Type: Client Alerts
As an increasing number of energy storage projects begin to come online, developers should expect that regulators will continue to develop and refine the second tier, nitty-gritty, regulatory policies that might affect the energy storage industry for years to come.
A recent example was the Federal Energy Regulatory Commission’s (FERC) decision in PJM Interconnection, L.L.C., et al., in which FERC accepted a Commonwealth Edison Company (ComEd) filing to allow ComEd to begin assessing a wholesale distribution charge on Energy Vault, LLC, the developer of a battery energy storage project, seeking network integration transmission service (NITS). ComEd decided to treat Energy Vault as it would a load-serving entity (LSE) taking service on ComEd distribution facilities, and based its rate on Energy Vault’s withdrawals of energy from ComEd’s distribution system for recharging. In other words, ComEd proposed to treat Energy Vault as an LSE using ComEd’s distribution facilities to purchase electricity to serve its load. ComEd proposed a charge of $3,449 annually for the service.
Not fully addressed was the larger issue of how energy storage projects should be charged for transmission service over distribution facilities.
How Should “Service” Be Defined? The Energy Storage Association (ESA) contested the filing, arguing that energy storage assets should only be allocated any transmission or distribution demand charges that are not paid by traditional supply resources providing the same services to the grid. The gist of ESA’s argument was that distribution-connected energy storage resources are not serving load, and that the absorption of energy by the storage system is not consumption, but rather a reduction in generation similar to the reductions made by traditional supply resources when providing applicable ancillary services. The ESA essentially argued that the only consumption of energy by a storage plant is that of auxiliary loads and system losses, which would generally be much lower than the amount of energy used for recharging.
FERC accepted ComEd’s argument that a storage device in charging mode uses its distribution system just like any other load, including the station power load of traditional generation resources. ComEd argued that, unlike generation resources – which pay station power charges that include a distribution delivery component – distribution-connected storage resources do not face station power charges. Thus, ComEd argued that it needed some other mechanism to recover Energy Vault’s share of the cost of the distribution facilities it will use.
Consequently, FERC accepted for filing ComEd’s proposal to charge Energy Vault a wholesale distribution charge based on Energy Vault’s withdrawals of energy for recharging, which FERC held ensures that Energy Vault shares in the cost of the distribution system that it needs for use to recharge its batteries.
ComEd’s NITS Rate Design for Energy Vault The rate that Energy Vault will pay is based on the methodology that ComEd uses to assess wholesale distribution charges for customers connected to ComEd’s distribution system, which is set out in Attachment H-13 to the PJM OATT. Under this methodology, ComEd identifies the distribution facilities that will be used to provide service to an LSE, and an annual fixed-charge rate of 24 percent is applied to the net distribution of the plant (investment in distribution plant assets less accumulated depreciation) that is directly assigned to an LSE customer based on the customer’s share of non-coincident peak loading of the distribution facilities necessary to provide the service. The non-coincident peak loading will be determined based on the customer’s individual peak demand over the pertinent ComEd distribution facilities system, not its load at the time of ComEd system peak demand on those facilities (which would be a coincident peak load).
What’s Next? It may be too early to speculate whether this decision will have much precedential effect with respect to other utilities, but it certainly could.
The ESA asked FERC to hold a technical conference to discuss, among other issues, the appropriate allocation of costs for storage resources when not providing wholesale market services. FERC demurred on the grounds that, because the wholesale distribution charges were being applied on a case-by-case basis, there was no need “at this time.”
This decision could be precedential because to the extent that utilities can use existing tariff structures to assess transmission charges to energy storage plants using distribution facilities, they will likely do so – developing new rate structures can be costly and time consuming. And this recent decision certainly provides one permissible way to treat an energy storage facility – as an LSE with its recharging being used as the basis of the service being compensated.
Regardless of whether the ESA can induce FERC to take a hard look at how energy storage facilities should be treated, energy-storage developers, when negotiating any transmission rate, should ask the following:
- Is the proposed cost nominal/immaterial over the term of the service?
- If not, (i) how does the transmitting utility propose to define the type of service needed by the energy storage facility, and (ii) exactly what costs does it intend to include in its rate design? (The ComEd rate design applied to Energy Vault is by no means the only rate methodology in use for distribution customers.)
Client Alert 2014-326