WASTE NOT, WANT NOT: DIVERGENT ENERGY STORAGE MARKETS IN CALIFORNIA AND OREGON.

• Author: Criswell, Benjamin U.

1. Introduction 432 II. Traditional and Transitioning Electricity Regulation 437 III. Divergent Markets in California and Oregon 445 A. California Energy Storage Policy 448 B. Oregon Energy Storage Policy 451 IV. Conclusion 456 I. INTRODUCTION

   As electricity systems decarbonize across the world, energy storage resources (ESRs) (1) can provide a variety of services to complement renewable energy technologies and improve electricity grid reliability. (2) Thus, ESRs are key to decarbonization efforts. (3) ESR providers are deploying technology with increasing sophistication, cost-effectiveness, and capacity. (4) However, to varying degrees across the United States, the regulatory environment for ESR markets stymies the potential benefits of ESRs within electricity systems. California likely will continue to see greater levels of ESR deployment compared to Oregon because its electricity marketplaces adhere to greater federal regulation. In California, a grid administrator overseen by federal regulators creates robust market opportunities for the technologies necessary to achieve a fully decarbonized grid, (5) including ESRs. (6) Although Oregon's decarbonization requirement is more ambitious than California's, (7) it is largely reliant on two monopolist utility companies to achieve its zeroemissions mandate. (8) Without access to wholesale markets and resource aggregation opportunities like those available in California, ESR developers in Oregon--especially poorly-incentivized independent parties--remain undercompensated with fewer options to monetize their ESR projects. (9)

   The federal government takes a largely laissez-faire approach to ESR market design, leaving states and regional marketplaces to develop participation models for ESRs. (10) Viewed as state policy laboratories, California and Oregon offer lessons about the development and operation of ESRs in light of broader decarbonization efforts. So far, state procurement mandates (11) (rather than market forces) drive ESR development in both California and Oregon. (12) But in California, where federal law and regional grid operation more actively shape the electricity marketplace, diverse ESR business models are becoming increasingly viable. (13)

   ESRs will play a key role in decarbonizing reliably and costefficiently, (14) and are therefore important to achieving a 100% clean energy grid by 2035--one of President Joe Biden's central campaign promises. (15) Further, nine out of the eleven states fully within the western grid, called the Western Interconnection, (16) have a renewable portfolio standard or clean energy goal in place. (17) Oregon, California, Nevada, New Mexico, and Washington are committed to 100% carbonfree energy by or before 2050. (18) Adding to this momentum, eighty municipalities within the Western Interconnection have 100% clean energy commitments of their own. (19)

   Decarbonization goals are achievable because of the "plummeting" costs of solar, wind, and battery technologies. (20) As a result, some experts predict that the United States can virtually eliminate fossil fuels from electricity systems by 2035 at no extra cost to consumers. (21) Indeed, progress towards decarbonization goals is already underway, with the vast majority of proposed electricity generation in the West coming from renewable energy technologies. (22)

   How to best integrate renewable energy at scale depends in large part on the fate of ESRs, (23) which feature prominently in decarbonization policies. (24) As the D.C. Circuit Court of Appeals recently recognized, ESRs are emerging as "industry disrupters... because they obliterate a foundational notion underpinning our electrical systems--that electricity cannot be efficiently stored for later use." (25) While storing energy for later dispatch is not a novel concept (dam reservoirs being the most notable example), many types of ESR, such as utility-scale batteries, only recently saw large-scale deployment. (26) Important for decarbonization, ESRs can pair with wind and solar farms to complement intermittent power generation. (27) The combination of ESRs with renewable energy technologies will be a key ingredient to achieving deep decarbonization without compromising grid reliability. (28) Deployment of these so-called co-located or hybrid resources is an increasingly popular model, particularly in California. (29)

