Comments on FERC’s Notice of Proposed Rulemaking on energy storage and distributed energy resources
Pursuant to the Federal Energy Regulatory Commission’s (the “Commission” or “FERC”) Notice of Proposed Rulemaking (“NOPR”) issued on November 17, 2016, the R Street Institute (“RSI”) respectfully submits these comments in response to the Commission’s proposed revisions to remove barriers to the participation of electric storage resources and distributed energy resource aggregations in the capacity, energy and ancillary service markets operated by regional transmission organizations (RTO) and independent system operators (ISO). The Commission specifically proposed to require each RTO and ISO to revise its tariff to (1) establish a participation model consisting of market rules that, recognizing the physical and operational characteristics of electric storage resources, accommodates their participation in the organized wholesale electric markets and (2) define distributed energy resource aggregators as a type of market participant that can participate in the organized wholesale electric markets under the participation model that best accommodates the physical and operational characteristics of its distributed energy resource aggregation.
ABOUT R STREET INSTITUTE
The R Street Institute (RSI) is a pragmatic, free market oriented think tank. RSI aligns with such thinkers as Milton Friedman, Friedrich Hayek, Ronald A. Coase, James M. Buchanan and Arthur C. Pigou. RSI favors consumer choice; regulation that is transparent and applied equitably; and systems that rely on price signals rather than central planning.
RSI recognizes market failures – including public goods and externalities – are valid concerns governments must sometimes address. RSI also recognizes the nature of a democratic society often means agreeing on a compromise that may not always represent the first, best solution. RSI sees its role as offering research and analysis that advance the goals of a market-oriented society and efficient government, with the full realization that progress often occurs incrementally. In other words, RSI looks for free market victories on the margins.
In 2016, RSI launched an electricity policy program to research and promote consumer choice and economically sound market and rate design. RSI believes competitive electricity markets and consumer choice yield superior economic and environmental results relative to the regulated monopoly model.
COMMENTS OVERVIEW
RSI agrees with the need for extensive reform to enhance market performance by removing artificial barriers to entry for energy storage and distributed energy resources (DERs). RSI requests that the Commission pursue actions that reduce or eliminate such discriminatory market rules and practices and clearly avoid preferential treatment for energy storage and DERs. The NOPR is effectively two proposed rulemakings in one, each on a very complex and novel subject. Proceeding concurrently on these subjects, given their degree of overlap, is prudent. However, the Commission may receive higher quality comments and compliance filings if barriers to energy storage and DERs are broken into separate NOPRs.
Critics sometimes argue that accommodations to allow new technologies to participate in a market is preferential treatment or favoritism. The validity of this argument hinges on the nature of the accommodations. The NOPR is consistent with established principles of market design in aiming to reduce artificial barriers to entry and foster competition, which benefits market performance.
Proactive market design is not merely constrained to enhancing static economic efficiency but stimulating dynamic economic efficiency. The latter requires open markets that send transparent prices, signaling the value of advancing pre-commercial resources. Waiting to adjust market design to commercial technologies inhibits new entry and innovation, which thrives on transparent price signals and ease of market entry. Ambiguity in unconventional resource value and artificial barriers to entry create an information shortage to innovators and hinders their ability to attract capital by artificially inflating investment risk. The NOPR proposes critical reforms to counteract these concerns for two classes of resources. It will enhance both static and dynamic efficiencies.
Artificial barriers take a variety of forms, from directly prohibiting participation to ambiguity in market rules. A principled approach will remedy these more efficiently than an overly prescriptive decree of market design changes. Clear principles and compliance criteria are critical as similar attempts to reform market design have yielded wide variance in compliance quality (e.g., Order No. 755 compliance). RSI requests the Commission create a policy framework that stimulates continual learning and adoption of best practices.
For the full comments, see the PDF attached above.
