California PUC to consider rejecting 4-MW storage deal of Pacific Gas and Electric

Up for review at the Dec. 1 meeting of the California Public Utilities Commission members is a draft order from an administrative law judge that rejects a Pacific Gas and Electric contract with a 4-MW energy storage project.

This decision would reject an energy storage agreement proposed by Pacific Gas and Electric (PG&E) as part of its 2014 Request for Offers. The decision determines that Pacific Gas and Electric has not met its 2014 targets and that the 2016 storage target should be increased by 4 MW to account for this shortfall.

In December 2010, the commission opened a rulemaking to implement the provisions of Assembly Bill (AB) 2514, which directed the commission to determine appropriate targets, if any, for each Load-Serving Entity to procure viable and cost-effective energy storage systems and set dates for any targets deemed appropriate to be achieved.

Under this program, Pacific Gas and Electric sought approval of the results of its 2014 Energy Storage Request for Offers. PG&E said it continued to negotiate with additional bidders and would submit a second application if those negotiations proved fruitful. This current application is the result of those continuing negotiations. PG&E is seeking approval for an agreement with Stem Energy Northern California LLC to provide a total of 4 MW of resource adequacy resources aggregated from behind-the-meter storage devices. Protests were filed by the Office of Ratepayer Advocates (ORA) and jointly by Marin Clean Energy and Sonoma Clean Power Authority. A response was filed by the Green Power Institute.

PG&E received over 200 offers in the RFO consisting of more than 700 variations from more than 50 participants, which totaled over 5,000 MW of energy storage capability (including offer variations). PG&E’s evaluation began with Net Market Value, then looked at Portfolio Adjusted Value as the primary metric for assessing cost-effectiveness. Where projects had similar Portfolio Adjusted Values, PG&E chose offers that would lead to a diverse set of final agreements representing multiple technologies, sizes, configurations, online dates, and terms.

During its evaluation process and discussion with potential counterparties, PG&E determined that the initial agreement structure for behind-the-meter projects needed to be modified to address needs unique to the behind-the-meter developers. PG&E notified all participants that submitted behind-the-meter offers to submit a new offer structured as a capacity agreement with an energy settlement component.

The agreement now up for decision requires Stem to aggregate customers in PG&E’s service territory to deliver 4 MW of resource adequacy. Stem will develop, install, and operate energy storage projects at each customer site, provide charging energy to the storage projects through the customer meter, and deliver energy for on-site load reduction at the customer facility. The expected initial delivery date for the agreement is Sept. 1, 2017, with a duration of five years. PG&E will pay Stem a monthly payment comprised of a monthly capacity payment minus a monthly energy settlement amount.

The Independent Evaluator reports that Stem should have a reasonable prospect for success in completing the project as required by the agreement. The Independent Evaluator recommends the commission consider approval of the behind-the-meter agreement with Stem “based on the notion that experience with these types of resource adds value as a learning experience.”

ORA recommends that the commission not approve the Stem agreement because it is not cost-effective on either a Net Market Value or a Portfolio Adjusted Value basis, and was not competitive compared to other offers outside of the behind-the-meter sector. Citing the Independent Evaluator, ORA also notes that PG&E’s evaluation of behind-the-meter resources did not follow a Least-Cost Best-Fit evaluation methodology. Additionally, ORA argues that the agreement is not needed to fulfill PG&E’s resource adequacy obligations and therefore the fact that the agreement provides resource adequacy is not adequate justification for approval.

Stem argued in favor of approval of the agreement because “[i]t contains an innovative pricing mechanism that encourages the project to more actively participate in the California Independent System Operator (CAISO) markets, thus providing higher value RA [resource adequacy] for California ratepayers.” Stem argued that the pricing approach makes this agreement superior to traditional demand response programs and the early online date is beneficial for testing this pricing mechanism. Stem also noted that the agreement provides a superior resource to demand response because it will allow customers to maintain their operations without need for backup generators, reducing the local air quality issues that occur when backup generation is relied on to accomplish demand reductions. Stem believes this “is the ideal project to demonstrate how clean [behind-the-meter] BTM storage can benefit California ratepayers.”

PG&E’s primary argument in favor of the agreement is that it introduces additional diversity into PG&E’s storage portfolio and provides a low-cost means to gain experience utilizing behind-the-meter storage to deliver resource adequacy. PG&E states that it “made a cost/benefit tradeoff in order to consider other qualitative factors when evaluating potential storage projects.”

Said the draft ALJ order up for commission review on Dec. 1: "We agree that there is value in adding diversity to the portfolio and gaining experience to support behind-the-meter storage, and support the inclusion of the innovative pricing mechanism in this contract that would encourage the project to bid into the CAISO market more frequently. Enabling multi-use storage applications, particularly as it relates to the participation of behind-the-meter energy storage assets in the wholesale market, is one of the key issues currently being considered in both the energy storage Rulemaking (R.) 15-03-011 as well as Phase 2 of the California Independent System Operator’s Energy Storage and Distributed Energy Resources stakeholder initiative.

"With that said, given the requirement in Pub. Util. Code §§ 2835 et seq. for energy storage projects to be cost-effective, and for the reasons below, we ultimately conclude that the agreement should not be approved. In comments on the proposed decision, Stem encourages the Commission to compare how its project compares to other, similarly situated behind-the-meter projects, and that the unique benefits of this agreement should be considered and evaluated. We disagree. The investor-owned utilities were given a wide degree of freedom to propose their own methodologies to evaluate the range of costs and benefits of energy storage bids. As part of the 2014 energy storage procurement plan proceeding, parties had the opportunity to vet PG&E’s proposed Portfolio Adjusted Value costeffectiveness methodology, which was later adopted by the Commission in D.14-10-045, and used to evaluate PG&E’s first application for its 2014 storage contracts in D.16-09-004. Amending PG&E’s cost-effectiveness methodology at this stage, after bids have already been short-listed, not only conflicts with the Commission’s previous established policies, but would set an inconsistent standard to evaluate whether a project is cost-effective, as required by Pub. Util. Code §§2835 et seq, and would be unfair to other potential 2014 energy storage providers that participated in PG&E’s process.

"Moving forward, we encourage PG&E to continue to seek new and innovative storage projects, and to work with bidders so that contracts may be structured in a way that aligns with PG&E’s portfolio needs. We also remind PG&E that it is always free to pursue projects it believes are cost-effective within its normal planning and acquisition framework and support the reasonableness of those costs through ex-post reasonableness review as needed. From that perspective, there is also nothing prohibiting PG&E from working with Stem to restructure the contract and refile the project in the next application cycle. If such a filing were to be made, we would consider the new filing on its own merits, and based on PG&E’s approved cost-effectiveness methodology.

"As part of the scope of this proceeding, we asked what remedy should occur if PG&E has not met its 2014 Energy Storage target. PG&E proposes that any shortfall be incorporated into its 2016 energy storage target. ORA agrees with this recommendation. The 2016 energy storage target was adopted in D.16-09-007. We agree that in light of the shortfall only being four MW, the simplest and most logical outcome is to add four MW to the adopted 2016 target, resulting in a new 2016 target of 119.3 MW."

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.