October 28, 2016

David J. Collins
Executive Secretary
Maryland Public Service Commission
6 St. Paul Street, 16th Floor
Baltimore, Maryland 21202
Re:

Proceeding on Transforming Electric Distribution Systems in Maryland; Public

Conference 44

Dear Mr. Collins:

I write today regarding the above referenced proceeding and, in particular, the issue of
energy storage.
Background
In May of 2015, the Public Service Commission (PSC or the Commission) approved
Exelon Companys acquisition of Pepco Holdings, Inc. (PHI). Condition 14 of the decision
read:
No later than July 1, 2016, Delmarva and Pepco shall make a filing with the Commission requesting that
the Commission initiate a proceeding to examine opportunities to transform the electric distribution grid,
including the incorporation of smart-grid technology, microgrids, renewable resources, and distributed
generation. As part of this filing, the companies shall request formation of a collaborative stakeholder
process to study relevant issues. Exelon shall fund up to $500,000 for the Maryland Public Service
Commission to retain a consultant to study relevant issues and/or facilitate the proceeding, and Delmarva
and Pepco shall not seek recovery in utility rates of this funding. 1

On June 30, 2016, PHI submitted the mandated voluminous filing. 2 On September 26,
2016, the Commission launched the instant proceeding. 3 The Notice lists seven topics the
Commission considers ripe for further exploration.
1

In the Matter of the Merger of Exelon Company and Pepco Holdings. Inc., Case No. 9361, at
A-19 (May 15, 2015).
2

Initial Considerations for Grid Modernization In Maryland, Case No. 9361 (June 30, 2016).

The topic that is of particular interest to me is energy storage. I have introduced several
bills related to energy storage in the Maryland General Assembly and participated in some
advocacy efforts to make sure that Maryland can be a research and investment hub for energy
storage. The Notice calls for classifying storage properly in Commission rules and policies and
valuing it appropriately as a distribution or customer-sited resource. 4 These are important
elements that should be considered but only scratch the surface of energy storage as a matter of
public policy. I hope the public conference is only the beginning of significant consideration
given to energy storage by both regulators and policymakers, including the General Assembly, in
Maryland. As you begin to consider regulatory matters related to energy storage, I ask that you
keep several broad principles in mind which will be described more fully in this letter:
environmental stewardship; forward thinking; flexibility; cost effectiveness; and regulatory
clarity.
The Benefits of Storage
By this point, the Commission is likely well aware of the many beneficial uses of energy
storage. Storage is not limited to batteriesalthough that is certainly a popular and growing
technologybut also includes flywheels, thermal, compressed air, pumped hydro, and more.
Some of these technologies are already well developed and deployed. Of the many beneficial
uses of energy storage, the one I am most excited by is its ability to better integrate generation
from renewable energy sources into our electric grid. Indeed, increased deployment of energy
storage will help the state meet and exceed its existing renewable portfolio standard goal. But
there are many other beneficial uses of storage including back-up power; pairing with microgrids
to create islands that are entirely disconnected from the grid; providing a flexible option for
peak use, base load, or reserve power; deployment in place of costly infrastructure upgrades;
frequency regulation and other ancillary services; and many others. 5 Taken together, these
beneficial uses can mean less pollution, less cost, and more flexibility.
Storage Policy in Maryland
As you are well aware, deployment of energy storage is happening with or without the
PSC. For example, BGE is involved in some pilot programs, Chesapeake College is installing
battery storage on campus, and AES has a storage project for the frequency regulation market in
Cumberland. The Maryland Energy Administration (MEA) has even supported some of these
projects through its Game Changers Program grants. 6 Moreover, PJM has the most developed
3

Notice of Public Conference, PC 44 (Sept. 26, 2016) (Notice).

Id. at 3.

