On January 21, 2010, FERC issued a declaratory order that Western Grid Development LLC’s (“Western Grid”) battery storage devices (“Projects”) are wholesale transmission facilities subject to FERC jurisdiction.  FERC also granted Western Grid’s request for incentive rate treatment for the Projects.  However, FERC reiterated that since energy storage devices do not fit easily into the category of traditional generation, transmission, or distribution, FERC will assess storage devices on a case-by-case basis.

Western Grid’s Projects will be built along the California Independent System Operator Corporation’s (“CAISO”) grid.  Through the use of sodium sulfur batteries ranging from ten to fifty MW, the Projects will provide voltage support and relief from thermal overload situations.  There will be no commercial sale of electricity.  Western Grid claims that the Projects’ advanced transmission technology will provide transmission services at a lower cost than traditional transmission upgrades while having a smaller adverse environmental impact. 

FERC classified the Projects as transmission facilities for several reasons.  First, FERC noted that the Projects will be operated under the direction of the CAISO, similar to other transmission assets.  Since Western Grid will have to energize the batteries used in the Projects, CAISO will maintain its independence.  Second, Western Grid will only keep revenues from the transmission access charge; any revenues from charging/discharging the Projects will be credited to customers through its participating transmission owner tariff.  Third, while FERC admitted that the Projects have some characteristics of generation, the Projects should be considered transmission under the specific facts and circumstances presented by Western Grid.  Notably, the Projects as proposed are not converting another fuel source into electricity.  Instead, the Projects will store power taken from the grid to be used and discharged back on the grid at a later time. 

FERC also approved several rate incentives for the Projects, including a Construction Work In Progress rate base, a fifty basis point return on equity adder, a deferred cost recovery of pre-commercial expenses, and a hypothetical capital structure of fifty percent debt and fifty percent equity.  However, FERC’s declaratory order is conditioned on CAISO’s approval of the Projects and denied Western Grid’s request for abandoned cost recovery.  The Commission stated that CAISO’s approval was necessary for granting incentive rate treatment because Western Grid has not demonstrated that the Projects ensure reliability and/or reduce the price of delivered power by reducing congestion, as required under Section 219 of the Federal Power Act.

The full declaratory order is available at FERC’s website at http://www.ferc.gov/whats-new/comm-meet/2010/012110/E-6.pdf.