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Texas Staff: Wider Adoption Of Battery Storage By TDUs As Regulated Assets Could Impede Pricing Signals In Energy-Only Market Opposes AEP Texas' Sought Battery on Statutory, Policy Grounds

July 10, 2017

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Reporting by Paul Ring • ring@energychoicematters.com

Staff of the Public Utility Commission of Texas said in a post-hearing brief that AEP Texas-North Division's application to install and own a lithium-ion battery in two locations on its distribution system should be denied, "as TNC’s proposal would authorize TNC to provide generation and back-up services, would discourage competitive market participants from providing the proposed resources and services, would distort market prices, and would cause inequitable cost shifting."

See background on AEP Texas' application here

Staff said that under PURA, the proposed batteries are generation, and thus cannot be owned by a TDU.

Beyond the statutory arguments, Staff raised policy concerns with granting AEP Texas' application, and the inevitable filings of similar applications for TDU ownership of battery storage that would result

"Staff also recognizes that there are important policy considerations that weigh against implementation of TNCs [sic] batteries as proposed, given that ERCOT is an energy-only market and not a capacity market. Most importantly, the deployment of batteries could impede the pricing signals that inform generators when energy production is most needed and when and where it is profitable to locate generation. The efficiencies of an energy-only market depend on the constant and timely matching of supply and demand. Discharging batteries can skew the demand data and in some scenarios artificially lower prices causing needed generators not to come on line," Staff said in its brief

"Staff is not suggesting that the two batteries proposed in this Application would have perceivable impacts on the market; however, Staff is keenly aware that want for batteries in the management of grid reliability is growing quickly, and if this Application is approved, it is likely that other TDUs will use this case as persuasive justification as to why their batteries should be approved, just as TNC is using the Presidio case here. Therefore, with the potential for wider deployment and the proposal of larger batteries, a determination on this application should not be made without serious consideration of the market impacts discussed above," Staff said

Additionally, Staff took issue with AEP Texas' proposed treatment of energy used for charging and discharging the battery as unaccounted for energy (UFE)

"If the Commission were to find that the proposed batteries are not prohibited by relevant statutes or rules, Staff still recommends that TNC’s proposal be denied for policy reasons because TNC proposes that the energy charged into and discharged from the proposed batteries be treated as UFE. First, the costs associated with charging and discharging the batteries should not be borne by the entirety of ERCOT customers when the batteries would only serve a small number of customers tied to isolated portions of TNC’s distribution system. Second, UFE is designed to account for what is essentially lost energy. If energy is going to be absorbed and discharged from batteries, then that energy should be properly accounted for instead of charged as a loss," Staff said

The Alliance for Retail Markets (ARM), the Texas Energy Association of Marketers (TEAM), and the NRG Companies said in a brief that the PUC must deny AEP Texas' application because, "(1) the proposed ownership and operation of the battery storage facilities constitutes the provision of a 'competitive energy service' by a transmission and distribution utility (TDU) in violation of 16 Texas Administrative Code (TAC) §§ 25.341(3) and 25.343(c); and (2) the proposed ownership and operation of the battery storage facilities violates the post-unbundling prohibition against a TDU's sale of electricity or participation in the market for electricity in Public Utility Regulatory Act (PURA)4 § 39.105(a), given the categorization of electric energy storage facilities as 'generation assets' in PURA § 35.152."

Tesla, Inc. urged the PUC to grant AEP Texas' application, stating that the batteries would merely supplant otherwise required (and more costly) construction of traditional distribution assets

By building traditional distribution assets, "[t]he peak load conditions for Generators caused by the overloads on TNC's system would be mitigated, but at a much greater cost to ratepayers," and, "the result would be the same for Generators," Tesla said

"And to be clear, the solution to TNC's reliability problems cannot come from a remote, currently in place Generator. In other words, more scarcity/peak pricing cannot somehow work to resolve TNC's outages or overloads. The solution must come from TNC. And here, TNC has proposed a solution in the most cost-effective manner possible by deploying new and affordable technology. Given that reality, the policy decision before the Commission seems clear," Tesla said

Docket 46368

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