TransActions Newsletter - Q1 2021 Issue

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Battery Energy Storage Systems (BESS) are currently being deployed in virtually every corner of the United States, and even in the middle of the economic downturn, analysts’ projections indicate this trend will continue. The primary drivers of this change are technology improvements, BESS cost reductions, and the growing market for energy storage services. The energy storage industry launched in the US several years back with stand-alone assets serving markets such as frequency regulation and new use-cases are now meeting the needs of the changing grid. The performance of lithium-ion batteries has been proven to be economical for a growing number of energy storage services. We have all watched the power industry shift towards renewable power generation and the stage has been set to introduce a large number of energy storage systems(1) where lithium-ion is expected to dominate while innovative products promise even lower costs in future years. Batteries will continue to be deployed as stand-alone assets, however, that growth is expected to flatten out as hybrid renewable plus battery storage systems become part of the power generation growth engine. READ FULL ARTICLE

The allowance for funds used during construction (“AFUDC”) rate calculation is the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) long-standing regulation that permits a regulated electric or gas utility to earn a return on the construction costs of utility plant during the period of construction. AFUDC is not an innocuous accounting provision to ignore as it can represent a material percentage of capitalized construction costs that will ultimately impact rate base and depreciation in the cost of service rate for electric and gas utility companies. As such, we briefly discuss certain provisions of AFUDC, the importance of compliance, and practical advice to ensure compliance as an electric or gas utility company or a stakeholder to cost of service rates. The AFUDC rate is determined annually and applied on a monthly basis to eligible construction costs to determine the amount of AFUDC that is a capitalized as a cost of construction and recovered through rates once the utility plant is placed in service. While the Commission’s AFUDC rules are numerous, they are not complex and have been in place for more than 40 years without any significant modification. READ FULL ARTICLE