an option to ESRs to distinguish their loads and that therefore double-charging should not occur:

• CAISO explained that one option was for an ESR to become scheduling coordinator metered entity and work with the distribution company to distinguish between charging energy and station power.
• MISO noted that it would require Market Participants to separately meter ESRs and any variances or special arrangements necessary to meet tariff metering requirements would be documented in the Distribution ESR Agreement if an ESR sought to distinguish its retail and wholesale load.
• ISO-NE explained that with its metering and wholesale load asset model, retail-wholesale double billing would only occur in the case of an error.
• The NYISO stated that it had discussed this requirement with the New York Transmission Owners and understood that New York’s utilities do not intend to invoice Energy Storage Resources for Energy withdrawals for wholesale market participation.
• PJM created different categories of charging energy and indicated that the ESR would purchase the wholesale energy and a chartered load serving entity would purchase the energy that would be sold at retail to an ESR.

These answers apparently were unsatisfying to FERC’s analysts. The ISOs/RTOs evidently neglected to explain, if wholesale and retail loads are distinguished, how they would prevent the local distribution utility from “going rogue” and nonetheless charging all an ESR’s load at retail. The question is whether FERC will be satisfied with a tariff provision that states that if an ESR’s wholesale and retail loads can be distinguished, the relevant load serving entity may only bill for the ESR for energy deemed by the ISO/RTO to be non-wholesale. Alternatively, FERC could be implying that the ISO/RTO must police the actions of what may be hundreds of utilities, some of which may not be direct market participants (e.g., a cooperative that is a member of a G&T cooperative who serves as market participant), and take some sort of punitive action if it finds a violation of a “load serving entities may only bill an ESR for its retail load” tariff provision. Placing the ISO/RTO in the role of retail billing detective, judge, and jury raises questions regarding the scope of ISO/RTO authority as well as jurisdictional issues that may be more appropriate for FERC itself to decide. A ruling by FERC that a particular sale of energy to an ESR was a wholesale sale would provide an ESR ammunition needed to convince a load serving entity that its bill for the same energy was improper and preempted. In sum, it will be interesting to see exactly what role FERC envisions for ISOs/RTOs in the prevention of double billing in cases where an ESR’s wholesale and retail load are distinguished, a problem that is currently only theoretical in nature.