The U.S. Federal Energy Regulatory Commission is advancing rule updates governing how battery energy storage systems (BESS) participate in wholesale day-ahead and real-time markets. The measures directly affect bidding parameters, state-of-charge management, and ancillary service co-optimization - changes that could materially alter the revenue stack for utility-scale storage projects across North America.
Background
FERC has incrementally expanded the regulatory framework for grid-scale storage since Order No. 841, issued in February 2018, which amended the Commission's regulations to facilitate storage participation in capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). According to Morgan Lewis, the order aimed to remove barriers created by market rules originally designed for conventional generators - rules that failed to account for storage resources' ability to operate simultaneously as supply and demand.
Building on that foundation, FERC issued Order No. 2222, a sweeping order that mandates reforms intended to facilitate the participation of distributed energy resource (DER) aggregations, including storage resources, in wholesale markets. The Commission's stated rationale is that dispatching storage resources according to the highest-value service they can provide at a given time improves overall market efficiency. All six FERC-jurisdictional RTOs and ISOs - CAISO, MISO, SPP, PJM, NYISO, and ISO-NE - now have market rules in place to allow electric storage resource owners to participate in their markets, though implementation details such as state-of-charge parameters and minimum size requirements vary by region.
The need for updated rules has intensified amid rapid deployment. Approximately 12 GW of utility-scale storage capacity was deployed in the United States in 2024, representing one of the largest annual increases on record, with approximately 19 GW forecasted to be installed in 2025, according to Morgan Lewis. Industry forecasts project approximately 93 GW of additional storage to be installed over the next five years.
Key Details
The most operationally significant recent change involves day-ahead state-of-charge (SOC) management. ISO New England implemented FERC Order No. 841's day-ahead SOC requirements effective January 1, 2026, for the operating day of January 2, 2026, introducing optional bidding parameters that allow market participants to optimize electric storage facilities based on SOC and duration. Under those rules, the state of charge gained from charging the dispatchable asset-related demand component of a storage resource during an hour cannot be used to cover the discharge award for the generator component during that same hour - a technical constraint designed to prevent overstatement of reserve capability.
On ancillary services, ISO-NE implemented the Day-Ahead Ancillary Services Initiative (DASI) on March 1, 2025, introducing a new day-ahead ancillary services market jointly optimized with the existing day-ahead energy market, according to FERC's 2025 State of the Markets report. PJM also advanced its ancillary services market reforms, implementing Phase 1 of a multiphase regulation market redesign on October 1, 2025, which included adopting a single, bidirectional regulation signal for all resources.
The revenue implications for BESS operators are significant and vary by market structure. In ERCOT, average annual revenue for BESS fell from $149/kWh in 2023 to $17/kWh projected for 2025, with the share of ancillary services in BESS revenue declining from 84% to 48% over two years, according to Enverus data reported by EIR. This market saturation underscores the importance of flexible bidding rules that allow operators to optimize across energy arbitrage, capacity, and ancillary services simultaneously. Analysis from Davis Graham notes that where a project stacks multiple revenue streams, dispatch optimization must balance competing obligations across energy arbitrage, ancillary services, and capacity commitments.
Outlook
The pace of FERC rulemaking affecting storage is expected to accelerate through 2026. NERC will continue filing inverter-based resource (IBR) reliability standards directed by Order No. 901 through late 2026, with full implementation of the standards expected by January 1, 2030, according to Morgan Lewis. Separately, PJM and its stakeholders are evaluating market rules affecting storage resources, including capacity accreditation rules and operational parameters for storage resources providing ancillary services.
Industry analysts and legal counsel advise that storage developers must account for these evolving market design requirements - including interconnection reform timelines and revised bidding parameters - when modeling project economics. Import tariffs have raised BESS equipment costs by more than 50 percent since January 2025, adding further complexity to the investment calculus for projects relying on merchant ancillary service revenues as a primary return driver.