   ESRs are emerging as a major factor in bulk power systems because "(1) [ESRs] 'are demonstrating increasing performance and reliability at lower costs'"; (2) stakeholders are increasingly aware of the benefits that [ESRs] can provide; and (3) new installations are proving that [ESRs] can fulfill multiple needs on the grid." (30) But while ESRs can accelerate decarbonization, more ESR capacity does not guarantee such progress. In fact, under some scenarios cheaper storage could increase fossil fuel usage and undermine decarbonization policies. (31) This risk is present in Oregon, for example, where coal- and natural gas-fired power plants still account for almost half of the state's electricity consumption. (32) Because the rise of ESRs could either have "beneficial or perverse results," society needs strategic planning and market designs to comport with decarbonization policies. (33)

   However, shaping markets for ESR services is difficult because operational characteristics of ESRs create jurisdictional controversy and uncertainty among federal, state, and local regulators. (34) Policymakers navigate new challenges as more technologies come online that are capable of providing multiple services across the three traditional regulatory classifications of electricity infrastructure: generation, transmission, and distribution. (35) For example, within one hour the same battery could provide black start services (generation) and frequency regulation (transmission) to the grid manager, and backup power (distribution) to a residential customer. (36)

   ESRs can provide up to thirteen different services to regional grid operators, utility companies, and end-use customers. (37) However, regulatory barriers limit the availability and monetization of these services depending on whether the ESR at hand functions at (1) the transmission level, (2) the distribution level, or (3) behind the customer meter. (38) ESRs currently function at all three levels to provide value to electricity systems. Business models adapt to local system characteristics, regulatory constraints, rate structures, and customer profiles. (39) Some analysts posit that the further "downstream" an ESR is, the more services it can provide to the overall system. (40) However, those behind-the-meter ESRs are most encumbered by regulatory barriers. (41)

   Part II of this Comment explains the traditional electricity regulatory framework (including recent changes) as it relates to ESR technology. In a fractured regulatory landscape, new policies roll out differently in electricity marketplaces due to varied regulatory structures among states. Part III explores the value of energy storage and how federal and state regulations have influenced ESR markets in California and Oregon.

   These two states illustrate how regulatory and commercial uncertainty about opportunities to participate in electricity markets can impact deployment and use of ESRs. So far, resource procurement mandates from state regulators drive ESR development in both states. But federal law more actively shapes California's electricity marketplace and creates a more attractive environment for ESR deployment, compared to Oregon's state- and utility-centric approach. So, without access to wholesale market and resource aggregation opportunities like those available in California, ESR deployment in Oregon remains limited and, consequently, the ratepayers of Oregon remain underserved.

2. TRADITIONAL AND TRANSITIONING ELECTRICITY REGULATION

   Electricity's physical characteristics interact with its regulatory law in important ways. (42) First, electricity is entirely fungible; it is impossible to tell the difference in quality between electricity generated by one resource or another. (43) Second, because electrons travel so quickly, they mingle almost instantaneously. (44) This makes identifying the source or physical path of any electrical current on the grid a fool's errand. Third, electricity is not easily stored, at least historically. Even with recent breakthroughs in ESR technology, plentiful, long-duration electricity storage remains elusive. (45) These physical realities function within a society that expects electricity to be available at the flip of a switch. Regulators have succeeded in creating an environment in which U.S. consumers count on, and arguably take for granted, delivery of safe, reliable, inexpensive, and practically limitless electricity. (46) Regulators now face new challenges, however, as the very fuels that grid stability once relied upon now exacerbate heat waves, wildfires, and other threats to the reliability of electricity systems. (47)

   Perhaps surprisingly, the roots of electricity regulation in the United States predate Thomas Edison's invention of the light bulb. In Brown v. Maryland, (48) in 1827, Chief Justice John Marshall articulated the first iteration of the "Original Package" doctrine. (49) It began as a relatively narrow rule on state taxation of foreign imports. (50) Courts expanded the doctrine's scope into a broader-reaching rule pertaining to both interstate and foreign commerce under the Dormant Commerce Clause. (51) In 1927, the Supreme Court held that the Dormant Commerce Clause barred states from regulating interstate wholesale sales of electric power and only Congress could regulate these sales, thereby creating what came to be known as the Attleboro gap. (52) In 1935, Congress closed this regulatory gap by passing the Federal Power Act. (53) At that point, Congress drew "a bright line easily ascertained, between state and federal...