COMMENTS OF BEACON POWER CORPORATION ON
CAISO REGULATION ENERGY MANAGEMENT STRAW PROPOSAL
Beacon Power Corporation (Beacon) appreciates the opportunity to comment on both the November
15th CAISO document, “Regulation Energy Management – Straw Proposal” (“REM Proposal”),
and the discussion about the REM Proposal at the November 18th Market Surveillance Committee
(MSC) meeting.
Beacon is a manufacturer and merchant developer of flywheel energy storage plants which provide
fast and accurate Regulation Service. These plants, and similar technologies with less than an hour
of energy storage (such as batteries), are known as “Limited Energy Storage Resources” (LESRs).
Beacon Power’s flywheels, and other LESRs, rapidly inject and withdraw power from the grid to
follow moment-by-moment changes in demand and frequency, so they are ideally suited to provide
Regulation Service. Beacon’s flywheel technology can respond with full up or down power less
than four seconds after receiving a CAISO control signal. By comparison, the CAISO allows
generators in its Ancillary Services (A/S) markets, including the Regulation market, up to 10
minutes (600 seconds) to ramp to full power.
Moreover, flywheels have proven their capability to provide Regulation Service on the grid:
 In CAISO’s markets: In 2006, Beacon’s flywheel technology successfully demonstrated its
ability to provide regulation to CAISO in a 12-month trial sponsored by the California Energy
Commission (“CEC”).
 In other ISO-type markets: Beacon has been providing up to 3 MW of Regulation in ISONE’s Alternative Technologies Regulation Pilot Program since the program’s November 2008
inception. From 2006 to 2007, Beacon Power successfully demonstrated its flywheel
technology’s ability to provide regulation on the NYISO grid in a trial sponsored by the
Department of Energy (DOE).
Beacon has now begun developing and constructing commercial-scale flywheel storage facilities in
Regulation markets that are open to LESRs. Beacon broke ground on its first 20 MW Regulation
facility, in New York, in November 2009 and it should commence operations by year’s end.
Beacon has also begun to develop sites for two additional 20 MW flywheel storage Regulation
facilities in the PJM and NYISO regions. All of these markets, as well as the Midwest ISO, have
made accommodations to their market rules to allow LESRs to provide Regulation.
The CAISO is the only FERC-jurisdictional Regulation market that has significant barriers to LESR
participation. With the addition of more intermittent renewable resources to the CAISO BAA, the
grid will benefit from LESRs’ fast response capability to address control issues created by the
frequent (and unpredictable) changes in wind and solar output.
Beacon’s comments cover two main topics:
 Beacon’s strong support for the Proposal – especially the REM changes made since the
last version, and the reasons for that support; and
 Beacon’s responses to some of the comments from other stakeholders on the
Proposal, and on REM itself.
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Beacon strongly supports the REM Proposal
Beacon strongly supports the ISO’s REM Proposal, because it removes the barriers that limit the
full participation of flywheels and other limited energy resources in the Regulation markets.
The CAISO has long been under FERC direction to remove such barriers, and we believe that the
Proposal is a significant and necessary step toward achieving that goal. The CAISO’s REM
Proposal is consistent with the method approved by FERC for use in other ISO Regulation markets.
By using the 5-minute real-time energy market to manage the state of charge of LESR Regulation
resources, REM would enable resources with 15-minute storage capability to continuously provide
Regulation service for a full hour – for hours in succession, almost without limit. Since the bid
timeline of the real-time energy market does not enable LESRs to manage their state of charge,
REM would remove this barrier, allowing LESRs to provide Regulation on a comparable basis to
generation.
The REM Proposal is the culmination of several long and detailed CAISO stakeholder processes to
facilitate participation of “non-generation” resources in CAISO A/S markets, starting in May 2008.
In fact, this is literally the fourth attempt by the CAISO to remove barriers to LESR participation in
Regulation markets.
