Utility-scale energy storage — that is, those big battery arrays that can serve entire neighborhoods — hold great promise both for energy conservation and grid reliability. But the quickly advancing technology also raises tough regulatory challenges, especially for complex power markets like that existing in Texas.

The Public Utility Commission, the state’s primary energy regulator, now promises to consider some of those issues head on. In the aftermath of a recently failed battery proposal by a state utility, the PUC has agreed to consider power storage rules that eventually could impact the state’s electric distribution networks, its grid reliability — even consumer rates.

The PUC is considering battery storage issues.

A number of energy storage projects already operate in Texas, but only within its competitive wholesale power market. There’s the two-megawatt Elbow Creek project in Howard County, for instance, and the much larger 20-megawatt project near Roscoe.  Falling technology costs have led to the deployment of another 700 megawatts nationwide, or roughly enough for 140,000 homes during a hot summer’s day.

Batteries present comparatively few regulatory challenges when deployed in competitive wholesale markets. Deploying them in regulated distribution networks, however, is another matter entirely.  Batteries share some characteristics of revenue-producing generators but when they are deployed by distribution utilities they also become regulated assets.  At least potentially this arrangement violates a bright-line division within the Texas deregulation law between regulated transmission-and-distribution providers on the one side, and competitive generators and retail electric providers on the other.

Policymakers, utilities and stakeholders in Texas have been grappling with these sorts of issues for years. In 2016, for instance, Oncor floated a multi-million-dollar proposal to install batteries on various nodes of its central Texas power network. That plan eventually fizzled after legislation needed to move it forward failed in Austin.  More recently, AEP Texas proposed installing lithium-ion batteries on its distribution network in the communities of Woodson and Paint Rock. That bid also failed after a number of parties — generators, consumer groups and retail electric providers among them — raised objections at the PUC.

But it was this second proposal that has prompted the PUC to examine battery storage issues more generally. Had that AEP proposal moved forward, the batteries would have served a relatively small number of customers and only during infrequent intervals. AEP argued the project made economic sense because it would have taken the place of a more expensive substation upgrade.


What are some of the issues raised by the AEP proposal? As a regulated transmission and distribution utility, the company operates outside the state’s competitive energy market. The PUC sets AEP’s rates and its captive customers must pay them. But the proposed batteries, said opponents, would have had some characteristics of competitive generation assets, albeit ones inappropriately subsidized by ratepayers.

AEP also wanted to count power stored and discharged by its batteries as “unaccounted for energy” for regulatory purposes, and spread that cost to ratepayers generally. Opponents said this was unfair. The batteries, if deployed when power otherwise is running short, also theoretically could suppress wholesale power prices and potentially cut into the revenue of generators operating in the competitive wholesale market.

PUC Chair DeAnn Walker

“AEP’s proposed batteries would be used to provide ‘competitive energy services’ that [transmission and distribution utilities] are prohibited from providing,” wrote attorney Katie Coleman in testimony she filed on behalf of an industrial consumer coalition.

“It is undisputed that, if AEP were to construct sufficiently robust transmission and distribution facilities at Woodson and Paint Rock, (power generators and retail electric providers) would be capable and willing to provide sufficient power to customers,” she wrote. “But instead of building traditional transmission or distribution infrastructure to ensure appropriate reliability and support competition in Woodson and Paint Rock, AEP intends to bypass the competitive market.”

AEP, for its part, said the batteries did not meet the statutory definition of a competitive generation asset because (among other reasons) the utility would never use them to sell energy.  AEP also said the batteries would have employed minuscule amounts of energy, and thereby would have had an insignificant impact on the competitive market.

Most important of all, the batteries made bottom-line economic sense, according to AEP, because they would have cost much less than a substation upgrade. “In appropriate applications, utility batteries can provide substantial cost savings,” the company stated in regulatory briefings.

The PUC rejected the AEP proposal in February “without prejudice,” meaning that the agency can take up all the questions and objections raised by parties in the new rule-making project.  Even in voting against the utility, PUC Chair DeAnn Walker thanked AEP for teeing up important policy issues.

“In the changing environment in which we live, there are new technologies that could hold significant promise to Texas customers more reliably and efficiently,” she said.

The PUC in February opened its new “Use of Non-Traditional Technologies in Electric Delivery Service” rulemaking docket, which can be found here.  AEP said it’s eager to make its case and move forward.

— R.A. Dyer