The Energy Storage Association has described many of these technological applications. See
Applications of Energy Storage available at http://energystorage.org/energystorage/applications-energy-storage-technology.
6

See, e.g., MEA 2014 grant announcement for a residential storage project with Astrum Solar.

energy storage market of any Regional Transmission Organization (RTO) in the country and
significant storage assets have been deployed and used in the frequency regulation market. As
the cost case for storage improves and more consumer-based storage products come on the
market, these projects will proliferate. But as a matter of public policy, Maryland is behind
many other states. There are significant open questions regarding the use of energy storage
including who may own an asset, if such assets may be part of the rate base, what are the rules
for interconnection and net metering, what are the performance standards for storage assets, and
so on, as well as the question you have raised about valuation. Without regulatory action by the
PSC, projects will be delayed because of the unclear rules which they will need to comply with.
Moreover, without incentives, the market will not grow as quickly as it is capable of.
During the 2016 legislative session, I introduced the Storage Technology and Electric
Power (STEP) Act (HB 787) in Maryland the House of Delegates. The goal of the STEP Act
was to require the Commission to open proceedings into the adoption of energy storage
technology as a component of a modern electric grid and establish procurement targets for
electric utilities to obtain, if the Commission deemed it appropriate, energy storage. The
legislation provided a path forward to resolve many of the regulatory questions currently being
faced by those interested in deploying storage. But it also contained a major incentive to spur
rapid growth in the use of energy storage in Maryland: the possibility of procurement targets.
That type of incentive would not be unique to Maryland as California, 7 Oregon, 8 and
Massachusetts 9 are all in various stages of the process of setting such targets. 10
Although other states are quickly moving forward with procurement targets and other
incentives, it is not too late for Maryland to be a trailblazer in this area. Indeed, the economic
development case is strong. At the University of Maryland Energy Research Center and other
institutions of higher education around the state, some of the most significant storage research in
the country is being done. Several businesses have already spun off from these efforts and clear
regulations and incentives would encourage more of these businesses to start and help them
grow. 11 Other companies are eager to increase their business (and the resulting jobs) in a
storage-friendly state.

AB 2514 (2010).

HB 2193-B (2015).

H 4568 (2016).

10

MEA issued a short report in 2016 on many state and local policies being pursued to advance
energy storage. See Energy Storage Considerations for Maryland (Jan. 2016) available at
http://energy.maryland.gov/Reports/FY15_Energy_Storage_Report.pdf. Such policies have only
proliferated since that time. Moreover, other proposals have been introduced in Maryland to
incentive the use of energy storage. See, e.g., HB 386 (2016) (Delegate Reznik legislation
creating an income tax credit for energy storage systems).
11

See, e.g., Crystal Brown, Custom Battery Maker Manufacturer, FlexEl, To Open State-of theArt Facility in College Park, UMD Right Now (June 18, 2015) available at
3

From a regulatory standpoint, it is most important to understand that energy storage

technologies need to be regulated and viewed differently than traditional generation sources.
Currently, the electric grid is supplied primarily by electricity generation facilities in the form of
power plants. Storage systems, however, do not fall under this category by their nature, since
such technology supplies power to the grid through electricity storage rather than electricity
generation. Our current utility regulations generally reflect the assumption that suppliers of the
grid are power plants, but this needs to change. But as the energy storage industry expands
rapidlywith 243% growth in 2015 according to GTM Researchit is crucial that regulators
such as the PSC develop regulatory policies that correspond with this growing technology.
Principles of Energy Storage Regulation
I believe there are five principles the Commission should keep in mind as it moves
forward regarding energy storage: environmental stewardship; forward thinking; flexibility; cost
effectiveness; and regulatory clarity.
Environmental Stewardship. There are many benefits of energy storage but chief among
them is the environmental benefit. Regardless of anything Maryland does, the grid is moving to
a greener future as a result of both federal Clean Air Act regulation and consumer preference. 12
Storage is imperative in order to make those visions a reality. As the Commission considers
regulatory changes related to storage, it should consider how any action would affect the
environment and seek approaches that have the most beneficial environmental impact. That
means prioritizing the pairing of energy storage with renewable generation.
Forward Thinking. The modern electric utility industry is over 100 years old.
Although changes have come in that time including third party generation, industry
deregulation, environmental regulation, and many mergers, the basic model remains the same.
My own view is that those days are fading fast and that the utility model is changing whether
regulators and utilities want it to or not. I believe Maryland should try and get ahead of the curve
with its regulatory policies, which requires thinking outside the box about the electric grid we
want in the future, not just the one we have now. We need regulatory policies that help storage
fit into that future and we cannot be constrained by the practices of the past simply because we
are used to them.
Flexibility. One of the hallmarks of energy storage is its flexibility. Energy storage is
not just one technology, it is lithium ion batteries, flow batteries, fly wheels, pumped hydro,
compressed air, fuel cells, and more. Energy storage can be deployed in front of the meter or
behind the meter. It has numerous applications ranging from back-up power to providing base
http://www.umdrightnow.umd.edu/news/custom-battery-manufacturer-flexel-open-state-artfacility-college-park.
12

