On May 16, 2019, FERC denied several rehearing requests and partially granted clarification of its Order No. 841 regarding the participation of electric storage resources (“ESRs”) in regional markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) (“Order No. 841-A”).  Most notably, FERC upheld its decision not to adopt a state opt-out of ESR participation in wholesale markets.  Commissioner McNamee issued a partial dissent discussing the need to recognize states’ interests in the impacts of Order Nos. 841 and 841-A.

On February 15, 2018, FERC issued Order No. 841 requiring each RTO/ISO to revise its Open Access Transmission Tariff (“OATT”) to enable wholesale market participation by ESRs, including those located on the interstate transmission system, on a distribution system, or behind the meter (see February 20, 2018 edition of the WER).  Among other things, FERC asserted its exclusive jurisdiction, pursuant to the Federal Power Act (“FPA”), over wholesale market participation of ESRs, even if connected at or below distribution-level voltages; required that any resales of power from ESRs back to RTO/ISO markets be at the wholesale locational marginal price (“LMP”); and required RTOs/ISOs to establish a minimum size requirement for ESR participation that does not exceed 100 kW.

Several petitioners requested rehearing and clarification of Order No. 841.  Among other things, several parties argued that FERC must provide relevant state electric retail regulatory authorities (“RERRAs”) with an opt-out of the Order’s storage provisions similar to that afforded to demand response resources. In addition, petitioners also challenged FERC’s LMP requirement for ESR energy sales back to RTOs/ISOs, and the minimum 100 kW size.  Participants also sought clarification of various other aspects of Order No. 841, including how much flexibility RTOs/ISOs have in accounting for ESR physical and operational characteristics; whether FERC will entertain proposals for non-facility-specific rate for wholesale distribution service for charging ESRs; and what applicable transmission charges should apply when an ESR is charging to resell energy at a later time.

In Order No. 841-A, FERC denied the requests for rehearing and denied in part and granted in part the requests for clarification.  In denying the various requests for rehearing, FERC first rejected arguments that it must, or at least should, allow RERRAs to opt-out of allowing ESRs to participate in RTO/ISO markets.  FERC analogized to the Supreme Court’s decision upholding of FERC’s jurisdiction over wholesale demand response participation and a FERC 2018 declaratory order on wholesale energy efficiency resources participation (see February 2, 2016 and April 25, 2018 editions of the WER, respectively), and held that it was not required to adopt a state opt-out.  FERC reasoned that determining which resources are eligible to participate in the RTO/ISO markets fell within its jurisdiction over wholesale markets under the FPA. Moreover, FERC declined to exercise its discretion to grant an opt-out, reasoning that the benefits of wholesale ESR participation outweighed any policy considerations to the contrary.

Second, FERC denied requests for rehearing challenging its authority to require that electricity sold by RTO/ISO markets to an ESR for resale be at the wholesale LMP.  FERC clarified that an ESR purchasing energy directly from the RTO/ISO wholesale markets that it will then resell back to the wholesale markets is not a retail customer, but is a public utility engaging in wholesale exchanges.  Therefore, this ESR activity does not bypass the distribution utility’s ability to sell at retail, because the electricity will be resold into the RTO/ISO markets.

Third, FERC denied requests for rehearing concerning the minimum size requirement for ESRs.  FERC reaffirmed its finding that requiring each RTO/ISO to set a minimum ESR size requirement not to exceed 100 kW “balances the benefits of increased competition with the potential need to update RTO/ISO market clearing software to effectively model and dispatch smaller resources.”

Finally, in responding to the various requests for clarification, FERC confirmed that RTOs/ISOs are given flexibility in how to account for the physical and operational characteristics of ESRs. FERC also stated that it would not dismiss as per se unreasonable any proposal to establish a non-facility-specific rate for wholesale distribution service to an ESR for its charging.  Finally, FERC clarified that, with regard to applicable transmission charges, an RTO/ISO may propose to apply its existing rate structure for transmission charges to an ESR that is charging at wholesale but is not being dispatched by the RTO/ISO to provide a service in the RTO/ISO markets.  FERC also modified its regulations to clarify that to the extent ESRs are dispatchable, RTOs/ISOs are required to allow such ESRs to participate as dispatchable resources and to set the market clearing price in the respective market.

Commissioner McNamee issued a separate opinion in which he partly concurred and partly dissented with Order No. 841-A.  Commissioner McNamee stated that the majority “fail[ed] to recognize the states’ interests in ESRs located behind a retail meter (behind-the-meter) or connected to distribution facilities.”  Accordingly, Commissioner McNamee indicated that Order Nos. 841 and 841-A did not fully consider their impact on local distribution systems, the states regulating those systems, and retail customers.  Commissioner McNamee stated that he reads FERC’s authority under the FPA differently and would have granted rehearing requests on: (1) whether FERC has jurisdiction over whether ESRs connecting at the distribution level or behind the meter may participate in the RTO/ISO markets through the ESR participation model; and (2) FERC’s refusal to provide states the opportunity to opt-out of the participation model.