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Customer-owned battery energy storage systems (BESS) have been used to reduce electricity costs of energy storage owners (ESOs) under a time-of-use (TOU) tariff in Korea. However, the current TOU tariff can unintentionally induce customer’s electricity usage to have a negative impact on power systems. This paper verifies the impact of different BESS operation strategies on power systems under a TOU tariff by analyzing the TOU tariff structure and the customer’s load pattern. First, several BESS operation strategies of ESO are proposed to reduce the electricity cost. In addition, a degradation cost calculation method for lithium ion batteries is considered for the ESO to determine the optimal BESS operation strategy that maximizes both electricity cost and annual investment cost. The optimal BESS operation strategy that maximizes ESO’s net benefit is illustrated by simulation using an urban railway load data from Namgwangju Station, Korea. The results show that BESS connected to urban railway loads can negative impact power system operation. This is due to the high BESS degradation costs and lack of incentive of differential rates in TOU tariff that can effectively induce proper demand response.