Therefore, Beacon is very pleased to finally see a REM proposal from the CAISO that will fully
address the barriers and open its Regulation markets to LESR participation. We urge the CAISO to
move forward with this REM Proposal, and bring it to the Board in February 2011 for submission to
FERC in March 2011 as planned.
The Proposal resolves the open issues from the last REM development effort in a reasonable
manner. Beacon Power supports the REM Proposal design elements, particularly:
 Settlement of Regulation energy from the 5-minute real-time energy market at
CAISO real-time prices, consistent with the treatment of other Regulation resources. The
CAISO had proposed before to not settle the real-time imbalance energy for resources
participating in REM, leading to stakeholder concerns that “REM was significantly different
from traditional Regulation,” since it would immunize REM resources from the real-time energy
market and effectively allocate storage conversion losses to load instead of the resource owner.
Therefore, Beacon supports the proposed energy settlement for REM resources, which would
charge or credit these resources a full 5-minute energy settlement for all REM energy. This is
consistent with other FERC-approved tariff changes in other ISO/RTO regions to open their
Regulation markets to LESRs.1 It will also encourage REM resources to improve their
efficiency, i.e. reduce conversion losses.
1
FERC approved tariffs in NYISO, MISO, and PJM on May 15th 2009, December 31th 2009, and September 9th 2010
respectively, which included rules to compensate energy storage resources for the energy injected and charge these
resources for the energy withdrawn at the locational marginal price (LMP).
2
Most importantly, an energy settlement for REM resources should resolve the major concerns
raised by other stakeholders about REM. With this change to the original REM design, there
should be no reason to not move the Proposal forward.
 Removing the Cap on the maximum Regulation procured from Resources using
REM. Beacon is pleased to see that the previously proposed 10% market cap on REM
resources has been eliminated. As Beacon pointed out in previous comments, a market cap
would have created a significant barrier to the investment and development of commercial-scale
LESR projects.
 Limiting REM participation to only those resources that require a real-time
energy offset, such as LESRs and some demand response. This is a better
alternative than creating a market cap on the quantity of Regulation that can be procured from
REM resources. It also resolves earlier Department of Market Monitoring (DMM) concerns
about making REM available to all resources.
 Apply A/S “No Pay” provisions to REM resources when they are unable to
provide Regulation service. Beacon agrees with this provision in concept; however, we do
recommend that the CAISO clarify how “No Pay” would apply to REM resources.
CAISO “No Pay” rules should provide comparable treatment for a LESR (an energy-limited
resource with (relatively) unlimited ramping capability) and a traditional generator (a
(relatively) unlimited energy resource with limited ramping capability). As Beacon said in its
verbal comments at the MSC meeting, REM resources should not be subject to “No Pay” when
its resource is physically available and following its ISO dispatch instructions, as long as they
can provide the same total service over an interval factoring in energy limitations as a traditional
resource does factoring in ramp limitations, it. (Please see attached Appendix for an example.)
Lastly, Beacon continues to recommend that the CAISO Regulation market include a “mileage
payment” compensation mechanism. As the saying goes, “you get what you pay for.”
The CAISO RPS studies have identified a need for significant additional Regulation and other
ramp-rate capability in the future. However, currently the CAISO’s Regulation market does not
send market signals to encourage or reward resources for performance that exceeds the CAISO’s
allowable ramp time of 10 minutes.
In order to encourage faster Regulation ramping capability to enter the market – through
improvements to the Regulation response of existing resources and/or entry by new, fast Regulation
resources – the CAISO should structure its Regulation payments to pay for that capability, through
a “mileage” or other performance-based price structure. This change would not require
restructuring of the Regulation market or changes in the nature of the product, and there are
precedents in other ISOs already; thus, it can legitimately be considered as “low-hanging fruit” and
a “no-regrets action.”
If a “mileage payment” compensation mechanism is not included in RI-MPR Phase 1, it should
definitely be included in RI-MPR Phase 2. Beacon agrees with the CAISO that the REM
functionality is still required if a “mileage” payment approach is implemented.
