California Stakeholders Submit Microgrid Tariff Proposals, Saying Microgrids Should Be “Donkeys, Not Unicorns”

Feb. 2, 2024
California nonutility stakeholders submit proposals in six-year-old microgrid tariff proceeding, but worry the effort won’t yield commercialized microgrids, as hoped.

As part of the six-year effort in California to develop tariffs that would help commercialize community microgrids, nonutility stakeholders have submitted proposed tariffs to the California Public Utilities Commission (CPUC), but they say that the effort may not meet its intended goals.

The proposed tariffs would apply to multiproperty microgrids, also called community microgrids, which serve a number of customers on more than one property.

When the California Legislature passed SB 1339 in 2018, the goal was to create a microgrid tariff that would help commercialize microgrids, allowing for third-party microgrid development and ensuring microgrids’ potential benefits would serve those who receive microgrid power, the grid and ratepayers.

But nonutility stakeholders say they haven’t seen movement toward that goal during the proceeding (Rulemaking 19-09-009).

Microgrids as common workaday beasts

“The commission has to date prioritized unicorns; these are the rare beasts, like the Redwood Coast Airport Microgrid, that got $6 million in outside funding,” said Tam Hunt, legal director at Green Power Institute, one of the stakeholders. “We want to make microgrids donkeys and make them common workaday beasts. To do that you need compensation.”

In their tariff proposals, Green Power Institute and the Microgrid Resources Coalition (MRC) say that the CPUC and investor-owned utility tariff proposals don't provide compensation when the microgrids are in islanded mode or under blue sky conditions. "They don't provide any compensation ever," said Hunt.

“It is imperative that the commission adopt a tariff that allows [multiproperty microgrids] to operate in blue sky mode as well as islanded mode, and SB 1339 is clear that this was the intent of the legislature; without being able to operate as a single controllable entity in blue sky mode the economics of [multiproperty microgrids] simply don’t pencil,” said Green Power Institute in its filing.

Objections to CPUC’s proposal

At issue is an earlier CPUC order telling utilities to propose tariffs based on Pacific Gas & Electric’s (PG&E) Community Microgrid Enablement Program.

“What they developed as a tariff doesn't understand how microgrids work,” said Baird Brown, attorney for the MRC. “Basically the microgrid doesn’t exist, except in emergencies. When there’s no emergency, it’s just a collection of individual generation assets that sell power to the grid at wholesale, then the microgrid customers buy power at retail rates.”

Groups complain utilities want value derived from customers’ investment

Under the utility plan, the customers served by the microgrid don’t get the benefit of their investment, he said. They’re not getting paid for capacity, only for hourly spot energy rates. In their filings, the utilities want to take all the value of the capacity – installed at customers’ expense – use it for their own benefit and pay nothing for it, said Brown. “They charge customers the full retail rate for all the power they use from the microgrid,” he said.

Terri Prosper, spokeswoman for the CPUC, said, “It’s an ongoing proceeding and issues will be addressed in the proceeding. There needs to be equity where nonmicrogrid customers don’t end up subsidizing microgrid customers during blue sky conditions.”

PG&E did not respond to a request for comment by deadline.

The MRC and Green Power Institute suggested a number of tariff proposals.

Groups provide details of alternatives to CPUC and utility proposals

The MRC called for creating a tariff for sales to the customers inside a multiproperty microgrid and separate tariffs for exports from the microgrid to the grid.

In the first case, the customers would negotiate the price with the microgrid developer, if, for example, they are a small group of industrial customers, said Brown. If the customers are a large group of residential energy users, a community organization or local government could negotiate on their behalf and issue a request for proposals for the microgrid installation and operation. The competitive proposals would ensure customers receive a fair price, said Brown.

“The utility would then collect this price from the customers and, in turn, pay this price to the developer/operator,” he said. Alternatively, the microgrid could be municipally owned.

Avoiding microgrids being designated as utilities

This arrangement would be a wash for the utility but under this scenario, the microgrid would not be designated a utility. For years, the microgrid industry has fought proposals that require developers to act as utilities, arguing that they would weigh down microgrids with a level of complexity incompatible with the size and resources of their operations.

In its filing, the MRC made a number of suggestions for paying the microgrid operator for exporting power to the larger grid, all based on existing programs or tariffs, said Brown. One option would be similar to San Diego Gas & Electric’s deal with Marine Corps Air Station Miramar, under which the utility pays Miramar for providing 6 MW of generation to the grid during times of emergency. The deal was significant to the microgrid industry because it put a monetary value on microgrid use to help avert a grid crisis.

