Motivating the Optimal Procurement and Deployment of Electric Storage as a Transmission Asset

We analyze the design of policies to motivate an electric utility to employ its superior knowledge of industry conditions to: (i) choose between a traditional expansion of transmission capacity and storage as a transmission asset (SATA); and (ii) deploy SATA to either substitute for transmission service or supply electricity in wholesale markets. The optimal policy differs considerably from policies under active consideration, in part by paying the utility relatively little for implementing SATA. The utility of ten commands substantial rent from its privileged knowledge of the cost of installing and integrating SATA. However, the utility typically secures little additional rent from its superior knowledge of the likelihood of local network congestion.