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Texas ALJ Recommends Approving AEP Texas Application To Install, Own Battery Storage

ALJ Finds Utility Battery Not Competitive Service, Nor Generation; Treatment As UFE OK

Stresses Issues Amount To Policy Choices, Says PUCT May Reach Different Conclusion Based On Record


October 13, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A Texas ALJ in a proposal for decision would conclude that AEP Texas' application to install two battery storage facilities on its distribution grid would not constitute a competitive service nor would it constitute utility ownership of generation, and the ALJ recommends approval of AEP Texas' application. However, while the ALJ found, "no insurmountable statutory or regulatory prohibitions," that would foreclose approval of the application, the ALJ said that many of the issues are one of policy, and the Commission may itself determine that policy considerations do not favor approval of the application as proposed.

The ALJ would approve the application of AEP Texas

AEP Texas had sought approval to install utility-scale lithium ion battery facilities in Woodson and Paint Rock, Texas. Specifically, AEP Texas proposes to install a 1.0 megawatt (MW) battery capable of providing 2.0 megawatt-hours (MWh) of power on a radial 12-mile distribution feeder extending from the Bush Knob substation to Woodson, a rural community located west of Fort Worth in Throckmorton County. AEP Texas serves 286 end-use customers on this distribution line, and approximately 217 of those end-use customers reside in Woodson. AEP Texas proposes to use this battery storage facility to provide power to those end-use customers during an outage of either the 69-kilovolt (kV) transmission line serving the Bush Knob substation or an outage on the distribution feeder itself. Installation of the Woodson battery would cost approximately $700,000, whereas traditional transmission and distribution upgrades would cost approximately $5.3 million.

AEP Texas also proposes to install a 500-kilowatt (kW) battery capable of providing 1,000 kilowatt-hours (kWh) of power to supplement the rated capacity of a one-MW distribution substation in Paint Rock, a small town east of San Angelo in Concho County. AEP Texas serves approximately 215 end-use customers in Paint Rock. AEP Texas proposes to use this battery storage facility to provide power to future additional load served by the Paint Rock substation that exceeds the substation's one-MW rated capacity. Installation of the Paint Rock battery would cost approximately $1.6 million, whereas traditional transmission and distribution upgrades would cost approximately 6.0-$17.2 million.

AEP Texas proposes to treat the energy involved in the battery facilities as unaccounted-for energy (UFE).

AEP Texas sought confirmation from the Commission that its proposed installation of batteries complies with Texas law and that the storage facilities will be considered distribution assets for which costs will be eligible for inclusion in AEP Texas's distribution cost of service.

AEP Texas' application has been opposed by retail electric providers and generators who argued that, among other things, the batteries would constitute a competitive service, which utilities are prohibited from providing

"Having considered the parties arguments and the applicable law as set forth below, the ALJ recommends that AEP Texas's ownership and operation of the batteries would not constitute a competitive service under 25 Texas Administrative Code § 25.341(3) and would not violate the prohibition against electric utilities providing competitive energy services," the ALJ said

Under the PUCT's rules, competitive energy services are defined as, "[c]ustomer energy services business activities that are capable of being provided on a competitive basis in the retail market."

The ALJ found that, "a plain reading of the rule shows that the rule applies to customer premises activities."

"As stated by AEP Texas, its batteries will be located on its distribution system, not on customer premises. The fact that batteries may also be installed on customers premises does not mean that all batteries are competitive services activities, as the Opposing Parties argue. Additionally, although the rule states in subsection (3)(W) that any other activity the Commission identifies through rule or order can be considered competitive energy services, no evidence was presented that batteries installed on a distribution system have been determined to be competitive energy services by the Commission. In the context of the rest of the rule, the ALJ finds that it would not be appropriate for the Commission to deny the Application under subsection (3)(W)," the ALJ said

"The Opposing Parties contend that because the batteries will be taking energy from the grid and putting it back onto the grid, AEP Texas will be participating in the market. The Opposing Parties also argue that because the costs of the energy used by the batteries will be uplifted to the ERCOT market, AEP Texas will be participating in the market. The ALJ agrees that AEP Texas's batteries may affect the market in the sense that AEP Texas decides when to discharge the batteries, rather than ERCOT. However, whether that is permissible is a policy question to be determined by the Commission rather than a strictly regulatory or statutory determination, as the applicable statutes and regulations do not speak directly to this issue," the ALJ said

