United States: FERC Orders On PJM's Frequency Regulation Market Give Energy Storage Providers Another Recent Win

On March 30, 2018, the Federal Energy Regulatory Commission (FERC or the "Commission") issued separate orders (i) partially granting one of two challenges to PJM Interconnection, L.L.C.'s (PJM) frequency regulation ("Regulation") market reform1 and (ii) rejecting PJM's proposed operational enhancements to its Regulation market ("October 2017 Proposal").2 Given the overlap in issues raised during the proceedings, the Commission also established a technical conference to explore PJM's Regulation market design under its requirement that wholesale electricity market operators compensate for Regulation service "based on the actual service provided."3

To maintain reliability on its transmission system, PJM procures Regulation service (i.e., the instantaneous injection or withdrawal of power to balance supply and demand) through a market mechanism that compensates resources for their ability to accurately adjust output or consumption in response to an automated signal sent by PJM.4 While PJM historically procured Regulation service from coal-fired steam plants and natural gas combustion turbines, changes to PJM's Regulation market following FERC's Order No. 755 contributed to a 236 MW increase of installed energy storage capacity in PJM from 2012 to 2016, with more than 90 percent of that capacity participating in the Regulation market.5 According to a recent Moody's assessment, however, subsequent reform to PJM's Regulation market "imperil[ed] the income streams for many" energy storage projects,6 leading to the challenges described herein.   

Together with Order No. 841, FERC's orders, partially granting one of those challenges and rejecting proposed changes that may have further imperiled energy storage providers in PJM, demonstrate its continued commitment to accommodating energy storage's operational characteristics and service capabilities in the wholesale electricity markets. The orders thus serve as an interim win for energy storage providers in PJM while they await Order No. 841's two-year deadline for larger, widespread reforms.

PJM's Frequency Regulation Market

PJM employs two dispatch signals for the procurement of Regulation service: a "RegA" signal for slower, sustained-output resources, such as coal-fired steam plants and natural gas combustion turbines, and a "RegD" signal for faster, dynamic resources, such as energy storage. In its market-clearing process, PJM adjusts a Regulation resource's two offer prices—reflecting the amount of available capability (a capacity offer) and the amount of work provided, or "mileage" (a performance offer)—using a benefits factor curve (BFC) to weigh the tradeoffs between the signals on a comparable basis.7

In 2015, PJM revised the BFC methodology—in a business manual rather than its tariff, which would have required a FERC filing—to mitigate operational issues caused by an oversupply of RegD resources. As PJM observed, the BFC was originally designed to be "unconditionally energy neutral over a 15-minute interval," which led RegD resources to "maintain power balance over the interval, through the neutrality reset, regardless of" the grid's reliability needs.8 Revisions to the BFC therefore capped the share of RegD resources needed to meet PJM's total Regulation requirement at 40 percent—down from an original cap of 62 percent—and established a 26.2 percent cap for RegD resources providing Regulation service during certain morning and evening "excursion hours."

In January 2017, PJM modified the RegD signal to be "conditionally neutral" over 30 minutes to further enhance operational efficiency and better integrate the two dispatch signals. Broader reforms followed in PJM's October 2017 Proposal, where PJM proposed to (i) replace the BFC with a "Regulation Rate of Technical Substitution Curve"; (ii) modify performance scoring in its market-clearing process to focus on the single attribute of precision; (iii) substitute "effective megawatts" for the "mileage" component in PJM's settlement of performance payments; and (iv) revise the calculation of lost opportunity costs.

