Policy Proceeding—Utilization of Storage Resources as Electric Distribution Assets Additional Questions; Doc. No. M-2020-3022877
[51 Pa.B. 5505]
[Saturday, August 28, 2021]
The Pennsylvania Public Utility Commission (PUC or Commission) issued a Secretarial Letter on December 3, 20201 , seeking input from stakeholders on the issue of energy storage resources as electric distribution assets. The Commission sought the information in order to help guide any potential future regulatory policies related to utilization of electric storage within electric utility distribution resource planning. The Commission requested responses to directed questions in the Secretarial Letter. Twenty-one stakeholders submitted comments on the three questions asked in the Secretarial Letter. For context, the questions were:
1. What applications can electric storage provide as a distribution asset for utilities that would facilitate improved reliability and resiliency?
2. What are the defining characteristics of electric storage used for distribution asset planning as distinguished from generation resources? What thresholds, if any, would classify electric storage as a generation resource and therefore outside permitted distribution ratemaking and recovery?
3. Is it prudent for utilities to include electric storage in their distribution resource planning and, if so, where and under what circumstances? Further, is it appropriate for utilities to include such investments in rate base?
Interested parties were invited to submit written comments for inclusion in the record with the Secretary of the Commission within thirty (30) days of publication in the Pennsylvania Bulletin. Comments were due by January 19, 2021.
On December 28, 2020, a motion for extension of time for comments was submitted by the Office of Consumer Advocate (OCA) requesting an extension of 30 days for interested parties to submit comments. On December 30, 2020, this motion was granted. The new deadline to submit comments was February 18, 2021.
The following parties filed comments: Clean Air Council (CAC), PJM Power Providers Group (P3), Edison Electric Institute (EEI), Monitoring Analytics, LLC, acting as the Independent Market monitor for PJM (IMM), UGI Utilities, Inc. (UGI), Natural Resources Defense Council (NRDC), Solar Energy Industries Association (SEIA), Calpine Retail Holdings, LLC (Calpine), U.S. Energy Storage Association (ESA), Energy Association of Pennsylvania (EAP), PPL Electric Utilities Corporation (PPL), PECO Energy Company (PECO), POWER Interfaith (POWER), Advanced Energy Management Alliance (AEMA), Convergent Energy + Power (Convergent), the Large Customer Group, FirstEnergy (Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company and West Penn Power Company, collectively), Duquesne Light Company (DLC), Retail Energy Supply Association (RESA), OCA and the Pennsylvania Department of Environmental Protection (DEP).
Nearly all commenters agreed that energy storage has the potential to improve reliability and resiliency on a distribution grid. While commenters offered their views on the answers to the questions asked in the Secretarial Letter, additional information is required to allow the Commission to formulate a clear policy on this matter. Several questions need to be answered if energy storage is to be considered a distribution asset.
To that end, the Commission wishes to seek further information from utilities and other stakeholders to clarify under what circumstances energy storage would be considered a distribution asset. This next iteration of questions will also help this Commission better coordinate future storage policy with recent policy advancements at the Federal level, namely the Federal Energy Regulatory Commission's Order 2222. To obtain this information, the Commission seeks responses to the attached directed questions. Each directed question includes background information that resulted from comments received from the December 3, 2020, Secretarial Letter, to better inform responses.
Interested parties are invited to submit written responses for inclusion in the record with the Secretary of the Commission within thirty (30) days of publication in the Pennsylvania Bulletin. Comments shall be filed consistent with the Commission's July 27, 2020, Secretarial Letter. Modification to Filing and Service Requirements Emergency Order, Doc. No. M-2020-3019262 (Secretarial Letter issued July 27, 2020). Under this Secretarial Letter, filings are to be made by e-filing or by electronic mail. This information can be found on the Commission's web site at www.puc.state.pa.us/efiling/default.aspx.
The contact persons for this matter are: Assistant Counsels Aspassia V. Staevska, (717) 425-7403, email@example.com, Joe Cardinale, (717) 787-5558, firstname.lastname@example.org in the Law Bureau; and Fixed Utility Financial Analyst David Edinger, (717) 787-3512, email@example.com in the Bureau of Technical Utility Services.
Directed Questions; Policy Proceeding—Utilization of Storage Resources as Electric Distribution Assets; Doc. No. M-2020-3022877
1) What are the parameters that would allow for the use of energy storage on the distribution grid? For example, what factors should be used in the consideration of the energy-storage project? Should the energy-storage project meet certain thresholds and demonstrate certain requirements, e.g., demonstration of cost-effectiveness as compared to alternate measures, demonstration of need, required RFPs to solicit potential third-party providers, limitations on project size and scope, etc.
Though many commenters agreed that energy storage has the ability to provide reliability and resiliency on a distribution grid, most expressed that there needs to be limits, rules, or at least, guidance on when it is appropriate to deploy energy storage on a distribution system. This includes the purpose of the energy-storage installation. In other words, under what regulatory/statutory framework would energy storage be a distribution asset?
Another consideration is the size limitations, in terms of nameplate capacity, that are acceptable for energy storage. For example, if an energy-storage system is designed to meet the specific need of voltage regulation, should the capacity be limited only to address this problem, or is it acceptable to size the system to provide additional capacity?
Most commenters agreed that energy storage needs to be a cost-effective solution. However, more information is needed to understand what elements would inform the cost-effectiveness test. Because of its versatility, energy storage has the potential to provide benefits other than resolving a specific resiliency or reliability problem. Should these other functions be considered in a cost-effectiveness test? For example, if a decision needs to be made as to whether to install an energy-storage system versus more traditional infrastructure upgrades, what other energy-storage functions should be considered when trying to determine which is more cost-effective?