"The batteries will not generate electricity in the sense that electric energy will be created. Rather, the batteries will temporarily hold energy that already existed until that energy is needed. AEP Texas will not buy or sell the energy that passes through the battery. The Opposing Parties argue that treating the energy as UFE also constitutes participation in the market, but the ALJ does not find such treatment to be sufficient to show that AEP Texas will be participating in the market. Again, the Commission must determine the policy issue of whether affecting the market by discharging the batteries is a permissible activity for a TDU. The ALJ does not find anything in the applicable statutes or rules that directly prohibits such an activity," the ALJ said

The ALJ further found that the batteries should not be considered generation, which utilities are prohibited from owning, though the ALJ stressed that the PUCT may exercise its discretion to reach a different interpretation

Addressing PURA § 35.152(a), which opponents had argued states batteries shall be considered generation absent a statutory exemption, the ALJ said "[T]he plain language of PURA § 35.152(a) does not apply to all batteries. That subsection states that '[e]lectric energy storage equipment or facilities that are intended to be used to sell energy or ancillary services at wholesale are generation assets.'"

"If the Legislature had intended for all batteries to be considered generation assets, it could have stated such, but it stated that only batteries that are intended to be used to sell energy or ancillary services at wholesale are generation assets. The evidence established that AEP Texas does not intend to sell the energy discharged from the batteries. The Opposing Parties argue that because the energy will be subject to wholesale transactions and because AEP Texas will be paid for energy it transmits on its lines, the batteries are generation assets. However, AEP Texas does not intend to sell the energy discharged by the batteries at wholesale. The energy will be subject to wholesale transactions and transmission fees, as would any energy that travels on AEP Texas's transmission or distribution equipment. Therefore, the ALJ does not find the fact of a wholesale transaction problematic," the ALJ said

"However, the fact that the batteries, rather than ERCOT, determine when that transaction takes place may be problematic. Additionally, as argued by the Opposing Parties, because the battery at Paint Rock would discharge during peak loading conditions, it may displace other generation resources at a time when wholesale prices are higher than the time the battery was charged. The battery may affect the market, even if operation of the battery does not constitute participation in the market," the ALJ said

"The ALJ does not find that the batteries meet the definition of generation assets under the letter of the law. However, PURA § 35.152 is subject to more than one interpretation, and the policy concerns associated with the batteries potentially displacing traditional generation dispatch may shape the way the law is interpreted. Therefore, the Commission may exercise its discretion to interpret PURA § 35.152 to allow installation and operation of the batteries as distribution assets or to deny the Application because the batteries can be considered to be generation assets, which cannot be owned or operated by AEP Texas," the ALJ said

"Having considered the parties arguments and the applicable law as set forth below, the ALJ finds that the applicable law and rules do not definitively determine whether AEP Texas's batteries are generation assets or facilities. The Commission has discretion to set policy in the area of energy storage and to interpret the applicable law and its own rules, which can be interpreted to support the arguments of either the Opposing Parties or AEP Texas and Tesla. However, the ALJ finds the arguments of AEP Texas and Tesla to be more persuasive and recommends that the proposed batteries are not generation assets or facilities," the ALJ said

"The Commission has the discretion to set policy in the area of generation and distribution and has discretion to interpret PURA and its own rules according to such policy. The Opposing Parties' policy arguments concern potential impact to the ERCOT market and potential impacts to generators and REPs in ERCOT. The policy arguments put forth by AEP Texas and Tesla concern system reliability, delivery of electricity to customers, and the potential cost savings of installing the batteries versus traditional system upgrades. The ALJ finds that the applicable law and rules can be interpreted to support either set of policy considerations surrounding the issue of whether the batteries are generation assets or facilities," the ALJ said

Regarding the treatment of energy associated with the battery as UFE, the ALJ recommended that, "AEP Texas may treat the energy associated with the batteries as UFE under the law."

"However, the Commission has discretion to make a policy determination on whether such [UFE] treatment is appropriate," the ALJ said

"Ultimately, the question of whether the energy in the batteries should be treated as UFE is a question of policy that must be answered by the Commission. As argued AEP Texas and Tesla, there is no legal prohibition on treating the energy associated with the batteries as UFE. As such, the Commission determined that energy used by batteries can be treated as UFE in the Presidio case. However, the policy concerns set forth by the Opposing Parties regarding potential market impacts may support a determination that treatment as UFE is not appropriate in this case. In the Presidio case, ETT agreed to meter the energy flowing into and out of the batteries and to include that information on its website, updated at least annually, although ETT did not buy or sell the energy. Because the Commission determined that ETT was not selling the energy at wholesale, the act of metering the energy did not alone cause the energy to meet the definition of wholesale storage under 16 Texas Administrative Code § 25.501(m). The Commission may order AEP Texas to take similar steps to meter the energy in this case," the ALJ said

Docket 46368

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