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Beacon’s responses to issues raised at the MSC meeting
Many of the issues and objections to the Proposal that were raised at the MSC meeting were
provided by representatives of traditional generation. These complaints:
 Have all been raised before and rejected by FERC, which (as noted above) has
approved similar tariff changes enabling full participation in other ISO Regulation markets; and
 Are a transparent attempt to restrict competition in the CAISO’s Regulation
market through maintaining barriers to entry of new technology, in order to unduly advantage
their own resources and maintain their income stream.
These traditional generators did not participate in the earlier, lengthy stages of the CAISO process
where the REM was developed; the CAISO should not allow them to come in at this late stage and
derail this carefully thought-out proposal.
However, in the interests of completing this stakeholder process, Beacon addresses their objections
in this submittal. Our responses are summarized in the table below and explained in more detail in
the remainder of this report.
Summary of Beacon Responses to Concerns from the MSC Meeting
CONCERNS FROM THE MEETING
BEACON RESPONSE
Removal of unreasonable entry barriers for competitive markets should not
“Need” for REM-enabled Regulation
require a finding of “need.”
Differences between REM-enabled
REM resources would provide the CAISO with exactly the same Regulating
Regulation & “traditional Regulation” capability and AGC control as any generator, only faster.
It is not clear whether or how often this type of substitution even occurs.
REM-enabled Regulation substitution
Regulation is still dispatched as Regulation in actual operations, not as
for Spinning Reserve
Spinning Reserve, and LESRs can provide Regulation for the full hour.
This is fair, because LESRs cannot provide Regulation without REM or
Limiting REM to LESRs and Demand
participate in other A/S markets, while other resources can do both.
Response only
The “pro-rata” AGC signal used by CAISO would not negate the benefits of
The value provided by REM with the
allowing REM resources into the market. LESRs response to its portion of
current “pro rata” CAISO Regulation the signal would occur in under 4 seconds or over 100x faster than
signal & dispatch
traditional resources. The benefits would increase with the proportion of
the Regulation market served by LESRs.
Letting REM resources “bid” in the 5REM would not allow resources to “bid” in the RT market – the CAISO
minute RT market, i.e. creating an
would do so on its behalf as price-taker, as it does for ramp-limited
arbitrage opportunity
resources.
LESRs are providing Regulation – the 5-minute market just provides the
Energy by-product. Deviating from 5-minute Energy positions is not “using
Whether LESRs are “really” providing
the energy market to provide regulation.” When full, LESRs can provide
Regulation
Reg-down like a generator, by backing down from its positive scheduled
energy. When empty, LESRs can provide Reg-Up liike demand
resources, by reducing consumption from its negative scheduled energy.
While somewhat helpful theoretically, the examples from the Proposal and
Realism of examples provided
MSC meeting slides do not reflect CAISO use of A/S and, taken literally,
lead to misleading conclusions.
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“Need” for REM-enabled Regulation”
Some parties questioned whether Regulation from LESRs is “needed.” Beacon has two responses
to this question: (1) Yes, clearly; and (2) that’s irrelevant.
Operational need: CAISO studies of operational needs under a 20% RPS, and preliminary
results for a 33% RPS, have found needs for significant quantities of additional Regulation and
ramping capability. While the 20% RPS Study theorized that the “existing fleet” could provide
these services:
 The “existing fleet” will likely not exist as it is. Once-Through Cooling requirements
and simple economics indicates that the older, less-efficient plants currently providing these
services may soon begin to retire (mentioned as a concern in the 20% RPS study).
 The “existing fleet” seems not to want to provide the Regulation services the
CAISO needs, for several reasons, e.g., wear and tear from excessive cycling (mentioned as a
concern in the 20% RPS study). Rather than implement actions to force these resources to do
things they don’t want to do, the CAISO should instead clear barriers to market entry for
resources that are more than pleased to allow the CAISO to cycle them up and down to its
heart’s content.
