The city of Washington has become the latest flashpoint in the debate over whether having utilities as microgrid owners is okay from a legal and competitive perspective. The debate is occurring before the District of Columbia Public Service Commission, as it considers microgrid policy within its larger grid modernization plan (FC 1130). Two industry giants squared off on the issue in recent comments filed before the commission. Exelon, one of biggest utilities in the United States, pushed for a utility role, while NRG Energy, the nation’s largest independent power producer, urged the commission to ban utilities from owning and building microgrids and other forms of distributed energy.
Similar debates are brewing in other restructured states. So, what the district decides is important because it could influence thinking elsewhere. The debate also is important because the commission plans to distribute more than $21 million for grid modernization test programs. Competitive utility affiliates are likely to vie for the money. A commission staff report suggests the money go to not only microgrids, but also advanced control systems, combined heat and power, demand management, electric vehicles, energy storage, fuel cells, solar, smart inverters, voltage regulation and district heating and cooling.
Exelon has argued in other jurisdictions that it makes sense for utilities to develop and own microgrids when they serve a larger public purpose. For example, the public purpose microgrid might help boost economic development in a blighted area. In the D.C. proceeding, however, Exelon instead focuses on the ability of competitive utility affiliates – not regulated utilities — to compete to provide microgrids.
Arguments favoring utilities as microgrid owners
Exelon describes two of its competitive affiliates that are positioned to build microgrids. One is Exelon Microgrid, which is developing 10 to 200 MW microgrids in New York. The other is ExGen/Constellation, which serves about 225,000 commercial and industrial customers in D.C., New York, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania and Texas, as well as more than 2.5 million residential customers. ExGen/Constellation wants to partner with its customers to install microgrids and other distributed energy resources with the money the commission plans to allot for demonstration projects.“This will not be possible if the commission were to adopt the recommendation to exclude affiliates from participating,” Exelon wrote in comments to the commission.
The debate over banning utility affiliates revolves around the idea that the utility will use its market clout to favor its affiliates in competitive situations. But Exelon argues that legal separations exist to put a wall between utilities and their affiliates. These walls have held during the common practice of utilities bidding for power for their standard offer service (SOS), including in the district, the company said. “There is no restriction on utility affiliates bidding in the SOS procurement. This is because the program was designed with certain features to promote transparency and to ensure that all bidders are treated fairly and equally,” Exelon said. Concerns about competitive preference are even less justified when it comes to distributing the grid modernization funds because it will be the commission – not utility – choosing award winners, said Exelon, whose affiliate Pepco serves district customers.
Exelon also argued that blocking utility affiliates from the program will likely lower the number of pilot project proposed, which undermines “the entire purpose of the program—to identify the best technologies for modernizing our energy delivery system and make the system more reliable, efficient, cost-effective and interactive.”
Arguments against utilities as microgrid owners
Meanwhile, NRG sided with staff, saying that utility ownership of microgrids and distributed energy should be “extremely limited.”
NRG argued against utilities owning microgrids for three reasons.
First, competitive companies are “uniquely positioned” to develop microgrids because they are often highly customized to satisfy the needs of individual electricity customers. Given the high degree of customization and differentiation among customers, “this is not the place for the monopoly utility,” NRG said. “Utility service is intended to be broadly available and non-discriminatory, and utility cost-recovery is designed to spread costs among customers.”
Second, NRG said it will be hard for regulators to ensure that utilities do not leverage their local name recognition and resources funded by regulated rates to gain market advantage.
And third, as microgrids and distributed energy become more common, the distributed grid will become more complex. Utilities will need to focus their resources on managing the new reality, NRG said.
“As DERs grow, utility sales on a volumetric and peak demand basis will naturally be reduced as consumers use on-site energy sources or simply become more efficient, and as consumers manage their peak demands to lower their costs and improve the utilization of the grid,” NRG said. “As this occurs, it will become more and more difficult for the utilities to maintain revenue sufficiency without increasing rates.”
The next step in the grid modernization proceeding is the filing of reply comments, which are due May 10. Commission staff will review the comments and provide updated recommendations to the commission at a date yet to be determined.