Power systems currently experience paradigm changes due to the integration of renewable sources, penetration of electric vehicles, and advancements in smart grid technology. Energy storage elements are accordingly sought to rectify some drawbacks of the new system components. Energy storage technologies and their power grid applications are, therefore, developing in fast pace. This paper presents the design, development, and testing of a pole-mounted energy storage system (PMESS) based on lithium-ion batteries. The PMESS aims at enhancing the reliability of a local distribution company (LDC) at the residential level. The system provides load curve smoothing and peak shaving services to a pole-top distribution transformer feeding residential customers. An intelligent control algorithm is developed for optimal scheduling of the battery pack. The algorithm employs communication, load forecasting, and optimization software modules. A prototype unit of the PMESS is installed and tested on a Canadian LDC where the results show positive impact on the performance of the distribution transformer. Findings of this research are anticipated to attract the attention of those interested in distribution system operation, planning, and asset management.