Energy Storage Complaints

The Energy Storage Association (ESA) filed a complaint challenging PJM's changes to the BFC methodology and the January 2017 modification to the RegD signal. On the BFC, ESA argued that such changes should have been filed at FERC, since the BFC directly affects the wholesale rate. On the RegD signal modification, ESA argued that PJM is effectively asking "RegD resources . . . to maintain any output level for any length of time" such that energy storage resources "designed for PJM's RegD signal may no longer be physically capable of providing Regulation service consistent with their operational characteristics."9

Renewable Energy Systems Americas and Invenergy Storage Development, LLC also filed a complaint challenging only the January 2017 RegD signal modification, alleging a similar claim to ESA: the modification forces energy storage resources to "'either modify their technology at significant'" cost, "'or no longer participate in . . . [a] market for which they were specifically designed.'"10

FERC Orders and Technical Conference

The Commission partially granted ESA's complaint and ordered PJM to include the BFC and the parameters governing its Regulation dispatch signals in its tariff. Since the BFC "adjust[s] the offer prices of RegD resources," the Commission explained, "it directly affects . . . the rates, terms, and conditions of Regulation service."11 The Commission therefore found the PJM tariff to be unjust, unreasonable, unduly discriminatory, or preferential by failing to include the BFC methodology "and the parameters governing its RegD signal."12

The Commission was likewise critical of PJM's October 2017 Proposal, which it found to be inconsistent with Order No. 755 and the Commission's implementing regulations. Specifically, the Commission concluded that PJM's substitution of "effective megawatts" for the "mileage" component in the settlement of performance payments violated Order No. 755's requirement that "'[a] resource's performance must be measured based on the absolute amount of regulation up and regulation down it provides in response to the system operator's dispatch signal.'"13 The Commission did not discuss the October 2017 Proposal's additional proposed reforms, given PJM's statement that the four components are "interdependent," but welcomed a revised filing that "fall[s] within [Order No. 755's] framework . . . to ensure just and reasonable and not unduly discriminatory or preferential rates."14

In its complaint order, the Commission also established a technical conference to explore "the purposes for which PJM procures Regulation service from Regulation resources," noting that the procurement of "Regulation service for purposes other than moment-to-moment balancing could . . . negatively affect the ability of [RegD] resources to fully participate in the Regulation market."15 The conference will also examine PJM's Regulation market design with respect to the requirements of Order No. 755, with particular attention to PJM's two-part market-clearing and settlement system.

What's Next?

PJM recently indicated that it will refile the three components of its October 2017 Proposal left untouched by the Commission.16 As such, energy storage providers should closely monitor PJM's stakeholder process and any subsequent filing, as well as developments related to the Commission's technical conference on PJM's Regulation market—the date of which has not been set.


1 Energy Storage Ass'n v. PJM Interconnection, L.L.C., 162 FERC ¶ 61,296 (2018) ("Complaint Order").

2 PJM Interconnection, L.L.C., 162 FERC ¶ 61,295 (2018) ("PJM Order").

3 See 18 C.F.R. § 35.28(g)(8) (2018); Frequency Reg. Compensation in the Organized Wholesale Power Mkts, Order No. 755, FERC Stats. & Regs. ¶ 31,324 (2011) (Order No. 755), order on reh'g, Order No. 755-A, 138 FERC ¶ 61,123 (2012).

4 Learning Center: Regulation Market, PJM, https://learn.pjm.com/three-priorities/buying-and-selling-energy/ancillary-services-market/regulation-market.aspx (last accessed Apr. 18, 2018).

5 The design and application of utility-scale battery storage varies by region, EIA (Feb. 28, 2018), https://www.eia.gov/todayinenergy/detail.php?id=35132.

6 Peter Maloney, Project finance getting more viable for energy storage, Moody's says, Utility Dive (Mar. 21, 2018), https://www.utilitydive.com/news/project-finance-getting-more-viable-for-energy-storage-moodys-says/519701/.

7 Complaint Order at PP 5-6.

8 PJM Order at P 14.

9 ESA, Complaint, Docket No. EL17-64-000, at 23, 29 (filed Apr. 13, 2017).

10 Complaint Order at P 23.

11 Id. P 104.

12 Id. P 102.

13 PJM Order at P 52.

14 Id. PP 55-56.

15 Complaint Order at P 111.

16 PJM Market Implementation Committee Briefs: April 4, 2018, RTO Insider (Apr. 9, 2018), https://www.rtoinsider.com/pjm-market-implementation-committee-market-power-test-90121/.

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