The Texas Public Utility Commission is expected to address a lingering question this summer: Are utilities permitted to own battery storage to provide reliability solutions — if the competitive market there is unable to do so?
The microgrid industry sits on both sides of the issue. One group is saying that utilities won’t develop microgrids if they cannot own battery storage assets. The other is arguing that storage and generation are both competitive assets — ventures best left to unregulated arms of utilities, independent companies or energy customers.
American Electric Power-Texas brought the question before the utility commission in 2016. The company said that it required such a solution in remote areas of its distribution system.
While AEP said that it was not participating in the ancillary services market, competitive generators balked at the idea. They said that even if the utility was doing this for reliability reasons, it would serve to modify wholesale electricity prices within ERCOT, which manages the flow of electric power to more than 25 million Texans. The problem could compound if a utility owned several battery storage devices that charge and discharge.
“We support competitive solutions first,” says Suzanne Bertin, managing director of Texas Advanced Energy Business Alliance, in an interview. “But we have supported having the option for a utility to own storage in limited circumstances — with utility commission approval — where the competitive market has failed to provide a solution.”
She adds that the regulatory system should be modernized to support the opportunity for utilities to contract with distributed energy resources for reliability. “And they should be given a rate of return on those reliability contracts — to neutralize the inherent regulatory incentives they have to build more expensive wires solutions.”
Some background: When the electricity market was restructured in Texas in 1999, a bright line was drawn between wires companies that receive a regulated rate of return and the competitive market, generally. The goal was to ensure that the competitive market can provide as many services as possible. To that end, a few years ago, the Texas legislature designated energy storage as generation.
The utility commission didn’t deny AEP’s application but dismissed it and opened a rulemaking to take comments on utility ownership of storage and other issues. Stakeholders continued to disagree about where the line should be drawn regarding utility ownership of storage (Case 48023-70).
In its recent session, the state legislature took up the matter (SB 1941). While the initial bill would have allowed ownership in limited situations, by the time it wended its way through the process, it concluded that battery storage was a competitive asset and should be treated as such, providing no possibility for utility ownership. However, before any bill could be enacted, time ran out. Nevertheless, the legislature has signaled its intent that energy storage is a competitive asset.
“The competitive market in ERCOT has this bright line,” says Bertin. “That’s why we think this services contract model is the best way to fit storage into this structure. If you go down a path where utilities can deploy rate-base microgrids and/or distributed energy resources without prioritizing competitive market solutions first, that would be a fundamental market structure change that is too much to bite off.”
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