How to Regulate the Microgrid Industry with Order and Fairness

March 18, 2016
States across the U.S. are trying to figure out how to regulate the microgrid industry in an unwieldy array of proceedings. California says enough is enough: it’s time to bring some order to the process.

States across the U.S. are trying to figure out how to regulate the microgrid industry in an unwieldy array of proceedings –  mergers, rate cases, interconnection disputes, grid modernization plans.

California says enough is enough: it’s time to bring some order to the process.

The state intends to undertake a microgrid road mapping project to coordinate its policy discussion, according to Jamie Ormond, an advisor at the California Public Utilities Commission (PUC).

“We don’t have anything that ties it all together,” Ormond said.

Ormond was among panelists who spoke at “Microgrid Markets Summit East,” a gathering of more than 100 microgrid industry insiders near Washington, D.C. this week.

The mapping exercise, which is expected to begin some time over the next few months, will include the PUC, the California Energy Commission and the California Independent System Operator.

Other panelists on Thursday described a range of questions arising as various states try to figure out how to regulate the microgrid industry, among them:

Can utilities own microgrids in a deregulated states?

Where and when can microgrids cross over utility rights-of-way without infringing on utility franchise rights?

Who will pay for upgrades to make the grid ready for microgrids?

Can regulators expect all customers to pay for a microgrid if only a small number benefit from the project? Or should private investors and developers contribute more?

Another looming question is whether state regulators should let utilities recover microgrid costs through rates — a move that competitive opponents say is unfair. They argue that private microgrid developers do not have the same kind of guaranteed cost recovery, so will be shut out of the market.

In Maryland, Baltimore Gas & Electric (BG&E) has tried to address the problem by carving out a specific niche: the public purpose microgrid. Such microgrids serve critical services and multiple customers and properties, likely community centers, commercial hubs, and emergency service complexes. They try to bring microgrid services to the many.

The Exelon subsidiary is seeking state approval to site public purpose microgrids near public transit and highways. During an outage, customers could easily travel to the microgrid to shop, get gas, charge cell phones and take advantage of other services.

“We thought it was appropriate for rate basing and customer cost recovery because it was the kind of project that everybody could benefit from in our service territory,” said Daniel Hurson, assistant general counsel at Baltimore Gas & Electric. Other kinds of microgrids – campus style or those that only benefit a particular customer – should not be covered by utility ratepayers, he said.

Hurson emphasized that BG&E does not oppose microgrid competitiors operating in its territory, including those that want to offer public purpose microgrids. But so far it has received no such proposals, he said.

BG&E would welcome microgrid proposals from private entities that want to partner with the utility, perhaps owning the generation while the utility handles the distribution system component, he said.

“There is enough opportunity out there for all of us,” he said.

However, Abraham Silverman, assistant general counsel for NRG Energy disagreed. Only a select number of ideal sites exist for microgrids, such as near critical facilities, he said.

“We see a tendency of utilities to come in and try to lock up this space,”  Silverman said.

He added that NRG would view a state as a  “very unfriendly” place to develop microgrids if it “sole sources” projects to utilities.

“At  the end of the day you are competing against somebody who is not putting shareholders at risk,” he said.

The California’s PUC’s Ormond urged microgrid stakeholders to get involved in state  proceedings to resolve these kinds of issues.

“We do not come up with these issues out of the thin air. We leave it to you to tell us what issues you need us to talk about,” she said. “You have the power to help us shape microgrid policy not only in the state of California but in every state in the US by getting involved.”

What are your thoughts on how to regulate the microgrid industry? Comment below or on our LinkedIn Group, Microgrid Knowledge.

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

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