The Federal Energy Regulatory Commission (FERC) has taken another important action to open energy markets to energy storage facilities. In November 2016, FERC released a Notice of Proposed Rulemaking (NOPR) to consider issues relating to the deployment of distributed energy resources (DERs) and energy storage assets connected to the transmission system, the distribution system, or behind a customer meter. (Please see our previous WSGR Alert discussing the NOPR.)

While recent executive actions, including the departure of Commission Chairman Norman Bay, have raised questions as to the timing and process of the NOPR, on February 1, 2017, FERC found that one of the largest energy markets in the U.S. was unnecessarily restricting competition by preventing electric storage resources from providing all the services that they are technically capable of providing.

In response to a complaint by a utility that owns a 20 MW battery, FERC found that Midcontinent Independent System Operator's (MISO's) tariff is "unjust, unreasonable, and unduly discriminatory or preferential because it unnecessarily restricts competition by preventing electric storage resources." FERC explicitly directed MISO to submit—within 60 days—tariff changes that "accommodate the participation of all electric storage resources, regardless of the technology, in all MISO markets that they are technically capable of participating in, taking into account their physical and operational characteristics." FERC acknowledged that its order puts MISO on a parallel path to the NOPR, but explained that where a complainant had met its burden to show the existing structure is unjust and unreasonable, "it is appropriate for MISO to remedy its unjust and unreasonable Tariff."

In its order, the Commission explained that limiting the participation of energy storage resources through the markets yields anticompetitive results, as it prevents the energy storage projects from capturing revenue streams for services that they are technically capable of providing, including capacity, energy, and ancillary services. While FERC acknowledged that MISO may need to make future tariff revisions to comply with the final rule that results from the NOPR process, FERC explained that MISO must—within 60 days—submit a filing to "remedy its unjust and unreasonable Tariff" by "proposing Tariff revisions that accommodate the participation of all electric storage resources, regardless of the technology, in all MISO capacity, energy and ancillary service markets that they are technically capable of participating in, in a way that acknowledges their unique and operational characteristics."

To comply with FERC's mandate, MISO must now begin a stakeholder process to solicit input for the development of the rules that will govern energy storage participation within its markets. In the normal course, the process of constructing and proposing market rules and operations for resources is led by the existing stakeholders, with load-serving utilities holding substantial influence in these processes. Participation by energy storage developers in this stakeholder process will help to ensure that stakeholders do not impose anticompetitive barriers to entry that prevent energy storage projects from receiving the stacked revenue streams for services that they are technically capable of providing. Project developers should also be aware that neighboring regional markets, as well as FERC, may use the MISO-developed model as the basis for energy storage participation models throughout the country.

For more information about FERC's recent order, please contact Todd Glass (415-947-2071) or any member of the energy and climate solutions practice at Wilson Sonsini.