Relevance of the question: The CAISO has been under order from FERC for several years to
remove barriers to non-generator (e.g., LESR and load) entry into its A/S markets, including
Regulation. 2 More recently, FERC mandated that the CAISO work with Beacon and other affected
interest to finalize the design elements of REM, resolve the technical issues surrounding the realtime available capacity of LESRs to provide regulation up and down, and to file a progress report
by March 2011.3
As with similar FERC directives to other ISOs, that FERC directive was not based on any perceived
“need” for the additional Regulation but on basic competitive-market principles. All resources
capable of providing a service the CAISO needs should have the opportunity to do so.
Differences between REM-enabled Regulation & “traditional Regulation”
Regulation service is provided by LESRs in the other ISO markets using energy-management
mechanisms similar to those proposed by the CAISO through the REM option. None of those ISOs
consider Regulation service from REM-enabled resources to be a “separate product” – LESRs
provide the same Regulation service to the electric system, at the same market prices, in response to
the same Regulation signal, as other resources.
The different procedures for managing the Energy byproduct of Regulation do not make it a
separate product. In fact, they are no different from the numerous accommodations CAISO makes
for numerous other supply sources.
For example, the CAISO is in the process of implementing an extremely complex software package
for Multi-Stage Generators (MSGs), to enable them to more fully participate in CAISO markets.
This software facilitates special CAISO procedures to address limitations imposed by the various
MSG unit configurations, like: (1) required quick movement through “Forbidden Zones;” and (2)
different minimum load levels, ramp rates, minimum operating times, minimum down times, etc.
for different parts of the bid curve.
2
Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, 72 Fed.Reg. 12,266
(2007).
3
Order Conditionally Accepting Tariff Revisions, to facilitate the provision of ancillary services by non-generator
resources, Docket ER10-1755-000, 132 FERC ¶ 61,211 (2010).
5
The CAISO makes similar reasonable accommodations for many other generation (and load)
technologies in many of its markets, but there hasn’t been any suggestion that this somehow makes
the Energy or A/S provided by MSGs or those other resources a “separate product,” or that these
resources should be excluded from regular CAISO markets. REM is simply another of those
reasonable accommodations, and it should not be used as an excuse to exclude LESRs from
competitive CAISO markets.
REM-enabled Regulation substitution for Spinning Reserve
The concerns about REM-enable Regulation substituting for Spinning Reserve stem from
fundamental misunderstandings about the substitution process.
The substitution algorithm would procure additional Regulation in place of Spinning Reserve when
the total cost to meet CAISO A/S needs would be reduced as a result. In other words, the cost of
the additional Regulation (at higher prices than that service would otherwise clear) would be less
than the savings from not procuring the same amount of Spinning Reserve.
First, it is not clear whether of how frequently this substitution occurs.
Second, even if it does occur, the additional Regulation procured in “substitution for” the Spinning
Reserve is still dispatched and operated as Regulation, not as Spinning Reserve. Thus, all the
CAISO analysis related to its use of Regulation – e.g., that its use in a single direction over multiple
intervals is relatively rare – would apply in this situation as well.
Limiting REM to LESRs only
It is rational to limit eligibility to LESRs, which (unlike traditional generators) cannot: (1)
participate in the Regulation market without REM; or (2) participate in any other CAISO market.
Moreover, we question whether at least some concerns about this initial limitation are real concerns
– i.e., whether other resource types might actually find REM to be an attractive Regulationprovision tool – or whether these are just more false barriers thrown up to limit competition in the
CAISO Regulation market.
Value provided by REM resources with current “pro rata” CAISO
Regulation dispatch
Using a “pro rata” Regulation dispatch signal does not reduce the benefits the CAISO would realize
by enabling fast responding LESRs into its market, because:
 LESRs would still provide proportionally more Regulation service overall, because:
(1) they would respond immediately to the signal, while traditional generators would simply
begin their long (10-minute maximum) ramp to the level where the CAISO really wants them to
be; and (2) the signal/dispatch for the next 4 seconds would reflect the near-instantaneous
response from LESRs in the prior interval and reduce the total Regulation dispatch below the
level where it would otherwise be.
