WSGR ALERT

Washington Utilities and Transportation Commission Proposes Innovative Analysis to Support Energy Storage Development and Deployment

March 20, 2017

On March 6, 2017, the Washington Utilities and Transportation Commission (WUTC) released a Draft Report and Policy Statement on the Treatment of Energy Storage Technologies in Integrated Resource Planning and Resource Acquisition (the "Draft Policy Statement"). The innovative Draft Policy Statement proposes to overhaul the integrated resource planning (IRP) process to ensure that the state's utilities are properly calculating the value that energy storage resources can bring to the utility's system. Comments on the Draft Policy Statement are due by April 3, 2017.

In the Draft Policy Statement, the WUTC sets forth a plan to level the playing field for energy storage to compete during the IRP process by adopting "a new planning framework that more cohesively considers the relationship between generation, transmission, and distribution, allowing for a fair evaluation of hybrid resources such as energy storage." Under the existing IRP process, utilities evaluate generation, transmission, and distribution in independent silos, and the Draft Policy Statement points out that such analyses may undervalue energy storage assets. According to the WUTC, energy storage has been disadvantaged in the traditional IRP process "because the existing planning regime narrowly looks at the functions separately, [and thus] energy storage is unlikely to appear cost effective through the lens of any single function."

Under the revised IRP process, utilities would be required to demonstrate that they have: (i) "reasonably considered all of the costs and benefits of each option, to allow for comparison on similar terms and planning assumptions"; and (ii) "evaluated an energy storage alternative to other resource options for any new resource acquisition." Furthermore, the WUTC recognized that energy storage resources create benefits that are currently unquantified in the IRP process, such as resiliency and reliability, and noted that the WUTC would consider and give weight to the acquisition of an energy storage asset that is not the least-cost option to allow for these benefits to be factored into a utility's evaluation of resources.

In the Draft Policy Statement, the WUTC explains that hourly models mask the benefits of energy storage resources. To more accurately evaluate the value of storage, the WUTC is proposing to require utilities to transition to modeling resources on a sub-hourly basis. While utilities develop the tools to perform sub-hourly modeling, as an interim measure, the WUTC proposes to adopt the "Net Cost" model that the Energy Storage Association recommended in prior public comments.1 Under the Net Cost model, utilities would be required to use a third party's model that is "capable of modeling the sub-hourly benefits of storage over the resource's useful life, including transmission and distribution benefits, then calculate the net present value of those benefits and deduct that value from the resource's modeled capital cost in the IRP." The WUTC also acknowledged that the cost of lithium-ion is dropping significantly while its technical capacities are being enhanced rapidly. Thus, they stressed that modeling software must be populated with reasonable learning curves for the various energy storage technologies and the most up-to-date cost and performance information. Indeed, as the WUTC identified, "the price of utility-scale lithium ion batteries decreased by a range of 11 to 24 percent, depending on the application" from December 2015 to December 2016.2

The WUTC makes it clear that, in evaluating IRPs and conducting prudence reviews, it will scrutinize the assumptions for capital costs and performance data as well as the methodology behind learning curves for various storage technologies projected in the model. Such scrutiny would pressure utilities to work with storage industry stakeholders to obtain the latest cost and performance figures. This should make energy storage assets more competitive in the IRP process, given that the cost of lithium-ion technology is expected to decrease exponentially going forward. Stale cost and performance figures would lead utilities to project higher capital costs and lower performance of storage assets, thus causing utilities to undervalue storage in evaluating resources.

Additionally, the WUTC has proposed to require the state's utilities to acquire energy storage resources through a competitive procurement process and should issue "request for proposal (RFP) documents that are technology neutral, clearly identify the suite of services that the utility expects the resource to provide, and the values of those services." Furthermore, the WUTC encouraged utilities to be transparent and provide cost data, "such as their Open Access Transmission Tariff (OATT) rates, so that bidders can identify the value of ancillary services on the utility's transmission and distribution system and better tailor their bids to fit the utility's specific needs."

In large part, the Draft Policy Statement focuses on front-of-the-meter utility-scale projects, but the WUTC acknowledged the role of behind-the-meter energy storage, and (i) noted that it is "willing to consider rate design proposals for all customer classes that accurately reflect the cost of serving customers during high-demand periods" and (ii) encouraged "utilities to work with WUTC staff and other stakeholders to facilitate the deployment and aggregation of behind-the-meter storage resources to reduce peak demand." This suggests that the WUTC would entertain rate-design proposals that incorporate time-of-use rates for customers who have customer-sited behind-the-meter storage. The introduction of time-of-use rates plus the ability to aggregate behind-the-meter storage could be a market-maker for behind-the-meter storage. Similar market mechanisms in California have supported business models that simultaneously serve customers through cost-saving arrangements and utilities by providing demand response services.

If implemented as proposed, the WUTC's Draft Policy Statement takes would take an innovative approach to encourage energy storage procurement by ensuring that the state's utilities: (i) properly value energy storage as an alternative to any new resource acquisition through sub-hourly modeling; (ii) evaluate how energy storage resources can reduce the costs of transmission and distribution; and (iii) have the option to select a storage asset that is not the least-cost option when taking into account the currently unquantified benefits of storage, such as resiliency and reliability. These changes combined would likely make storage assets more competitive and potentially reduce the aggregate capital cost of new resources to be acquired, individually and/or on a system-wide basis, where a storage asset or assets can replace multiple independent traditional resources at a lower cost than the combined cost of the traditional resources. While the WUTC's proposal is not a mandate for a specific number of megawatt-hours of storage to be procured, it may have a similar effect and create tremendous opportunity in Washington State for energy storage developers and utilities, as well as serve as a foundation upon which other state commissions can rely to encourage energy storage procurement.

For more information about the WUTC's Draft Policy Statement or any related matter, please contact Todd Glass (206-883-2500), Heather Curlee (206-883-2522), or any member of the energy and infrastructure practice at Wilson Sonsini Goodrich & Rosati.

Jonno Boyer-Dry contributed to the preparation of this WSGR Alert.


1 These comments were submitted in response to the WUTC's solicitation for public comments on its rulemaking proceeding to consider revising its rules related to integrated resource planning in WAC 480-90-238 (natural gas), WAC 480-100-238 (electric), and its resource acquisition rule in WAC 480-107 (Docket U-161024).
2 Lazard, "Lazard's Levelized Cost of Storage Analysis 2.0—Key Findings" at 3.