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Texas Rejects Proposal for Utility-Scale Installation

Despite acknowledging that the plan was an “innovative” one that held promise for bringing cost-effective solutions to the issue of the need for expanded electric distribution capacity, the Texas Public Utility Commission nevertheless has denied an electric utility authority to proceed with its suggested construction of a utility-scale energy storage project that would rely on lithium ion battery technology.

In seeking commission approval of its plan, the sponsoring utility, AEP Texas North Company (a subsidiary of American Electric Power), had noted that its proposal was unique among other energy storage projects in the state in that AEP’s was envisioned as being a part of its distribution system, as distinguished from other energy storage programs that use battery storage capabilities as a means of augmenting generation or transmission capacity.

The plan presented by AEP Texas North revolved around two separate installations, one at its Bush Knob substation in Woodson, which would be rated at one megawatt, and one in Paint Rock, which would have a capacity of 500 kilowatts. The two battery storage facilities would serve different purposes, however.

The company explained that because it has been experiencing abovenormal incidents of power outages in Woodson, the batteries would help the utility assure continued service to the town’s 220 customers in the event of further disruptions in service. By contrast, the Paint Rock system is intended to ensure the availability of sufficient additional capacity to serve new customer load, AEP said. It recounted that the substation serving Paint Rock is already oversubscribed and that the energy storage system would help alleviate those overload conditions.

In both cases, though, the utility affirmed that the cost of constructing the energy storage units would be much lower than pursuing other more conventional sources of generation or transmission capacity. More specifically, AEP Texas claimed that the Woodson facility would cost about $1.6 million, compared to at least $6 million for traditional system additions. For the Paint Rock installation, the company pegged the cost at about $700,000, while otherwise required system upgrades would have necessitated an investment of $5 million or more.

Upon review of the plan by an administrative law judge (ALJ), the ALJ recommended that the commission endorse the proposal. Moreover, the ALJ determined that the energy storage units should be treated as distribution assets. As such, the facilities would be recognized in rate base, and the utility would be able to earn a return on its investment.

In deciding not to adopt the ALJ’s recommendation, the commission pointed out that since the state’s electric markets were restructured, local distribution utilities are no longer able to provide generation or transmission service. Thus, the commission found, there would have been no basis for accounting for the battery storage systems as utility-owned generation or transmission facilities to begin with.

The commission also related that it was not persuaded that the utility’s cost analyses of the energy storage plan could be substantiated. From the commission’s perspective, the comparative economics of the battery units versus other distribution system solutions had been “limited” and “not fully tested.”

But the commission said it was most troubled by the company’s plan to consider the energy used in charging the batteries as unaccounted-for energy (UFE). Such energy is that which somehow is lost in the course of delivery and does not register anywhere on a meter. And because electric rates usually entail a component for UFE, the commission ruled that it would create an inappropriate and anticompetitive precedent for AEP Texas to account for the energy used in powering the batteries as UFE.

The commission remarked that AEP Texas North has the ability to meter its own usage. To not do so at its battery installations would clearly give the utility a pricing advantage, as independent nonutility vendors of energy storage service would not be able to include in their prices the costs of charging their battery systems.

Although denying the utility’s battery storage plan as tendered, the commission reiterated that it “appreciates the potential value” of energy storage facilities as a solution to shortfalls in distribution capacity. The commission likewise observed that, especially when it comes to emerging energy technologies, the law often lags behind advances.

To that end, the commission deemed it imperative that a reevaluation of its existing rules on plant additions and upgrades be undertaken. It stated that associated certification protocols should be reexamined as well.

In light of the complex policy issues arising out of AEP’s battery storage proposal, the commission tasked its staff with initiating a proceeding through which to review such matters so that a proper evidentiary basis can be developed on which to establish an appropriate regulatory structure for such project proposals going forward.

The commission added that while it did not want to prejudge any of the issues so raised, it was putting the utility on notice that the commission views the company’s suggested treatment of UFE as “questionable” at best. Re AEP Texas North Co., PUC Docket No. 46368, SOAH Docket No. 473-17-0684, Feb. 15, 2018 (Tex.P.U.C.).