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 The faster LESR Regulation response would still increase System reliability, and
the greater the proportion of Regulation service provided by LESRs, the greater the benefit. In
addition, because slower ramping resources cannot switch directions quickly, they sometimes
provide Regulation in a direction that is counterproductive to the needs of the grid, requiring
another resource to be dispatched to counteract it. LESRs with their near instantaneous
response are always responding in the direction needed to maintain system reliability.
In earlier comments, Beacon provided an illustration of the superior response to a Regulation signal
that the CAISO would receive. That slightly revised example is included in the Appendix to these
comments.
The CAISO could, of course, increase benefits from fast-Regulation LESR response by modifying
its Regulation dispatch. For example, NYISO modified its Automatic Generation Control (AGC) to
dispatch LESRs first, with any remaining Area Control Error (ACE) not allocated to LESRs
allocated to traditional Regulation resources on a “pro-rata” basis.
This method uses the speed of LESR resources and improves overall control performance while
reducing the movement required by slower- ramping resources, thereby improving their efficiency
and reducing their wear and tear4. Implementing this change should be done in conjunction with a
“mileage payment,” to ensure comparable payment for comparable service provided.
Letting others “bid” in the 5-minute Energy market, or “providing
Regulation using the 5-minute market”
Letting REM resources “bid” in the 5-minute market: Some at the MSC meeting seemed
to characterize REM as an “opportunity to bid in the 5-minute Energy market,” as though there was
some kind of arbitrage or profit-making opportunity to be had here.
REM would not allow resources to “bid” in the RT energy market. The CAISO would schedule
energy on REM resources’ behalf to maintain the Regulation service, but this procurement would be
as a price-taker, and REM resources would bear all the resulting costs.
In fact, the CAISO must buy or sell in RT markets on behalf of most traditional generators, because
of the need by such units to ramp up or ramp down to the desired operating levels, and their
minimum run or down times. For example, the CAISO must:
 Sell additional real-time energy to make room for the extra energy it is forced to take
because of unit ramp-downs, minimum-load operating points, or minimum run times; and
 Buy additional real-time energy to fill in the gaps left by unit ramp-ups to the desired
production level or unit minimum down times.
Moreover, the Bid-Cost Recovery (BCR) feature also imposes at least some of the cost of these
CAISO actions on others, through uplift charges. The REM option, on the other hand, would be
completely self-funded, i.e., the REM resources themselves would pay all the costs of the energy
they use.
4
Energy Storage in the New York Electricity Markets, New York Independent System Operator, December 2009
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Whether LESRs are really providing Regulation: Objections that “the 5-minute market”
and not the LESR is really providing the Regulation service confuse the provision of Regulation
with the provision of Energy. Both Generators and REM resources will receive an Energy
schedule. Any deviation from the resources’ energy schedule that is requested by the CAISO 4second AGC signal is Regulation provided to the system. Just like a Generator, when a LESR’s
Regulation dispatch point is different than its Energy dispatch, it is providing Regulation.
LESRs are providing Regulation – the 5-minute market just provides the Energy by-product.
Deviating from 5-minute Energy positions is not “using the energy market to provide regulation.”
When full, LESRs can provide Regulation Down like a generator by backing down from its positive
scheduled energy. When empty, LESRs can provide Regulation Up like a demand resource by
reducing consumption from its negative scheduled energy.
Realism of examples provided: While the examples provided in the Proposal and the MSC
meeting slides are technically correct, they are also somewhat misleading given the information that
the CAISO has provided so far about the ways in which Regulation is actually used in CAISO
markets.
