Accounting for New Technologies Storage Batteries May 2017 Pei Sue Ong, Capital Accounting Advice Manager Pacific Gas and Electric Company 1
Agenda 1. Storage Battery Technologies 2. PG&E Owned Storage Batteries 3. Existing CPUC Decisions on Battery Storage 4. Accounting and Recovery Considerations 2
Total Deployed Grid Storage Worldwide, January 2016 3
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PG&E Owned Storage Batteries Vaca Dixon 2 MW / 14 MWh Sodium-Sulfur (NAS) Battery Vaca-Dixon Substation Yerba Buena 4 MW / 28 MWh NAS Battery Customer R&D Facility, San Jose Project Initiation: 2007 Operational Date: August 2012 Commenced CAISO Market Ops: Aug 2014 Project Initiation: 2007 Operational Date: May 2013 Completed Islanding Commissioning: Sep 2013 5
PG&E Owned Storage Batteries Browns Valley Energy Storage Specs: 500 kw / 4 hour Tesla lithium-ion Commercial Operation Date: Jan 2017 Use Case: Peak shaving EPIC (Electric Program Investment Charge) Program (R&D) funded project Separate fence from substation Connected directly to 12kV feeder Site 6
Key Events Surrounding Battery Storage PG&E initiated it s first NAS battery storage facility Dec 2010 CPUC initiated the Energy Storage Rulemaking proceedings May 2013: Yerba Buena go live Biennial solicitation cycles Achieve 1.325 GW of energy storage 2007 2010 2012 2014 2016 2018 2020 2022 2024 Sept 2010: CA Assembly Bill (AB) 2514 - to investigate energy storage benefits and feasibility Aug 2012: Vaca Dixon go live Oct 2013: CPUC approved Energy Storage Procurement Framework and Design Program: 1) Procurement target: 1.325 gigawatts of energy storage to be procured by 2020 (installed prior to end of 2024) for 3 CA utilities 2) Mechanisms to procure storage 3) Program evaluation criteria Jan 2017: Browns Valley Energy Storage go live 7
Approved Energy Procurement Targets (in MW) 8
FERC Order 784 FERC Order 784: Accounting and Financial Reporting for New Electric Storage Technologies (July 18, 2013) Objective: Provides visibility into operation and finances of electric assets and support policy decisions and rate development by FERC and State Commissions. For accounting purposes, utilities may set initial rates for new energy storage assets based on manufacturer or utility estimated service lives that are supported by engineering, economic or other studies (paragraph 178) EEI explained that the current storage batteries are expected to be approximately 10 to 15 years. (paragraph 178). 9
FERC Order 784 (Contd.) Where energy storage equipment can perform more than one function or purpose, the cost of the equipment shall be allocated among production, transmission, and distribution plant based on the services provided by the asset and the allocation of the asset s cost through rates approved by a relevant regulatory agency. Reallocation of the cost of equipment recorded in this account shall be in accordance with CFR Electric Plant Instruction No. 12, Transfers of Property. Defined the chart of accounts for where related energy storage costs should be recorded/presented. Utilities should use a single depreciation rate for an energy storage asset regardless of the number of functions to which the costs of the asset are allocated. 10
Accounting Considerations 1. Classification of asset Based on asset function or purpose (per FERC Order 784) For assets that perform more than one function or purpose, costs will need to be allocated among the relevant energy storage plant accounts based on the functions performed by the assets. 2. Life of asset: Manufacture estimated service life, or extended warranty. 3. Asset retirement obligations According to ASC 410-20, Accounting for Asset Retirement Obligations, if these disposal costs result from legal obligations, then company must recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred The Statement defines legal obligations as An obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. 11
Accounting Considerations 4. Grants and Rebates IAS 20, Accounting for Government Grants and Disclosure of Government Assistance (paragraph 24) ~ grant benefit could be presented as a basis reduction to the property or as a separate deferred revenue account. FERC Electric Plant Instruction No. 2, Electric Plant To Be Recorded at Cost, Contributions in the form of money or its equivalent toward the construction of electric plant shall be credited to accounts charged with the cost of such construction. 5. Costs incurred for competitive solicitation bids (e.g. preliminary survey, feasibility study, etc.) Excerpt from ASC 970-340-25-3, Other Assets and Deferred Costs All other costs related to a property that are incurred before the entity acquires the property, or before the entity obtains an option to acquire it, shall be capitalized if all of the following conditions are met and otherwise shall be charged to expense as incurred: a. The costs are directly identifiable with the specific property. b. The costs would be capitalized if the property were already acquired. 12
Reference Materials FERC Order 784 Definition: An energy storage asset shall be defined as property that is interconnected to the electrical grid and is designed to receive electrical energy, to store such electrical energy as another energy form, and to convert such energy back to electricity and deliver such electricity for sale, or to use such energy to provide reliability or economic benefits to the grid. The term may include hydroelectric pumped storage and compressed air energy storage, regenerative fuel cells, batteries, superconducting magnetic energy storage, flywheels, thermal energy storage systems, and hydrogen storage, or combination thereof, or any other technologies as the Commission may determine. 13
FERC Order 784 (Contd.) Example of assets or technologies that are exempted: 1. Batteries used primarily in connection with the control and switching of electric energy produced and the protection of electric circuits and equipment that are recorded in the following existing FERC accounts: Account 315, Accessory Electric Equipment Account 324, Accessory Electric Equipment (Major Only) Account 345, Accessory Electric Equipment 2. Batteries used in connection with controlling station equipment or for general station purposes that are recorded in the following existing FERC account: Account 353, Station Equipment 3. Batteries used in connection with controlling station equipment or for general station purposes that are recorded in the following existing FERC account: Account 362, Station Equipment 4. Compressed air systems used for pneumatic or air tools that are recorded in the following existing FERC accounts: Account 316, Miscellaneous Power Plant Equipment Account 325, Miscellaneous Power Plant Equipment (Major Only) Account 346, Miscellaneous Power Plant Equipment 14
FERC Order 784 Chart of Accounts Plant / Capital accounts Generation Transmission Distribution Description A/c 348, Energy Storage Equipment-Production A/c 351, Energy Storage Equipment-Transmission A/c 363, Energy Storage Equipment-Distribution O&M Expense Accounts Production Transmission Distribution Operation of Energy Storage Equipment Maintenance of Energy Storage Equipment A/c 548.1 A/c 562.1 A/c 582.1 A/c 533.1 A/c 570.1 A/c 592.2 Power Purchased for Storage Operations 1 A/c 555.1 - - 1 Used to account: Cost of power purchased and stored for resale Cost of power purchased for consumption during provision of services Cost of power purchased to sustain a state of charge (but not to initially attain a state of charge) 15