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Texas TDUs Offer Proposals On How To Account For Energy From TDU-Owned Batteries

REP Parents Say TDU Ownership Of Storage Would Harm Competitive Market

November 5, 2018

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Reporting by Paul Ring • ring@energychoicematters.com

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In a Texas PUC project concerning a review of TDU ownership of batteries and other non-traditional technologies, the TDUs offered various means to account for measure and account for the energy used in charging and discharging utility-owned batteries, if utility ownership is ultimately permitted.

CenterPoint Energy Houston Electric (CEHE) said that, "There are various options to measure and account for the energy used in charging and discharging utility-owned batteries deployed to support the reliability of the utility's delivery system. For instance, the Commission could require utilities to meter and purchase the electricity used to charge the batteries from a REP, and the utilities could recover the purchase cost of that electricity through rates as O&M expenses. In this scenario there would be no negative UFE [unaccounted for energy] impact. Discharge of the battery to support reliability would place positive UFE on the grid and reduce uplift costs in market."

"Alternatively, utilities could meter in the electricity used in charging the battery and meter out the discharge from the battery. The net difference between the two meters (the meter-out will always be less than the meter-in) will be accounted for energy rather than unaccounted for energy. The ERCOT stakeholder process could look at the impacts of the battery's energy profile and help determine how the energy charged and discharged during a reliability event could be accounted for in the market with the least financial impact to customers," CEHE said

"UFE should also remain an option for further Commission analysis due to its efficiency as no statutory changes or changes in the Commission's rules are required for this approach. Unmetered electricity is already used to power various traditional devices and equipment located inside substations as well as to support the operation of the delivery system. If utilities prudently manage their decisions on whether to invest in batteries or more traditional measures to ensure a safe and reliable delivery system, the energy costs used for charging batteries should result in a cost savings for customers compared to the costs of the traditional measures regardless of which accounting option the Commission pursues," CEHE said

In separately filed comments, Oncor said that, "If the energy used by non-traditional technologies is not to be treated as UFE, then the simplest approach is to meter the usage (inflows), and have the TDU pay its REP, provided that these costs are considered reasonable and necessary and recoverable under the same standard as the TDU's other electricity purchases. The Commission could also require that TDUs meter the outflows of any non-traditional technologies. Oncor would note that it currently meters both the inflows and outflows of the batteries it has in place, but only for system planning and operational purposes."

Oncor further said that, "It is Oncor's belief that a non-traditional technologies designation (whether Regulated or Competitive) should not preclude or impede a reliability application. To use a specific example, an energy storage device deployed on a feeder behind a switch that is situated between the substation and such energy storage device could be metered for all energy acquired or released by the device. In this case the energy storage device usage would be restricted to outage mitigation. The retailer and generators would be compensated at the rate in effect at the time of the energy acquisition."

In separately filed comments, AEP Texas said that, "Although treating the charge and discharge of utility batteries as UFE would have significant advantages of efficient and low-cost implementation, there are at least two other options. First, the TDU could contract with a third party to own the energy charged into and discharged from the energy storage facility. Under this situation, the TDU would operate and, in conjunction with ERCOT, control when the battery is charged and discharged without ever owning the energy used to operate the battery, and the energy would be settled in the ERCOT market. Second, the TDU could purchase the energy charged into the energy storage facility and the energy discharged from the energy storage facility could be treated as UFE. This approach would result in the cost of the energy being passed through the utility's rates to its customers rather than allocated throughout ERCOT like UFE, and would only have the effect of reducing UFE when the battery discharges."

Generators said that metering a specific point of delivery for the battery would run afoul of PURA.

NRG said that, "The ERCOT market provides two mechanisms for accounting and settlement of energy usage: metering a specific point of delivery for its own usage or uplift of unmetered usage through UFE. In the case of metering, PURA § 39.105(a) states 'a transmission and distribution utility may not sell electricity or otherwise participate in the market for electricity except for the purpose of buying electricity to serve its own needs.' A TDU metering usage to charge and discharge energy from a non-traditional technology such as a battery constitutes participation in the market for electricity, contrary to PURA."

In separately filed comments, Calpine similarly said that, "because charging a battery to perform operations on the transmission or distribution system would not constitute self-use, and electricity must be properly accounted for, a TDU is unable to purchase the power for its battery. Without using UFE, there is no way for a TDU to legally power a battery, and doing so amounts to little more than confiscating electricity and imposing the costs on system-wide loads. These nuances in PURA make it clear that a TDU should be prohibited from owning and operating a battery."

The TDUs said that they may own batteries under PURA.

For example, CEHE said that, "Nothing in PURA partitions TDU ownership rights between traditional and non-traditional technology devices. The technological attributes of an energy storage device serve no basis for determining a utility's right to own it under PURA. Whether a TDU may legally own a device to support system reliability depends on how the TDU intends to use the device, not on the device's technological attributes."

