AriSEIA Files Letter Supporting Virtual Power Plants

READ THE FILING

Arizona Corporation Commission
1200 W. Washington Street
Phoenix, AZ 85007
 
RE: Please approve the APS Virtual Power Plant (BYOD) Pilot Program, Docket No. E-01345A-22-0144; Exceptions
 
Dear Chairman and Commissioners,
 
This issue was thoroughly litigated in the last Arizona Public Service (APS) rate case. APS conducted a robust stakeholder process as ordered by the Commission. AriSEIA recommends adoption of the Plan of Administration (POA) as filed.
 
The Grid Needs More Capacity
APS is predicting unprecedented load growth over the next decade. To meet this rising need, the utility must aggressively add capacity which, if not done thoughtfully, will put dramatic upward pressure on rates. One way to mitigate that upward rate pressure is to avoid direct utility investments where possible and to leverage customer owned assets to provide services that would otherwise require utility investment and risk increasing ratepayer costs. To this end, the Commission ordered APS to implement the money-saving Bring Your Own Device (BYOD) program (also known as a virtual power plant (VPP)) which uses customer owned batteries to meet peak demand. The evidence in the rate case found that such a program could give APS access to batteries at a cost well below the cost of utility owned storage or market purchases.

The Company has projected more than 4,000 MW of new capacity need over the following decade, and its integrated resource plan (IRP) shows that it will be procuring copious amounts of centralized generation and battery storage. APS’ 2024 all source request for proposals (ASRFP) sought at least an additional 2,000 MW of resources by 2030.[1]

Residential Batteries Can Provide Capacity
The Commission has been discussing this concept since at least 2020. In Decision No. 77855, the Commission ordered APS to “permit the aggregation of distributed demand-side resources [DDSR]… and provide compensation for the value each distributed demand-side resource provides, including, but not limited to, compensation for capacity, demand reduction, load shifting, locational value, voltage support, ancillary and grid services…”[2] In Decision No. 78165, the Commission ordered APS to file a DDSR tariff by May 1, 2022.[3] More than a dozen stakeholder meetings were held just in preparation to the filing of the DDSR tariff.[4] Once the tariff was filed, an entirely new docket was opened; workshops were held; national labs were engaged. That docket resulted in an additional year of work that resulted in the Commission finding APS did not go far enough and directing APS to issue a new RFP for the DDSR aggregation tariff.[5]
Also in 2020, Commission Staff recommended approval of APS’ original battery pilot program, which had an upfront incentive for installing batteries. Staff said, “a tariff that compensates customers for the specific benefit their systems bring to the grid can also be beneficial and in the public interest.”[6] Staff characterized such a program as a “forward-looking policy that can benefit all APS ratepayers.”[7] When APS first proposed this pilot, it stated this original pilot would “inform a future potential ‘pay-for-performance’ shared storage program and system planning to ensure continued reliability for APS customers.”[8]

APS sought to expand the original battery pilot, which was fully subscribed by January of 2023.[9] APS proposed expanding the battery pilot program in its amended 2023 Demand Side Management (DSM) plan. APS stated, “reallocating DSM budget to support expansion of the Residential Battery Pilot-an already-successful program that APS believes represents the best path forward to achieve the Commission's DDSR goals.”[10] The Commission has not voted on the APS 2023 DSM plan or its 2024 plan in which it also requested expanding the program.[11]

APS subsequently closed its battery pilot program because the Commission voted to pursue this VPP program instead in Decision No. 79293. At the February 22, 2024 open meeting in which the 2022 rate case was voted on, Vice Chairman Myers specifically asked Staff and the administrative law judge about their opinions on moving forward with the VPP program. Commission Staff said they have “no concerns moving forward” with the VPP program as was directed in the Recommended Opinion and Order.[12] Judge Harpring said the VPP “would present an opportunity that APS currently lacks that could be a lot more meaningful than APS’ battery pilot” and “I think this is an opportunity. APS needs a lot of dischargeable resources. This would provide a new dischargeable resource and I see that as a positive.”[13]

Denying the POA would eliminate all battery pilot programs at APS and would set Arizona back more than five years. That is not an efficient use of taxpayer dollars as the Commission has been pursuing this since 2020 or ratepayer dollars since APS has been working to aggregate demand side resources also since 2020. Another rate case would result in an unnecessary delay of at least two more years.

