The Federal Energy Regulatory Commission (FERC) approved tariff terms for a Regional Transmission Operator (RTO) to treat electric storage resources as transmission facilities under certain circumstances. Previously, FERC approved only one case-specific proposal to treat storage as transmission. Treatment as a transmission facility provides additional deployment opportunities for storage resources and allows cost recovery through cost-of service transmission rates instead of relying entirely on energy market revenues. Commissioner James Danly, however, dissented from the tariff order, preferring to maintain the bright line between generation and transmission previously established by FERC.
FERC’s order approving the tariff should be of interest to a wide range of electricity market participants, including utilities, generation companies, customers and investors in storage and other electricity resources as it may set precedent for RTOs with respect to the terms and conditions under which storage resources may qualify as transmission resources.
While storage resources generally operate as supply-side resources that earn revenue through energy market participation, their ability to both inject and withdraw energy from the grid allows them to be operated in a way that may substitute for potentially more costly transmission facilities. The Midcontinent Independent System Operator (MISO) proposed tariff provisions to allow a storage facility to be treated as a transmission-only asset if it is selected to resolve issues identified in a MISO regional transmission plan. MISO refers to this new type of resource as a “storage facility as a transmission-only asset” (or SATOA). A SATOA must be under the functional control of MISO and may only participate in MISO’s markets to the extent necessary to allow the SATOA to provide the services for which it was selected in the regional plan. As discussed in an earlier post to this blog, MISO’s proposal raised issues that FERC set for discussion in a technical conference that was held May 4, 2020.
Prior to the MISO tariff order, FERC viewed favorably only one proposal to classify electric storage resources as transmission for cost-based recovery purposes. In 2010, FERC addressed a proposal from Western Grid Development LLC to install on the California ISO system batteries that, according to Western Grid, would facilitate reliability. FERC also issued a policy statement in 2017 that provided guidance regarding the ability of electric storage resources to receive cost-based rate recovery for certain services, such as transmission or grid support services, while also receiving market-based revenues for providing separate market-based rate services.
MISO’s tariff provisions will allow a storage facility to be approved as the preferred solution to issues identified in a regional transmission plan and, as such, be treated as a transmission-only asset. The tariff includes: (1) an evaluation process for a storage resource to be included in a regional plan; (2) cost and performance factors to be considered in that evaluation; (3) criteria for selecting a storage resource as the preferred solution; and (4) development of operating guides for each storage resource serving a transmission function.
The transmission-only storage resources will incur costs and earn revenue through the energy markets as they purchase energy when charging and sell energy when discharging, as directed by MISO to perform transmission service. To ensure the storage resources do not collect more than their costs from their market activities directed by MISO, any revenues collected from market activities will be credited through transmission rates.
The FERC order
FERC finds that MISO’s proposal to make storage resources eligible for cost recovery as a transmission facility is just and reasonable because the resources’ operation would be limited to serving a transmission function, and thus it is appropriate to recover costs in the same manner as transmission facilities in the same transmission plan project category.
The order finds that the tariff is consistent with precedent “recognizing the viability of classifying electric storage facilities as transmission assets for cost-recovery purposes.” FERC recognizes, however, that it is breaking new ground. The order notes that, while MISO’s proposal is broader than Western Grid’s facility-specific proposal, the Western Grid order and the 2017 policy statement stated “that Western Grid does not necessarily present the only scenario in which the Commission might conclude that storage costs can be included in transmission rates.”
In the tariff order, FERC addresses a large number of narrow technical and implementation issues. On broader issues, FERC found that the proposal preserves MISO’s independence, even though MISO must assert functional control over the storage resource in order to address a transmission need. This is because a SATOA’s owner is responsible for managing the facility’s state of charge to ensure readiness to address that need. FERC also found that a SATOA’s operations are unlikely to have significant real-time energy market impacts and thus only a limited impact on market prices. SATOA’s are not eligible to participate in MISO’s capacity, ancillary services, or day-ahead energy markets.
FERC rejected arguments that MISO has not justified its proposal to treat SATOAs as transmission assets because all storage facilities (and similar supply-side resources) can provide the same benefits acting as a market resource. The order says storage resource will not be included in transmission plans unless MISO has functional control of the asset. MISO would not have such functional control over a market resource.
FERC also rejected the notion that MISO’s proposal could include any generation asset in the definition of transmission. The order notes that a storage asset must meet a multitude of requirements and pass muster in various comparative analyses against other potential solutions to show that is uniquely situated to act as the preferred solution to a specific transmission issue and thus qualify as a SATOA.
Commissioner Danly’s dissent
Commissioner James Danly, the most recent appointee to the Commission by President Trump, dissented from the MISO order as “impermissibly blurring the line between generation and transmission.” The Federal Power Act recognizes that generation and transmission are two distinguishable categories of functions and reflects the real differences between them. The commissioner finds that MISO’s filing eliminates the distinction based on function and instead defines transmission facilities based on the service provided.
According to the dissent, “the output of generation is amenable to being sold in a competitive market construct in a way that building long-term, capital-intensive transmission infrastructure is not.” By assigning transmission status to facilities performing a generation function, MISO grants those facilities guaranteed recovery of cost and profit. The commissioner is concerned that expanding the definition of transmission to include facilities that inject energy into the grid will invite more requests for such treatment and FERC will find it challenging to reject them due to discrimination claims.
Commissioner Danly would “reject MISO’s filing and explicitly find that our holding in Western Grid was in error.”
 Western Grid Development, LLC, 130 FERC ¶ 61,056 (2010)