New England Market Changes Denied as Discriminatory to Storage Technologies

On May 20, 2014, FERC denied proposed changes to the tariff governing the forthcoming ISO New England Inc. (“ISO-NE”) Regulation Market. ISO-NE and the New England Power Pool (“NEPOOL”) Participants Committee (jointly “New England Parties”) are in the final stages of crafting the design for the Regulation Market and anticipated the market being ready to implement as early as May 21, 2014, several months prior to its FERC approved start date of October 2014. In conjunction with seeking an advance to the start date, the New England Parties also sought to change the methodology by which regulation service providers were dispatched. However, FERC rejected the tariff changes, finding that the proposed revisions would cause limited-energy resources, such as storage technologies, to “face an unnecessary barrier to entry.”

Frequency regulation is an ancillary service whereby power is injected or withdrawn by facilities that respond to a system operator’s automatic generator signal control (“AGC”) signal, allowing regional transmission organizations (“RTOs”) and independent system operators (“ISOs”) to use regulation service to balance the grid. Most frequency regulation is provided by generators, but it can also provided by storage technologies such as flywheels and electric vehicles, demand resources, and possibly residential water heaters.

In 2011, FERC issued Order No. 755 to address market design issues involving compensation for frequency regulation service provided by participants in the organized wholesale electricity markets. See October 31, 2011 edition of the WER. In the order, FERC found that the old form of regulation service payment from RTOs and ISOs was unjust, unreasonable, and unduly discriminatory because it failed to acknowledge the speed of different ramping resources, and in some cases this led to inefficient economic dispatch. The New England Parties submitted tariff changes to implement the Regulation Market design in accordance with Order No. 755, and FERC accepted ISO-NE’s initial filing, with the Regulation Market slated to become live in October 2014.

Subsequent to FERC’s acceptance, the New England Parties submitted several changes to the Regulation Market. Of particular relevance, as originally accepted, the Regulation Market would have utilized an AGC dispatch method for generation resources and a separate dispatch method for alternative resources, such as storage technologies, that would take into account certain operational characteristics and information when doing its dispatch analysis. The New England Parties sought to change this system and instead dispatch both generators and alternative resources using the AGC dispatch method for generation resources. The New England Parties explained that the use of two methodologies required coordination and could limit ISO-NE’s ability to comply with reliability standards.

In denying the New England Parties request for changes to the dispatch method, FERC explained that the revisions, if accepted, “would restrict the ability of limited-energy resources, such as storage devices, to participate in the Regulation Market to the fullest extent possible while other resources would face no such restrictions.” FERC explained that such resources would be susceptible to penalties for non-performance based on their operational characteristics and this would force such resources to limit the amount of capacity that they offer. FERC offered guidance for creating a market that allows limited energy resources to effectively participate, pointing to two methods embraced by other RTOs and ISOs: (i) active charge state management, where the system operator specifically monitors the charge state of a storage resource and gives it dispatch instructions to maintain a certain charge level; or (ii) separate AGC signals for generation and for alternative resources and the appropriate coordination between them.

To view the order, click here.