PUCO Staff Recommend That If Utility's Sought Battery Storage Allowed To Participate In Wholesale Market, Participation Be Initially Limited To Regulation Service

May 20, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Public Utilities Commission of Ohio have filed comments on a battery storage project proposed by Duke Energy Ohio, and said that, if the Commission authorizes the project to participate in the wholesale market, such authority be limited to the 'Regulation D' frequency market, and any expansion into other wholesale markets should require the Company to receive prior approval from the Commission.

As previously reported, Duke Energy Ohio filed at the Public Utilities Commission of Ohio for approval of a battery storage pilot project to install a lithium ion battery, rated for approximately 3.95MW/8.9MWH, adjacent to the existing McMann substation in Union Township, Ohio.

Duke had proposed that, "If authorized by the Commission, the battery will also participate in the PJM regulation market when it is not otherwise needed to reduce peak load on the circuit."

Furthermore, Duke had said in its initial application that, "Duke Energy Ohio may potentially provide other services to PJM in the future as a result of the implementation of FERC Order 841 [electric storage participation in wholesale markets]."

Staff noted that, "To add additional value streams, Duke has requested the authority to allow its proposed battery storage facility to also participate in the PJM 'Regulation D' frequency market when it is not needed and when it will not affect the ability of the project to provide its primary function for distribution services. The Company has committed to credit the Rider DCI [Distribution Capital Investment] revenue requirement with all of the net revenues associated with participating in the wholesale market. The Company cites that it has previously been authorized to bid energy efficiency resources into the PJM wholesale market, both PJM’s capacity and energy markets, and then use the revenues to offset the cost of the energy efficiency programs through the applicable rider."

Staff said, "As described in the recent Distribution System Planning Workgroup report, under the current regulatory structure in Ohio, it is unclear whether electric distribution utilities (EDU) are eligible to own and operate energy storage, as it relates to EDU utilization of storage as a supply source. Until Commission guidance on this issue is provided, Staff generally supports battery storage pilot projects where EDUs participate in the wholesale market in order to optimize the project and generate revenues that will offset the cost of the investment. Staff notes that inclusion of these revenues may be what make the investment levels for the battery storage system commensurate with the cost of traditional grid solutions (i.e. the transformer and associated distribution system upgrades). Further, in the instant case, although Duke plans to install the battery storage facility before June 2022, its use to relieve circuit peak overloading in the distribution plant is not expected to occur before peak season 2024. Allowing the battery to participate in the PJM market could impact whether the battery would be fully used and useful before peak season 2024."

"However, Staff believes that, if Duke participates in the PJM wholesale market, the Company’s currently proposed allocation of the entire cost of the project to FERC USoA [Uniform System of Accounts] Account 363 (Energy Storage Equipment-Distribution) is inconsistent with the system of accounts prescribed by FERC in Order 748, the Duke Consolidated Case Stipulation, and the structure of Rider DCI. If the battery storage project operates in the PJM wholesale market, it would be providing a wholesale service and receiving revenue from that wholesale market. Therefore, the costs and revenues associated with these activities would not qualify as distribution functions under FERC USoA Account 363. The more appropriate account to allocate such battery assets is FERC Account 348, which relates to Energy Storage Equipment— Production. Rider DCI is only authorized to collect capital costs associated with FERC USoA distribution plant accounts 360-374, and not the production and transmission accounts listed above. Because the battery storage project is only authorized to recover costs that qualify for recovery under the Rider DCI FERC USoA accounts, Staff does not believe Duke can recover costs or credit revenues related to this battery storage project’s participation in the PJM wholesale market through Rider DCI as it is currently proposed," Staff said

"If the Company wishes to participate in the PJM wholesale market, Staff recommends that the Commission direct the Company to propose an alternate allocation method in which it designates costs and revenues between the appropriate FERC USoA accounts. One possible alternative would be for the Company to appropriately allocate the costs of the project, based on the distribution and production services provided, and then request recovery of only those costs associated with distribution service through Rider DCI. That way, both production-related costs and revenues could be dealt with separate from the distribution costs, as requested by FERC," Staff said

"If the Commission authorizes the project to participate in the wholesale market, Staff recommends the authority be limited to the 'Regulation D' frequency market, and any expansion into other wholesale markets should require the Company to receive prior-approval from the Commission," Staff said

Should the Commission approve the project, Staff recommends that the Commission limit the capital costs to $9.41 million, which is Duke’s projected costs without the addition of a $2.28 million (20%) contingency fund, regardless of whether the project participates in the wholesale market.

The Ohio Consumers' Counsel filed comments opposing Duke's application on several grounds, stating, "Duke has failed to meet that burden. Duke’s proposal lacks any support in demonstrating how the proposed battery storage is beneficial and will defer circuit investments and/or address reliability issues."

Moreover, OCC said, "Duke’s proposal to bid capacity from the battery storage project into the PJM regulation market contradicts Ohio law and results in costs being inappropriately charged to customers through Rider DCI [Distribution Capital Investment]."

"[T]he use of battery storage in the PJM market is an anti-competitive captive customer funded subsidy from base distribution rates that contradicts Ohio law. Duke’s proposal would unlawfully use the battery storage project that is paid for exclusively in regulated distribution rates through the DCI rider to provide generation services in the wholesale competitive markets that PJM administers," OCC said

Case 19-2223-EL-UNC

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