For example the CAISO has found that:
 The CAISO rarely uses Regulation continuously in the same direction (see, e.g., the
CAISO slides for July 15th at the MSC meeting); and
 Virtually all contingency events where Spinning Reserve is used are resolved in
15 minutes or less (see, e.g., the March 2010 CAISO document, Revised Draft Final
Proposal for Participation of Non-Generator Resources in California ISO Ancillary Services
Markets (http://www.caiso.com/2753/275383f257220.pdf, p.8).
The CAISO, and the MSC and stakeholders, should avoid drawing incorrect conclusions based on
somewhat helpful (for theoretical purposes) but not very realistic theoretical situations, and that’s
what happened at the MSC meeting.
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Appendix
LESRs vs. Traditional Generators
Response to the CAISO Regulation Signal
Beacon Power’s proposed 20 MW Flywheel Energy Storage Plant is comprised of 200 high-speed,
high-energy (25 kWh/100 kW) flywheels capable of providing 20 MW of both Regulation Up and
Regulation Down, equal to a 40 MW swing. Its 5 MWh/20 MW plant is designed to store power
from and/or deliver power to the grid within four seconds of receiving a control signal, for up to 15
minutes in any one direction (i.e. Regulation Up or Down).
Inherent in its design, the amount of energy available to be delivered to or withdrawn from the grid
from a LESR changes with the real-time energy level of the resource. Therefore, the amount of
MWhs it can provide in real time while providing Regulation will vary. While technically different
from a generator, the effect is similar to the way a ramp-limited generator provides Regulation, i.e.
the amount of MWhs delivered by a generator varies over the interval as it reaches its Dispatch
Operating Point (DOP).
The CAISO rules should provide comparable treatment for a LESR (an energy-limited resource
with a (relatively) unlimited ramping capability) and a traditional generator (a (relatively) unlimited
energy resource with limited ramping capability). Figure 1 illustrates the relative response to a
Regulation signal of a LESR vs. a traditional generator (which the CAISO allows to vary its MWh
output over the course of an interval by up to 10 minutes to reach its required output level).
Figure 1 illustrates LESR and Generator performance with awards of 20 MWs of Regulation Up
and Regulation Down, assuming that the LESR elects the new CAISO energy-management option.
Figure 1
In Figure 1, the LESR starts at its Preferred Operating Point (POP) of 0 MW or 50% State of
Charge (SOC), so it has the ability to either inject or withdraw 2.5 MWh before filling up or
becoming empty.
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 In Interval 1, the ISO dispatches the resource to provide 20 MW of Regulation Up, resulting in
the injection of 1.67 MWh of energy (20 MW x 5/60th of hour). At the end of the interval, the
resource has 0.83 MWh of energy remaining. Consistent with the CAISO proposal to manage
the LESR’s energy, the CAISO submits an energy bid for 20 MW on behalf of the LESR for
Interval 3.
 In Interval 2, the LESR can inject 10 MW (0.83 MWh / (5/60th Hours). At the end of this
interval, the LESR has 0 MWh stored, and the CAISO will place another energy bid for the
LESR for Interval 4 that will help return it to its POP.
 In Interval 3, the energy bid placed in Interval 1 takes effect, providing the LESR with 20 MW
of energy (-20 MW from the grid’s perspective). Any deviation from this schedule is
Regulation. The ISO is still dispatching the LESR for 20 MW of Regulation Up. The LESR
can provide this Regulation by not absorbing the -20 MW it was schedule to absorb, effectively
providing 20 MW of Regulation Up like a Demand Side Resource would.
In this example, the LESR delivers an average power of 16.7 MW and 4.2 MWh of energy over the
course of the interval, while the generator delivers an average power of 13.3 MW and 3.3 MWh of
energy. Therefore, even with an energy limitation, the LESR outperforms the generator with a
ramp limitation, yet the LESR could potentially (based on the current REM straw proposal) have
payments rescinded for Regulation Non-Compliance (No-Pay), while the ramp limited generator
would receive its full settlement.
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