California Utilities Oppose Plan to Waive Standby Fees for Microgrids

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California utilities are opposing a proposal to lift a major component of standby charges for microgrids that meet certain air emissions standards, saying it would illegally shift costs from one group of customers to another.

standby charges for microgrids

By txking/

Meanwhile, microgrid advocates generally supported the proposal by a California Public Utilities Commission (CPUC) administrative law judge to suspend capacity reservation charges, but asked for some changes to the plan, according to June 29 filings at the agency.

The proposal is part of the commission’s multiphase effort to spur the commercial development of microgrids (R.19-09-009).

After two initial phases, the commission is now focused on standby charges, which are fees 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 are a major barrier to microgrid deployment in California where they account for up to 40% of remaining electric utility costs for microgrid customers after a microgrid begins operations, Unison Energy, a microgrid company, told the commission. 

Instead of entirely eliminating standby charges, Administrative Law Judge Colin Rizzo proposed waiving the capacity reservation component of the standby charges.

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

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 proposal calls for evaluating the lack of capacity reservation fees in 2026.

Utilities oppose waiver for capacity fees

California’s major utilities — Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison — told the CPUC to reject the proposal because it will lead to a cost shift, which is barred by the legislation requiring the agency to take steps to support microgrids.

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The investor-owned utilities contend they will have to have enough capacity to serve the microgrid customers if the microgrids fail to work. Any demand assurance payments would cover an outage but wouldn’t compensate the utilities for having capacity on hand, which would lead to a cost shift, they said.

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“There is no evidence in the record of this proceeding that supports the commission’s assumption that the revenues from an unknown number of demand assurance events will ‘equal’ the cost of standing by for the suspension program customers at all other times,” they said.

Before moving ahead, the CPUC should calculate the value eligible microgrids could provide all utility customers, according to the utilities. If the commission determines there is a value to microgrids, the microgrid owners should be paid directly for it while still paying the standby charges, they said.

If the CPUC suspends the capacity reservation charges, it should be done through a “short-term, narrow” pilot program, the utilities said.

Three oil companies — California Resources, Chevron USA and Tesoro Refining & Marketing — also urged the CPUC to reject the proposed decision because of potential cost shifts.

Microgrid advocates seek tweaks to proposal

Microgrid advocates like Bloom Energy, a fuel cell company, urged the CPUC to approve the recommended decision, arguing it would be cost effective for all utility customers.

“Waiving the reservation capacity portion of the standby charge for microgrid installations would not only be justified from a cost-causation perspective; it would build a strong foundation for microgrid development within California that provides net benefits for all,” Bloom said.

The economic analysis stakeholders gave the CPUC was rooted in cost-causation principles, providing a strong foundation for the proposed decision’s reasoning, according to the fuel cell company.

“This record also provides the basis that the commission needs to fulfill key charges of SB 1339, including exploring how microgrids can operate to benefit California customers and how their value can be recognized while avoiding cost-shifting,” Bloom said. 

Standby charges are a major barrier to microgrid deployment in California where they account for up to 40% of remaining electric utility costs for microgrid customers after a microgrid begins operations. — Unison Energy

Microgrids that meet performance standards set in the proposal will help utilities avoid expenses by consistently operating throughout the day and year, ensuring a level of predictability that can be incorporated into utility planning, according to Bloom.

The combination of regular certification requirements and increased fees, if the utilities have to provide power to a microgrid customer, makes sure customers with microgrids will cover their cost of service, Bloom said.

Like other stakeholders, Bloom asked for some changes to the proposal. For example, instead of quarterly certifications, microgrid operators should only have to show once a year that their systems are eligible for a waiver from the capacity reservation charges.

Bloom said the commission should clarify some of the performance metrics microgrids would have to meet to be eligible for the waiver.

Bloom warns about growing use of diesel gensets

In pointing out the value of clean-running microgrids, Bloom warned that backup diesel generators in California are being used at unprecedented levels.

Last year, California had about 8,300 MW of fossil-fueled backup generation in five of the state’s 35 air districts, emitting close to 450,000 metric tons of carbon dioxide, according to Bloom.

“California had been a widely recognized leader in reducing diesel emissions and their corresponding harm, [but] the unprecedented upswell in diesel generator deployment and operation now threatens to undermine that progress,” Bloom said.

Ratepayer advocate calls for expanded analysis

California’s ratepayer advocate said the CPUC should establish criteria for measuring whether suspending the capacity reservation fees for eligible microgrids helps commercialize the sector.

When the waiver program is reviewed in 2026, it should include an analysis of how microgrids enrolled in the suspension program performed during high-stress scenarios such as blackouts and heat waves, the Public Advocates Office, which represents ratepayers, said.

The analysis should include data on the number and capacity of microgrids enrolled in the suspension program, according to the ratepayer advocate. 

Also, the CPUC should set a date for the program review so microgrid customers will know when the program could be suspended, the public advocate said. 

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