"Regarding energy storage equipment, specifically batteries, CenterPoint agrees with the arguments made by AEP in Docket No. 46368 that TDU-owned batteries used to support the reliability of the delivery system are not barred by PURA or the Commission's rules. They do not constitute generation assets as defined in PURA § 39.157; they do not result in a sale of electricity by a TDU in violation of PURA § 39.105; and they do not constitute the provision of a competitive energy service under the Commission's rules," CEHE said

CEHE noted that under the PUC current rules, TDUs may own batteries on the customer-side of the system. "An electric utility may own . . . batteries and chargers on the customer's side of the point of delivery for supporting the operation of the utility's delivery system," CEHE said in quoting the rule

"If, as construed by the Commission when it adopted its competitive energy services prohibitions and restrictions, electric utility ownership and use of batteries located on the customer's side of the point of delivery for purposes of supporting the operation of the grid is consistent with PURA's unbundling and restructuring mandates adopted in 1999, then electric utility ownership and use of batteries located on the utility's side of the point of delivery for the same purposes must necessarily also be consistent with PURA's unbundling and restructuring mandates," CEHE said

Generators argued that TDU ownership of batteries is prohibited by PURA

Calpine said that, "Batteries should be classified as competitive generation."

"Calpine urges the Commission to delay any action on this topic until the market has been provided the opportunity to develop more fully and the impact of battery technology on the market is better understood. It is only recently that batteries have become a viable energy source within ERCOT and other parts of the US, in fact Calpine itself is actively involved in the development of battery projects. ERCOT currently has 1,889 MW of batteries in the interconnection queue. This demonstrates that the competitive market is beginning to provide battery deployments, consistent with Senate Bill 7's admonition that the Commission should rely on competitive market forces rather than regulation to the greatest and most feasible extent. Permitting a transmission and distribution utility (TDU) to own and operate a battery could open a floodgate causing cost-socialized batteries to saturate the market and inhibit current competitive market forces from working," Calpine said

"PURA clearly and unequivocally prohibits a TDU from buying and selling electricity or otherwise participating in the market for electricity, with the exception of buying electricity to serve its own needs. Allowing a TDU to participate in the wholesale market runs contrary to the intent of Senate Bill 7, which imposes a clear division between the business of regulated electric utilities and the activities of competitive wholesale and retail market participants -- requiring formerly vertically integrated investor-owned utilities to unbundle into a separate power generation company (PGC), retail electric provider (REP), and TDU. Any participation in the competitive market by a regulated entity will impede competition and distort efficient market signals," Calpine said

Calpine said that if TDU batteries are allowed, if a rate-based battery is dispatched to reduce peak load at a substation, the price at that location should be $9,000.

NRG similarly said that, "TDU investment in 'non-traditional technologies' that undermine the structural separation underlying the ERCOT competitive wholesale and retail markets must be rejected. Competition in the wholesale and retail markets drives innovation and efficiency, empowers customers with choices, and shifts investment risk from customers to investors. Permitting TDU ownership of resources that provide competitive services erodes the structural bright line established in Senate Bill 7 and walks back 20 years of competitive market progress in Texas. Moreover, allowing TDUs to rate base these investments means that customers are held captive to the financial obligations of utility ownership even when a more efficient option may be available. Competitive providers are bringing to life the new energy technologies that customers are increasingly demanding. Allowing these technologies to be rate based funded will stunt and hinder further development, to the detriment of the customer and market as a whole. We know the competitive market model works because we have seen it work successfully in Texas. NRG markets and offers products to customers that include demand response, small scale solar, distributed generation, and energy storage through the competitive market. Since the opening of the competitive ERCOT market in 2002, Texas has seen more than 115 Retail Electric Providers (REPs) become certificated and more than 47,000 megawatts of new capacity development. This progress should not be undermined by TDU encroachment into competitive service offerings, including, but not limited to, energy storage."

NRG further said that, "ownership of energy storage constitutes the provision of a competitive energy service by a TDU in violation of 16 Texas Administrative Code (TAC) §§ 25.341(3) and 25.343(c). Second, ownership and operation of a battery storage facility violates the post-unbundling Public Utility Regulatory Act (PURA) § 39.105(a) prohibition against a TDU's sale of electricity or participation in the market for electricity. Third, PURA § 35.152(a) defines electric energy storage facilities as 'generation assets.'"

Texas Competitive Power Advocates said that PURA §§ 35.151 and 35.152 classify electric energy storage equipment or facilities that put or take electricity from the bulk power system as generation and requires that an owner of such assets register as a power generation company.

Such sections, and a specific grandfathering of an existing utility-owned battery when such sections were adopted, "make[] it abundantly clear that, absent a specific statutory exemption from these sections, there is no circumstance in which a TDU may legally own an energy storage device or facility," TCPA said

"Since the Commission derives its rulemaking authority from the Legislature and there is no provision of SB 943 or any subsequently enacted legislation that provides the Commission authority to promulgate an exception to this law, TCPA does not believe that any legal authority currently exists that would allow such an exception to be ordered or established by rule," TCPA said

Project 48023

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