The Washington State Utilities and Transportation Commission (the “WUTC”) has issued a Draft Report and Policy Statement on Treatment of Energy Storage Technologies in Integrated Resource Planning and Resource Acquisition (the “Draft Report”) in connection with two consolidated dockets, UE-151069 and U-161024 (the “Dockets”). The Draft Report is intended to provide useful guidance regarding energy storage technologies to investor-owned utilities (“IOUs”), vendors seeking to promote energy storage for use by IOUs, and anyone interested in the use of energy storage on electric distribution systems. The WUTC is seeking comments to the Draft Report by 5:00 pm on Monday, April 3, 2017 for the WUTC’s consideration in preparing its final policy statement on the Dockets.

Before issuing the Draft Report, the WUTC held two formal workshops and solicited two rounds of comments. Commenters generally agreed that current integrated resource planning (“IRP”) models are inadequate for purposes of capturing the benefits of energy storage technologies. The following is a summary of the WUTC’s conclusions and guidance with respect to investments in energy storage technologies.

Cohesive Resource Planning To Replace Current Siloed Approach

The WUTC concludes in the Draft Report that current IRP models are inadequate in large part because the planning regime provides for separate evaluations of energy storage technologies within the independent silos of generation, transmission, and distribution. The WUTC notes that energy storage technologies will most likely be required to perform more than one function and that a more comprehensive framework must be used to properly evaluate the “stacked” costs and benefits of energy storage across these functions

Mandatory Evaluation of Energy Storage Technologies

To that end, the Draft Report requires that any IOU seeking a prudence determination from the Commission for any investments in generation, transmission, or distribution projects must demonstrate that the IOU’s analysis of alternative resource options has included a storage alternative and has considered all of the associated costs and benefits of each option. Consistent with previously established principles of prudence with respect to resource acquisitions[1],the IOU must also demonstrate that it has adequately evaluated a range of energy storage technologies against other options in its IRP. Analyzing only one or two types of storage technologies will not be sufficient. Finally, the Draft Report finds that given the trend of rapid cost declines for various energy storage technologies, IOUs should apply a reasonable learning curve to account for forecasted cost declines, particularly with respect to modeling such resources at a size sufficient to be captured within the IRP model.

Shift From Traditional Hourly to Sub-Hourly IRP Models

The WUTC further concludes that traditional hourly IRP models do not adequately recognize the benefits of energy storage technologies. The WUTC intends to set a reasonable timeline for requiring the use of sub-hourly models in its ongoing IRP rulemaking. In the meantime, the Draft Report directs IOUs to use an external model capable of measuring sub-hourly benefits, including transmission and distribution benefits, to model energy storage over the resource’s useful life, and 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 recommends that cost data in modeling assumptions be procured from reliable, independent third parties.

Competitive Procurement and Funding

The WUTC notes that energy storage resources should be competitively procured through requests for proposals. However, the WUTC also notes that it is willing to accept some degree of uncertainty with respect to the benefits of energy storage acquisitions. The Draft Report indicates that the WUTC will even consider and give weight to energy storage acquisitions that are not the least-cost option, provided that they are reasonably competitive. The Draft Report also provides that IOUs will be expected to demonstrate that they have been actively pursuing funding opportunities to effectuate cost sharing between government agency grants and ratepayers to minimize risks inherent in evaluating new products and services.

Looking Ahead

The WUTC concludes the Draft Report by noting that the WUTC is open to considering an IOU’s procurement of energy storage resources as a component of the IOU’s rate base, but that such procurement must follow the guidance in the Draft Report. Because Washington is not part of an organized energy market, it would not be subject to the recently proposed rules of the Federal Energy Regulatory Commission (“FERC”) to remove barriers to entry and improve market access for energy storage resources. However, it is clear from the Draft Report that the WUTC intends to follow FERC’s leadership in requiring IOUs to quantify and monetize the value of energy storage in their IRPs and ensure that IOUs will identify and pursue energy storage projects that will improve system operations and reduce costs for ratepayers. The Draft Report provides tremendous opportunities for investors, vendors, and other stakeholders in the energy storage sector. The Draft Report may also be a model for other states in evaluating how to better incorporate energy storage into their resource planning programs.