2) What EDCs have undertaken energy-storage initiatives as a pilot program and what were the results and lessons-learned?
The lessons learned from EDCs who have introduced energy-storage initiatives as pilot programs would be helpful to understand some of the issues that surround energy storage. Indeed, their experiences may provide cogent information and better understanding of the proper framework for adopting an energy-storage policy. For example, the Maryland Public Service Commission has approved several pilot projects for EDCs and at least one for a third-party owner.
3) Under what circumstances is it appropriate to deploy energy storage as compared to traditional infrastructure upgrades?
Aside from cost-effectiveness, other questions need to be answered as to what circumstances would warrant energy-storage deployment instead of traditional infrastructure upgrades. While in some cases it might make sense to deploy energy storage as a cost-effective solution, energy storage should not be viewed as the appropriate solution in all cases.
For example, at the end of a circuit with no projected load growth, energy storage may be an appropriate solution for reliability issues. However, if there is an area experiencing new construction and where load growth is projected, it may be more appropriate to consider adding a substation now, at a greater cost, rather than deploying more inexpensive energy storage that may not be able to fulfill the load that is expected.
4) Who should own an energy-storage asset? EDCs, third-party vendors or some combination of both?
Most commenters expressed an opinion as to ownership of energy storage and there is valid reasoning behind all positions.
EDCs assert that they are in the best position to own and operate energy storage and can provide operational visibility that a third-party may not.
Those that view electric storage as a generation-only asset cite the legal framework that Pennsylvania uses that deregulates the generation and sale of electricity, particularly the Electricity Generation Customer Choice and Competition Act. Thus, they question the legality of EDC ownership.
Interestingly, most commenters agree, whether they view it as a distribution asset or a generation resource, that circumstances exist where energy storage is a viable solution to resiliency and reliability issues on the distribution grid. However, they assert that there needs to be a framework and rules for what can be done, depending upon the ownership model. For example, if EDCs own energy storage, their participation in wholesale or ancillary markets should be prohibited. Conversely, if a third-party owns the energy storage, they may participate in wholesale or ancillary markets, but their primary function should be to support the resiliency or reliability issue for which they were needed.
If a third-party owned model is pursued, the details of Request for Proposals for bidding purposes needs to be determined.
Energy-storage ownership needs to be explored further in order to provide clear guidance on the circumstances and processes of who should acquire and maintain control over the asset.
5) What processes should the Commission use to review requests to utilize energy storage as a distribution asset and recover associated costs?
If the model of energy-storage ownership is through an EDC, then questions need to be answered as to how the Commission should review the appropriate use and cost recovery of these assets. What form of review and approval process should the Commission utilize to render a determination on the appropriate treatment of a storage system as a distribution asset? How should the Commission exercise its prudency review: through the issuance of certificates of public convenience under 66 Pa.C.S. § 1102; a petition for declaratory order; as part of a base rate case review, or another type of proceeding?
6) What cost recovery mechanisms should be implemented for the ownership and operation of energy-storage assets?
Commenters gave varying responses to whether energy storage should be recoverable under the rate base as a distribution asset. Further examination of what cost-recovery mechanism to utilize may be warranted given that energy storage requires energy to charge and that it consumes more energy than it can dispense. This question seeks a more nuanced answer of how energy-storage asset costs are recovered. Should it be through § 1308 base rate for all costs, or a combination of § 1308 applicable to the capital costs of the battery system and § 1307 automatic adjustment for the energy cost associated with running the battery system?
What limits, if any, on the operation of the battery system by the EDC should be established for cost-recovery purposes?
Should the Commission allow EDCs to enter into distribution-related services provided by third party-owned energy-storage systems, and, if so, how should the EDCs recover these costs?
Should the Commission allow EDCs' storage systems to participate in the PJM wholesale markets and how should those revenues be treated? Should the PJM revenues be used to offset the costs of the electric storage system and be credited to customers? Would such a participation model alleviate competition concerns?
7) What are the appropriate models and limitations necessary to allow energy storage to participate in wholesale power markets?
Energy storage has several versatile functions. Some of these functions can address reliability and resiliency issues and some of these functions allow for participation in wholesale power markets. Generally speaking, what role does energy storage participating only in the wholesale markets have on the EDC distribution system operations?
While it is possible to serve these various functions simultaneously, there are issues surrounding EDC-owned energy-storage assets participating in energy, capacity, and ancillary power markets. Fundamentally, allowing EDC-owned energy-storage assets to participate in these markets may have a negative impact on these markets. And at the very least, it may go against the model of competitive markets for power generation. It is also possible that any revenue that an EDC generates from market participation could be used to offset costs, thus reducing customers' bills.
Conversely, allowing third-party ownership of energy storage would alleviate competition concerns. However, the fundamental issue here is how third parties are held accountable for their energy-storage systems to serve reliability and resiliency needs as its primary function while also participating in other power markets. While it is possible to do this, the rules would need to be articulated.
Finally, are there appropriate limits for the EDCs to place on the operation of such wholesale assets? Does this depend on whether the energy-storage asset participates in wholesale markets independently or through Order 2222 Distributed Energy Resource aggregation?
[Pa.B. Doc. No. 21-1409. Filed for public inspection August 27, 2021, 9:00 a.m.]
1 See the Secretarial Letter issued on December 3, 2020 at Doc. No. M-2020-3022877.
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