There are more than 500 VPP programs in the US.[14] By 2030, VPPs could reduce peak demand in the US by 60 GW. By 2050, VPPs could grow to more than 200 GW nationwide.[15] According to Brattle, VPPs could save US utilities $15-35 billion in capacity investment over ten years.[16] According to the US Department of Energy, “VPPs are among the critical solutions to meet the pressing challenges the grid faces today and in the near term to keep electricity rates affordable while maintaining grid reliability and resilience.”[17] Salt River Project (SRP) just committed to develop a VPP program by the end of 2025.[18]

Residential Batteries Add Capacity For Less Than Market Purchases
APS provided the quantity and price of its wholesale market purchases from 2018-2022 in the rate case.[19] An analysis of this data shows that the Company routinely paid in excess of $200/MWh for market purchases, with occasional purchases in excess of $1,000/MWh.  AriSEIA/SEIA’s analysis showed that the average weekday market purchase cost between 2019 and 2022 was over $100/MWh between 5 PM and 9 PM, the exact hours the VPP program would target.[20] 

But if one looks at the actual highest-cost purchases, the avoided energy potential is much higher. AriSEIA/SEIA determined the 500 highest cost hourly purchases throughout the year and then analyzed the purchases that fell in the core summer months of June to September from 2018 through 2022.[21] 

Even in 2019, which was an outlier in terms of the low quantity of high-cost market energy purchases, the average purchase during the high-cost hours was nearly $400/MWh. In 2021 and 2022 (and likely 2023), the price and quantity of high-cost purchases surged, with the average high-cost hour moving north of $800/MWh. 

Additionally, at $110/kW per year, the VPP program is less expensive that the cost of utility scale battery storage. The evidence in the hearing showed that the revenue requirement for APS-owned utility-scale batteries costs ratepayers $208/kW per year.[22] AriSEIA originally proposed $150/kW. The valuation in the POA is the result of a compromise derived out of the Commission ordered stakeholder process in Decision No. 79293.

Please Adopt the APS POA
In Staff’s Memorandum, they correctly assert the numerous benefits that this program can provide to the grid and they correctly state that all of these numerous benefits were discussed at length during the six month stakeholder process, which led to the creation of the POA. It is incongruent to argue that APS does not consider enough of the benefits which would “lower the net cost of the BYOD Program” and “increase the availability of customer incentives” while also stating that the program presents a possible cost shift.[23] Making the program a pilot capped at 5,000 customers was a compromise that the Commission already voted on in Decision No. 79293. Changes to the size of the program are not part of the Commission order to APS or Staff and are outside the scope of the POA. Additionally, the costs of the program are already factored into the per-kW valuation. The payments to participating customers are already reduced to cover the costs of the program. Further, while Staff expresses concerns of a cost shift, they also argue that APS should rate base the VPP program, which would allow APS to collect a return on the VPP program, which would increase costs for everyone.

As mentioned above, APS’ first battery pilot was fully subscribed. As of January 31, 2025, APS had more than 4,195 customers with batteries and another 1,250 were in the interconnection pipeline. Given the increase in electricity rates and the decrease in the RCP, most installations will soon be solar plus storage. Further, it is the installers who obtain customer enrollment, not APS or EnergyHub. The installers already have direct relationships with qualifying customers and have a natural incentive to educate customers as to the program. APS’ Cool Rewards program currently has 95,000 enrolled customers, capable of conserving 160 MW of energy.[24] The potential for a battery program is significant.
As was directed in Decision No. 79293, APS thoroughly considered the kW versus kWh issue, which was resolved in favor of a program design with a $/kW payment structure. We have no recollection of Staff ever raising this issue in the stakeholder process. As a capacity resource, which is the point of the program, kW are the appropriate metric. This was also discussed at length in the rate case testimony.

Staff states that, “given the increasing demand for electricity in Arizona, Staff recognizes the importance of leveraging existing capacity resources and supports the advancement of technologies.”[25] We agree. According to APS, “APS resource planners expect peak customer demand to grow to more than 13,000 MW by 2038. For perspective, it took APS 140 years to reach 8,200 MW of peak demand, and customer needs will increase by 60% in only 14 years.”[26] The Commission has been discussing this concept for five years and this exact program for two years. Additional delay is unwarranted and needlessly limits capacity resources that are already available today at a time when we are experiencing significant load growth at a price less expensive than the alternative.

As Staff correctly points out “APS was ordered to meet with other interested parties to collaboratively reach an agreement on the language of the BYOD POA.”[27] And against all odds, APS has done just that. Please approve the POA as drafted. AriSEIA has attached AriSEIA Proposed Amendment 1 to modify Staff’s draft order to approve the POA.
​
Respectfully,

Autumn T. Johnson
Executive Director
AriSEIA 
(520) 240-4757
[email protected]

[1] APS 2024 ASRFP, available here https://www.aps.com/en/About/Our-Company/Doing-Business-with-Us/Resource-Planning/Request-for-Proposals.

