California PUC Law Judge Proposes Trimming Microgrid Standby Charges

June 11, 2021
A key component of standby charges would be eliminated for microgrids in California that meet certain air emissions standards under a proposed decision by a California Public Utilities Commission administrative law judge.

A key component of standby charges would be eliminated for microgrids in California that meet certain air emissions standards under a proposed decision by a California Public Utilities Commission (CPUC) administrative law judge.

The proposal to suspend capacity reservation charges is part of the CPUC’s multiphase effort to spur the commercial development of microgrids.

After two initial phases, the CPUC is now focused on standby charges, which are rates that utilities use to cover their costs for being available to supply electricity to self-generation customers when their systems aren’t producing electricity.

Standby charges, which total about two cents per kWh in California, can make microgrid projects financially unviable, according to microgrid advocates.

The charges vary from utility to utility, but the reservation capacity is the most significant component of standby charges for the sophisticated microgrid customers considered in the proposed decision, according to Michael Hughes, a lead researcher at E9 Insight, a consulting firm.

The proceeding’s third phase is considering whether Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric should be required to waive or reduce standby charges for a customer operating a microgrid as long as waiving the charge would benefit other customers in an amount at least equal to the standby charges.

CPUC law judge declines to completely end standby charge

In the proposal released June 9, Administrative Law Judge Colin Rizzo rejected calls to completely eliminate standby charges, saying there wasn’t enough evidence showing that the charges do not accurately reflect the utilities’ cost to provide service or the broad resiliency value microgrids may provide. 

The value of resiliency that microgrids can offer is an issue set to be considered in the next phase of the proceeding, Rizzo said.

Judge calls for cutting capacity reservation fees

In the meantime, Rizzo proposed a “more precise” policy option: eliminating the capacity reservation component of the standby charges.

California’s three major investor-owned utilities have different standby charges that include various components. One of the components is a capacity reservation charge, a fee to cover the utilities’ cost of having capacity to serve a customer if their on-site generation is unexpectedly out of action.

Microgrids using generating resources that meet the California Air Resources Board’s distributed generation air pollution criteria are eligible for having their reservation charges eliminated. Microgrids with diesel generators would be ineligible for having their charges cut.

Eligible microgrids must show they have high availability and high reliability. The microgrid operators would be required to certify their microgrids meet the performance standards every three months.

If a microgrid customer benefiting from the suspended reservation charge is hit with a generation failure or cannot serve its load, it will receive utility power but will have to pay a “demand assurance amount” to cover the utility’s costs.

The demand assurance amount would be double the monthly capacity reservation charge the microgrid would have been paying during the month of the outage, according to the proposed decision.

“At this point, it’s a little unclear whether the proposed demand assurance amount will be appropriate or need to be adjusted in the future,” Hughes said. “But the formal scrutiny might help determine what the actual financial costs and benefits are for standby service and grid services provided by microgrids.”

The proposal calls for evaluating the lack of capacity reservation fees after five years.

Microgrid advocates offer positive responses

Microgrid installed by Bloom Energy at the Sleep Training Arena in Sacramento, California. Photo Courtesy of Bloom Energy

The CPUC is taking a phased approach to working through some of the most complex issues surrounding microgrids, according to Cameron Brooks, executive director of Think Microgrid, an advocacy organization focused on public policy. 

“By eliminating the reservation charge, the commission would take a step toward recognizing the value of resiliency, but that will be the subject of a deeper examination in the next phase of this proceeding,” Brooks said.

The proposed decision represents a “thoughtful approach” that balances California’s immediate energy needs and its long term climate challenges, according to Bloom Energy, a fuel cell company participating in the proceeding.

“We’re confident that this decision will help displace diesel generators and provide a pathway to cleaner power resources,” said Jennifer Duffourg, a Bloom Energy spokeswoman.

The proposal prevents cost shifting between customer groups, while giving relief to microgrid customers that provide a net system benefit, according to Duffourg.

The CPUC could vote on the administrative law judge proposal at the earliest July 15. If the commission approves the recommendation, utilities would have 90 days to update their tariffs after the decision is issued. Stakeholders can file comments on the proposed decision.

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About the Author

Ethan Howland

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