Defining the Bounds of Batteries

Should utilities be able to rate base energy storage?


The versatility of energy storage is remarkable. But this multi-functionality presents challenges when it comes to defining the technology’s role and establishing regulatory policies. Is energy storage a generation or distribution asset? And should utilities be able to pass along the investment cost to consumers?

The state of Texas is currently deliberating these questions. While utilities across the state are able to own and rate base distribution lines, they are restricted in ownership of generation assets to protect consumers from paying duplicated recovery costs.  

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Texas’ current energy storage dialogue was prompted by an unusual project proposal. In 2016, American Electric Power (AEP) submitted a proposal to the Public Utility Commission (PUC) to install a 500-kW battery to augment a distribution substation and a 1-MW battery to support the distribution system in the case of failure. According to Microgrid Knowledge, the utility intends to use battery storage to support the existing distribution system instead of constructing a new transmission line, which, under Texas regulation, should allow it to incorporate the cost into its rate structure.

The proposal appears to have the consumer’s best interest in mind. The grid-scale energy storage project would only cost $2.3 million, as opposed to the $11.3–22.5 million estimated cost for a distribution system upgrade.

But rather than form a decision, the PUC chose to create an open discussion aimed at defining clear, forward-thinking parameters for storage assets. It is also considering how rate basing energy storage could offer companies like AES a competitive advantage over other power providers.

“The utility has proposed an innovative solution to serve their distribution customers with a battery storage option that potentially could be implemented at a lesser cost to the ratepayers than traditional transmission and distribution options,” PUC Chairman DeAnn T. Walker wrote in a memo. “In the changing environment in which we live, there are new technologies that could hold significant promise to serve Texas customers more reliably and efficiently.”

So at the end of the day, the question remains: how do we define parameters for such multi-talented technology? Do you think that utilities should be able to rate base energy storage? DE_bug_web

  • Henry Lee Everson PE.

    I think that once a System Upgrade is presented and found to meet sound engineering judgement, is safe and enhance reliability of electric service and approved by the necessary governing authorities, then Battery Storage should be allowed to be incorporated into the base rate structure.

    • Laura S.

      Thank you for sharing this perspective, Henry. That makes perfect sense to me.


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