[2] ACC Decision No. 77855, Docket No. E-01345A-19-0148, available here https://docket.images.azcc.gov/0000202797.pdf?i=1741200024102.

[3] ACC Decision No. 78165, Docket No. E-01345A-19-0148, available here https://docket.images.azcc.gov/0000204280.pdf?i=1741200631832.

[4] APS DDSR Tariff, June 1, 2022, Docket No. E-01345A-22-0143, available here https://docket.images.azcc.gov/E000019505.pdf?i=1741200030297.

[5] ACC Decision No. 78878, March 16, 2023, Docket No. E-01345A-22-0143, available here https://docket.images.azcc.gov/0000208710.pdf?i=1741200030297.

[6] ACC Decision No. 77762, Docket No. E-01345A-19-0148, available here https://docket.images.azcc.gov/0000202207.pdf?i=1741200977874.

[7] Id.

[8] APS Supplemental to the 2020 RES Plan, August 26, 2020, Docket No. E-01345A-19-0148, available here https://docket.images.azcc.gov/E000008576.pdf?i=1741203415780.

[9] APS 2023 Demand Side Management Annual Progress Report, March 1, 2024, Docket No. E-00000U-18-0055, available here https://docket.images.azcc.gov/E000034300.pdf?i=1741300652460.

[10] APS Amended 2023 DSM Implementation Plan, May 31, 2023, Docket No. E-01345A-22-0066, available here https://docket.images.azcc.gov/E000027360.pdf?i=1741300107475.

[11] APS 2024 DSM Plan, November 30, 2023, Docket No. E-01345A-23-0088, available here https://docket.images.azcc.gov/E000032472.pdf?i=1741374160495.

[12] February 22, 2024 Open Meeting at 7:21:00.

[13] Id.

[14] Utility Dive, US VPPs Can Meet Summer Demand Peaks Faster, Cheaper Than New Generation and Transmission, July 10, 2024, available here https://www.utilitydive.com/news/us-vpps-can-meet-summer-demand-peaks-faster-cheaper-than-new-generation-an/721024/.

[15] RMI, Virtual Power Plants, Real Benefits, January 2023, available here https://rmi.org/insight/virtual-power-plants-real-benefits/. Attachment A

[16] Brattle, Real Reliability: The Value of Virtual Power, May 2023, available here https://www.brattle.com/wp-content/uploads/2023/04/Real-Reliability-The-Value-of-Virtual-Power_5.3.2023.pdf. Attachment B

[17] US DOE, Pathways to Commercial Liftoff: Virtual Power Plants 2025 Update, January 2025, available here https://liftoff.energy.gov/wp-content/uploads/2025/01/LIFTOFF_DOE_VirtualPowerPlants2025Update.pdf. Attachment C

[18] SRP, Board of Directors Approves Pricing Proposal, February 27, 2025, available here https://media.srpnet.com/srp-board-of-directors-approves-pricing-proposal/.

[19] AriSEIA 4.03_ExcelAPS22RC03362_Hourly Market Purchases 2018-2022

[20] Lucas Direct at 59.

[21] This is twice as many as are allowed in the BYOD program, which authorizes 60 event days with events up to 4 hours.

[22] See Kevin Lucas in hearing test. Sept. 1, 2023 at 00:04:31.

[23] Utilities Division Memorandum, February 26, 2025, Docket No. E-01345A-22-0144, available here https://docket.images.azcc.gov/E000041768.pdf.

[24] APS Customers Served with Reliable Power During Record-Breaking Heat, October 7, 2024, available here https://www.aps.com/en/About/Our-Company/Newsroom/Articles/APS_Customers_Served_With_Reliable_Power_During_Record-Breaking_Heat#:~:text=APS%20Cool%20Rewards%20acts%20like,small%20power%20plant%20would%20produce.

[25] Utilities Division Memorandum, February 26, 2025, Docket No. E-01345A-22-0144, available here https://docket.images.azcc.gov/E000041768.pdf.

[26] APS Secures its Largest-Ever Energy Supply to Reliably Serve Customers, November 20, 2024, available here https://www.aps.com/en/About/Our-Company/Newsroom/Articles/APS_Secures_its_Largest-Ever_Energy_Supply_to_Reliably_Serve_Customers#:~:text=APS%20resource%20planners%20expect%20peak,is%20conducting%20a%202024%20ASRFP.

[27] Utilities Division Memorandum, February 26, 2025, Docket No. E-01345A-22-0144, available here https://docket.images.azcc.gov/E000041768.pdf.