The District of Columbia wants to designate certain microgrids as electric utilities

Energy regulators for the District of Columbia have taken the unusual step of proposing rules that would require certain microgrids operate as regulated electric utilities.

The microgrid industry has fought such proposals for years, saying they would burden microgrids, which are smaller operations than utility companies, with a level of complexity incompatible with their size and resources.

At issue are what the D.C. Public Service Commission (PSC) describes as “multiple customer microgrids,” those that are connected to the grid’s distribution system and serve multiple customers or multiple electric meters. Such microgrids would be required to apply for a certificate of public convenience and have the rates they charge customers approved by the commission. 

The proposal first came to light in a June 30 order (FC1163) and a July 8 notice of proposed rulemaking (RM48-2022-01-E – 2022 – 1).

“Because a multiple customer microgrid transmits and distributes electricity to multiple end-use retail customers and multiple buildings with individual microgrid-owned meters that may or may not be located on the same site as the microgrid, it is an electric company,” the commission said in the June 30 order.

Three types of microgrids

In addition to multiple customer microgrids, the commission defines two other types of microgrids, both of which are exempt from the utility designation:

• A single customer microgrid: serves one customer behind a single meter.
• A single customer-campus microgrid: serves multiple facilities controlled by one meter at the point of common coupling.

In all cases, the microgrids can operate with a single or multiple distributed energy resources.

Questions to be answered

Sources who have closely followed the proceeding told Microgrid Knowledge that they are awaiting more clarity on several questions the order raises. 

For example, earlier in the proceeding the idea was floated of regulating microgrids as utilities but under “lightened” regulation. It’s not clear if the commission plans to take that approach or not. 

Another point of confusion revolves around the order saying that microgrids can be designated as competitive suppliers, which include the energy aggregators, brokers and marketers that emerged from industry restructuring in the early 2000s. Industry restructuring gave consumers the choice to buy energy supply from these entities rather than utilities. 

“The net impact may be fewer microgrids and a less resilient and less sustainable power grid.” — Mark Feasel, FuelCell Energy

Again, the commission exempts single customer and single customer-campus microgrids, but does leave open the possibility of regulating multiple-customer microgrids as suppliers. This would occur if the microgrid “sells electricity, or purchases, brokers, arranges or markets electricity for sale to end-user retail customers.” 

What’s unclear is if this means a microgrid could be designated as both a utility and a competitive supplier, two very different entities that operate under different rules.

A third question raised is how the microgrid ruling will affect the district’s investor-owned utility Potomac Electric Power Company (Pepco), an Exelon subsidiary. Utilities typically own a franchise territory, where other utilities cannot set up shop and compete. By saying that certain microgrids would be designated as utilities, is the commission opening up Pepco’s territory to competition more generally?

Impact on energy as a service?

And finally, as pointed out by Mark Feasel, executive vice president and chief commercial officer at FuelCell Energy, the proposal creates questions about the viability in the district of the energy-as-a-service model, an approach that has grown in popularity because it de-risks microgrids for consumers. A third party puts up the capital to build the microgrid and owns and operates it. Customers simply pay a fee for the services the microgrid provides to them.

“The ruling lays out the definition of a microgrid in clear technical terms and defines three reasonable use-cases. However, in defining whether it is an ‘electric company’ or ‘electricity supplier’ the ruling introduces language around ownership, specifically ‘owns, leases or manages.’ In doing so they carve out provisions for a consumer to procure a microgrid as a capital purchase, but may make it a lot harder to procure a microgrid in an energy-as-a-service model,” Feasel said. “Most consumers are not and should not be mobilized to take the technical, regulatory and financial risks associated with owning distributed energy infrastructure. Therefore, the net impact may be fewer microgrids and a less resilient and less sustainable power grid.”

D.C. may create a microgrid tariff

The commission plans to consider establishing a microgrid tariff, a move made in other jurisdictions such as California, Hawaii and Puerto Rico. The microgrid industry generally supports tariffs because they can provide a clear path for microgrid compensation. D.C.’s tariff would “enable a microgrid to receive reasonable compensation for its value in resiliency, power quality, islanding, grid reliability and other ancillary services for the electric distribution system,” the order said.

The commission ordered Pepco to propose within 30 days modifications to its standby service tariff, “which can facilitate the development of microgrids.”

Commission seeks comments

The microgrid proceeding has lingered for years before the commission, opening in 2016. Before the June 30 order was released, the last activity in the proceeding occurred in 2020.

As a next step, the commission is seeking comments on the NOPR, which are due within 30 days of its July 8 publishing. Comments can be submitted on the PSC site.

The Microgrid Knowledge Newsletter will be covering the filings in this proceeding as they come before the D.C. PSC. Subscribe here to track the news.