Independents and Utilities at Odds Over Who Builds Microgrids in Maryland

As they compete for their stake in the growing market for microgrids, independent companies and utilities are again at odds before state regulators, this time in Maryland.

At issue are two public purpose microgrids proposed by Pepco, an Exelon subsidiary that serves 842,000 customers in Maryland and the District of Columbia. The utility has petitioned the Maryland Public Service Commission for permission to recover the $63.4 million in costs to build the microgrids (Case 9361).

The National Energy Marketers Association (NEM) is challenging the application, saying the utility should not be in the microgrid business.

A similar dispute was recently settled in Illinois with the state commerce commission voting to allow Commonwealth Edison, another Exelon subsidiary, to go forward with its microgrid, after the utility reached concessions with stakeholders.

In proposing the projects, Pepco is fulfilling a condition set by the commission as part of the utility’s merger with Exelon in 2016. The utility agreed it would propose two public purpose microgrids, one in Prince George’s County and the other in Montgomery County.

But the microgrids are more than mere obligation. The utility says they will help it delay more costly capital investment in a substation, improve electric resiliency and integrate more renewable energy into its system.

Pepco wants to build, own and operate parts of the microgrids — and put other aspects out to bid in keeping with state deregulation rules that limit utilities from developing and owning generation assets.

NEM, which represents competitive retail and wholesale suppliers, argues that utilities will gain too much market power if they can own and operate microgrids. They see utility involvement stifling private investment in the technology.

“Competitive entities are best suited for developing and implementing innovative DER solutions as an integral part of the 21st century grid,” NEM said in a recent filing before the commission. “Utilities should focus on their core competency of ensuring the reliability of delivery infrastructure and should be incented to do so.”

Confusion about how to define ‘microgrid’ from a regulatory perspective feeds the controversy. Some see microgrids as a form of generation — the competitive side of the business in deregulated states. Others view them as part of the distribution system, which utilities operate. Still others see microgrids as a new kind of entity that need rules and pricing structures of their own.

Pepco proposal an improvement

Direct Energy and Interstate Gas Supply (IGS), both independent energy suppliers, took a more moderate view than NEM. They described Pepco’s microgrid proposal as better than a Baltimore Gas & Electric microgrid plan that the Maryland commission rejected in 2016. In that case, the utility had intended to own the microgrid generation assets. Under Pepco’s plan, a third party will own the generators and solar arrays, which Direct Energy and IGS said marks a “significant improvement.”

But Direct Energy and IGS questioned a Pepco provision that allows the utility to build the generation assets if competitive bids come in too high. This “raises eyebrows if for no other reason than Pepco will be able to view highly sensitive, proprietary, confidential developer specific information.” With the information, Pepco could undercut other bidders, the companies said.

To ensure the process is fair, the companies recommend Pepco be required to publish a price cap – a maximum bid value – before issuing the request for proposals. They also recommended that a third party review the bids.

Energy storage is a gray area

Direct Energy and IGS also challenged Pepco’s plan to own the energy storage and microgrid controllers that will be within the microgrids. Third party competitors have greater incentive “from a business standpoint to operate storage and controllers in the most cost-effective and efficient way possible,” the companies said.

Describing energy storage as a “gray area,” the Maryland Energy Administration, a policy body, recommended that the commission provide clear guidelines on how it fits within state deregulation policy.

Much depends on how utilities use the energy storage. If it is a non-wires alternative — built instead of more expensive infrastructure —  it should be treated as a regulated asset and subject to rate recovery, MEA told the commission. But utilities should not be allowed to recover the costs if the energy storage is used in a way that “resembles generation (such as participating in competitive wholesale markets, supporting renewable generation, being sited behind-the-meter, etc.),” MEA said.

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Who should pay for utility microgrids?

Another issue raised in the proceeding — one that keeps coming up in terms of utility microgrids – is who should pay for the microgrid. Utilities in various states — with various degrees of success — have argued that microgrids benefit customers beyond those that are directly connected, so therefore costs should be spread among all customers.

Those directly connected receive back-up power during an outage. Those not directly connected may benefit through system cost reductions if the microgrid acts as a non-wires alternative. The microgrid also might reduce costs for all customers by offering ancillary services, demand response, load management or other services that can ease strain on the grid.

In addition, during a wide-scale outage, people beyond the microgrid’s borders, may be able to access buildings served by the public purpose microgrid, using the for shelter, to recharge phones, obtain food, and fuel vehicles.

Regulators are charged with determining if these benefits are great enough to justify spreading a microgrid’s cost among all ratepayers.

The University of Maryland Medical System told the commission that the Prince George County microgrid will help not only its hospital, but also the surrounding community of Largo, Maryland.

“The project provides an opportunity for area customers to have uninterrupted access to necessary goods and services,” the hospital told the commission in a letter. “Should the Commission approve the pilot project, University of Maryland Medical System will cooperate with Pepco for the development of the project and coordinate with Prince George’s County to provide essential services to the Largo community during emergency situations.”

Montgomery and Prince George counties also registered their support for the microgrids before the commission. The microgrid in Prince George County would be part of a plan to develop a “premiere mixed-use” downtown, the county said. The microgrid would serve a grocery store, gas station, pharmacy, a county government building, and two medical facilities.

“During times of widespread power outages, the public-purpose microgrid will ensure county residents access to essential supplies such as food, water, medicine, fuel, as well as medical treatment, and support public safety by maintaining normalcy during periods of extended power outages,” said the Prince George County.

Counties support microgrids

Eric Coffinan, chief of Montgomery County’s Office of Energy and Sustainability, told the commission that the microgrid will bolster backbone elements of the county’s emergency management system that will benefit the overall county as well as those in Rockville, where it will be located.

The Rockville microgrid also will provide surrounding communities with “cooling centers, lodging, food, fuel, pharmacy, ATMs, and other important services,” during a power outage, he said.

Utility pilot microgrids also can serve as learning tools for the industry in preparation for the connection of increasingly sophisticated microgrids onto the grid. It was in fact, this educational component that was cited as a key reason the Illinois Commerce Commission recently voted to approve ComEd’s Bronzeville microgrid.

Citing public purpose benefits of its microgrids, Pepco proposes that the costs be spread out among all ratepayers, a charge of no more than 36 cents/month for each ratepayer over 20 years.

The utility estimates the cost to be $26.3 million for the Montgomery County microgrid and $18.7 million for the Prince George’s County project, for a for a total expected cost of $45.0 million, plus an $18.4 million contingency.

As planned, the Montgomery County microgrid will have 7.46 MW of generating capacity and an additional 0.25 MW of energy storage. Design for the Prince George County microgrid calls for 6.78 MW distributed generation and 1.6 MW of energy storage.

Pepco is seeking commission approval by June 1.

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