FERC Denies AEP's request to classify its middle creek energy storage project as a transmission asset
On July 22, 2020, in EL20-58, AEP requested FERC to determine that its Middle Creek energy storage project (Middle Creek) was eligible for cost-of-service recovery through AEP’s transmission formula rates, and specifically through the transmission accounts designated for such projects in Order No. 784. AEP asserts that Middle Creek is a transmission asset that has undergone full review through the PJM stakeholder process, and AEP does not propose that the project will participate in wholesale energy or capacity markets or provide ancillary services, and thus AEP does not propose to recover market-based revenues through those markets. Middle Creek is an innovative battery storage project that will provide an efficient and cost-effective solution to address outages on the AEP transmission system. AEP carefully analyzed the cause of those outages and potential alternative solutions, including tearing down and rebuilding 14 miles of transmission line segments, and determined that a properly sized battery storage solution would reduce customer exposure to the transmission outages at far less than the cost of the transmission rebuild project. The project went through the appropriate PJM stakeholder process, wherein it underwent the same review process as would a traditional wires solution. As such, AEP asserts that the Middle Creek Project is appropriately deemed a transmission project, consistent with the definition of a Transmission Facility under the PJM Tariff.
FERC determines whether an energy storage facility is a transmission asset on case-by-case basis by determining if the storage facility performs a transmission function. In its Order dated December 21, 2020, FERC found that the Middle Creek Project is not appropriately classified as a transmission asset eligible for recovery through AEP’s transmission formula rate. FERC found that the proposed operation of the Middle Creek Project, whereby the proposed battery storage device only discharges electric energy to serve retail load at the Middle Creek substation to which it is connected while configured in an islanding mode, demonstrates that it would serve a function more analogous to a backup generator serving a subset of retail customers than that of a transmission facility when restoring Middle Creek load. AEP stated that the Middle Creek substation was designed to be served by two transmission lines, each line from one of two transmission substations. While AEP asserted that the Middle Creek Project would “continue that arrangement by providing ‘looped-equivalent’ transmission service,” FERC was not persuaded that the Middle Creek Project would perform a transmission function or that displacing the need for a looped transmission facility necessarily provides for “looped-equivalent” transmission service. Although AEP asserts that the Middle Creek Project underwent the same review process as a traditional wires solution, FERC found that displacing the need for a transmission facility in a transmission planning process, such as through the Attachment M-3 process, in and of itself is insufficient to determine that a storage facility performs a transmission function. Rather, performance of a transmission function is a necessary consideration in determining whether a storage facility can be classified as transmission. Further, as AEP describes the Middle Creek Project in the Petition, the Middle Creek Project would not support transmission of electricity in interstate commerce, given the configuration of the facility when it will be called upon to discharge electricity. As stated by AEP, the Middle Creek Project will be configured to be in stand-by mode so that it does not inject power to the grid. When there is an outage on the transmission line to the Middle Creek substation, AEP will “move to ensure that the isolating breakers at the Middle Creek [s]ubstation (on the transformer high side) and Prestonsburg Station are open.” Only then will the battery discharge energy to the Middle Creek Substation in an islanding mode. Accordingly, the Middle Creek Project will never discharge energy while the Middle Creek substation is connected to the transmission system, and therefore transmission of energy in interstate commerce will not occur.
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Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.