New York Utilities Seek Authority To Own Energy Storage As Part Of Competitive Procurement Process

November 2, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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Proposing various changes to the competitive procurement process established to meet New York's targets for energy storage, the joint New York utilities proposed, "an additional procurement option whereby the utility could solicit and purchase a storage project from a developer upon project operation and, after an established ownership period, seek to sell the storage project if the sale would produce a customer benefit."

The Joint Utilities are Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New York State Electric & Gas Corporation, Niagara Mohawk Power Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric Corporation.

The Joint Utilities said, "Given that the NYISO's market rules for energy storage systems are at an early stage, leading to consequent revenue uncertainty, the Joint Utilities recommend including an additional option for procuring energy storage resources in the next round of RFPs. Specifically, the Joint Utilities urge the Commission to allow the utilities to solicit bids from energy storage providers to develop turn-key projects that the utility would purchase and own for an appropriate period, for example, five years, upon consultation with Staff, at the end of which time the utility would conduct a two-step request for information (RFI)/RFP process to evaluate interest from and execute contracts with third parties to purchase the storage assets. Prior to initiating the RFI/RFP process, the utility would develop with Staff a bid floor to help in providing a fair price for utility customers. In the event of insufficient interest in the RFI stage or bids in the RFP stage below the bid floor, the utility would retain ownership for two additional years at the end of which time the utility would repeat the RFI/RFP process."

"The option to sell the project to the utility would address concerns regarding the uncertain revenues from energy storage projects and could appeal to entities more interested in developing than owning energy storage systems such as engineering, procurement, and construction (EPC) firms that have been a vital component of New York's commercial and utility-scale energy storage project market. Under this approach, the utility would also contract with the developer to provide the project with operational and maintenance (O&M) services for the initial contractual period, with optional two-year extensions. The Joint Utilities propose this utility ownership model as an additional pathway to developing energy storage projects that would ultimately be owned and operated by competitive market participants," the Joint Utilities said

"During the period of utility ownership, the utility would capitalize and recover in base rates from all customers the revenue requirement of the storage project and would similarly credit net revenues received from operating the storage project to all customers. Upon sale of the storage project, any resulting net gains or losses would be distributed to or recovered from all customers," the Joint Utilities said

"Accordingly, the Joint Utilities request that the Commission modify the requirements of the Energy Storage Order to authorize the utilities to include, as one option among others, solicitation of bids to purchase new energy storage projects from developers, with utility ownership to begin upon project operation, and continue for an initial period, such as five years as described above. Under this model, the developer would provide O&M services to the utility throughout the period of utility ownership. After the initial contractual period, the utility would sell the storage resource through a competitive RFI/RFP process if the highest offer is above the utility's established offer floor. Otherwise, the utility would continue its ownership for continued customer benefit for two additional years at which time another RFI/RFP process would be conducted," the Joint Utilities said

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