The need to create capacity payments for community microgrids

Another suggestion is to adopt a general tariff for exports of power from the microgrid to the grid.

“The question is how to calculate the amounts in addition to the energy price.  Miramar has an explicit capacity payment, which is a well-established component of utility rates,” said Brown.

Another possibility is for the microgrid to become a qualifying facility under the Public Utility Regulatory Policies Act (PURPA).

“A PURPA contract is another source of an ‘avoided cost’ payment which includes both energy and capacity,” said Brown.

Tariffs for customers served by the microgrid and for exports to grid

Green Power Institute proposed two compensation mechanisms, said Hunt.

For sales to customers within the microgrid, the utility would buy power from the microgrid and sell it back to customers. Again, this would avoid having the microgrid regulated as a utility.

For export sales from the microgrid to the broader grid, Green Power Institute proposed a slightly different compensation mechanism based on PURPA. Under its proposal, a new category would be created under PURPA called resilience avoided costs. States could create their own versions of this under PURPA.

Community microgrids’ grid benefits

“This would be an avoided cost framework specific to the resilience provided by microgrids and distributed energy resources,” said Hunt. “We listed over a dozen categories of grid benefits to ratepayers that come from microgrids. Some benefits accrue to microgrid customers, some to the grid as a whole.” Benefits to utilities include fewer line losses and avoiding the need to build transmission lines, Hunt said.

“Given the mandate to commercialize microgrids and the sums spent on wildfire mitigation and grid hardening, it makes sense to do an equal amount of work on incentivizing microgrids as a cheaper alternative,” he said. Hunt stressed that Green Power Institute’s proposals aim to ensure that creating renewable energy-based microgrids is economically feasible.

Export sales needed under blue sky conditions, groups say

“To make it economic, we must have the export sales option under blue sky conditions to sell to the utility under PURPA. Otherwise the numbers don’t work,” said Hunt.

During the course of the proceedings, the nonutility stakeholders’ ability to submit their own tariffs in response to proposals from investor-owned utilities and CPUC staff has been an on-again, off-again affair.

In July 2023, a group of nonprofits, Sunnova Energy and the MRC argued that a July 18 CPUC memo eliminated, without explanation, important stakeholder participation processes that were included in the commission’s earlier ruling issued Dec. 17, 2021. The groups asked for changes to the proceeding’s scope and schedule, and they requested a hearing, along with the ability to submit nonutility tariff proposals.

An Oct. 23, 2023, CPUC order denied the nonprofits’ other requests but allowed for the nonutility tariff proposals.

Frustration and more frustration over CPUC proceedings

While nonutility stakeholders were pleased to have the opportunity to submit their own tariff proposals, they worry that this proceeding won’t yield commercialized microgrids. In fact, if Green Power Institute doesn’t like the results of the proceeding, it will likely file a lawsuit or create a ballot initiative, said Hunt.

“We're coming up on six years since SB 1339 was signed into law in 2018, and we're still nowhere near having rules and tariffs in place which would enable microgrid commercialization,” said Kurt Johnson, community energy resilience director at The Climate Center. While climate change-induced extreme weather events create a need for enhanced energy resilience with distributed energy and microgrids, the CPUC is headed in the opposite direction, he said.

“Industry is frustrated, environmental groups are frustrated, environmental justice groups are frustrated,” said Johnson.

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About the Author

Lisa Cohn | Contributing Editor

I focus on the West Coast and Midwest. Email me at [email protected]

I’ve been writing about energy for more than 20 years, and my stories have appeared in EnergyBiz, SNL Financial, Mother Earth News, Natural Home Magazine, Horizon Air Magazine, Oregon Business, Open Spaces, the Portland Tribune, The Oregonian, Renewable Energy World, Windpower Monthly and other publications. I’m also a former stringer for the Platts/McGraw-Hill energy publications. I began my career covering energy and environment for The Cape Cod Times, where Elisa Wood also was a reporter. I’ve received numerous writing awards from national, regional and local organizations, including Pacific Northwest Writers Association, Willamette Writers, Associated Oregon Industries, and the Voice of Youth Advocates. I first became interested in energy as a student at Wesleyan University, Middletown, Connecticut, where I helped design and build a solar house.

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