Maryland should embrace its own policies to move to a greener future. But regardless of
whether Maryland continues to increase its RPS and EmPOWER Maryland goals and remains a
party to the Regional Greenhouse Gas Initiative, change is coming.

load power. 13 Any regulations put in place by the Commission should also be flexible to allow
as many of those technologies for their many different uses to be deployed as possible consistent
with the other goals for such policies. 14 In some cases, that might mean being flexible in
responding to changes in this fast developing field.
Cost Effectiveness. Whenever there is any discussion of the changing electric grid, many
stakeholders immediately think of the costs. Protecting ratepayers is an important and worthy
goal. But as the Commission considers how to value storage it needs to consider cost
effectiveness broadly. Use cases are being made today for cost effective storage deployment as a
replacement for costly transmission upgrades or even in place of new generation. Moreover,
there is a less direct but still important societal cost of continuing to rely on fossil fuels and not
embracing technology that support a green energy future. The Commission must keep all of
these costs in mind as it determines whether a storage project is cost effective to consumers.
Regulatory Clarity. One of the major reasons action by the PSC is necessary is because it
is currently unclear how the existing rules apply to energy storage. Of course, there will always
be some case-specific issues but it is important for the PSC to provide as much rules-based
guidance as possible. A major issue requiring clarity is rate recovery. The existing model for
electric utilities is that they incur a cost and then seek to recover that cost in their rate base. To
the extent utilities invest in storage that is a prudentially incurred cost, those assets should be rate
base-able as well. Of course, the Commission should be looking out for rate payers by ensuring
that any storage assets for which the utilities are seeking cost recovery meet the other principles,
including cost effectiveness. But the rules for rate recovery and other issues should be clear for
utilities and consumers and not solely dealt with on a case by case basis.
Next Steps
I welcome the start of the Public Conference and a discussion by the Commission of
energy storage. Many states and other jurisdictions, however, are far ahead of us and I hope we
will examine the work they have done on these issues and implement quickly what can work for
Maryland through a standalone energy storage rulemaking. For example, California has
developed an Energy Storage Roadmap. Massachusetts has issued a comprehensive report
entitled State of Charge: Massachusetts Energy Storage Initiative. The Electric Power Research
Institute has released an energy storage valuation tool. Within these reports and tools are the
answers to many questions the Commission will be asking as part of the Public Conference
process and there is no need for Maryland to start this process from scratch. Moreover, I look
forward to the Commissions continued engagement when I re-introduce the STEP Act in 2017.
13

The Rocky Mountain Institute has issued a report that demonstrates the 13 types of services
battery storage can provide to stakeholders and shown which of these services can be
implemented at the behind the meter, distribution, and transmission levels. See The Economics
of Battery Energy Storage (2015) available at http://www.rmi.org/Content/Files/RMITheEconomicsOfBatteryEnergyStorage-FullReport-FINAL.pdf.
14

For example, mature technologies such as pumped hydro might warrant different regulatory
treatment than emerging technologies such as batteries.