Should All Utility Customers Pay for EV Infrastructure and Microgrids?

An accord signed by a range of stakeholders this week opens the door toward rate-based EV infrastructure, which raises the question: Should rate-based microgrids be next?

Endorsed by automakers, utilities, labor groups, consumer advocates, and environmental organizations, the Transportation Electrification Accord creates a roadmap for electrifying the transportation sector.

While it isn’t a regulation or law, the agreement is expected to have an important impact on regulators because of the diversity of its backers. Signers include General Motors, Honda, Proterra, Exelon, National Grid, PG&E, Siemens, the Alliance for Transportation Electrification, Natural Resources Defense Council (NRDC), and many more.

One of the provisions of the transportation accord says that utilities should work with utility commissions and stakeholders to develop rate designs that allow utilities “reasonable cost recovery.” When regulators approve rate-base utility investments, they agree that their costs should be borne by all ratepayers.

However, it is not easy selling regulators on the idea of rate-basing energy infrastructure, if they perceive it as useful to only a subset of customers, as evidenced two years ago when state regulators rejected a microgrid proposal by Baltimore Gas & Electric.

Two arguments for rate-based microgrids

There are two arguments for rate-based microgrids, according to John Caldwell, director of economics, Edison Electric Institute.

The first applies to utility microgrids operated as test programs for education purposes.

“The learnings we get from microgrid projects will allow us to do future ones more cost effectively. They will provide benefits down the road in terms of lessons on how to operate the microgrid and most effectively use it in the overall operations of the grid.” He noted, however, that this argument would only apply to a few test microgrids.

A recent example is the Illinois Commerce Commission’s approval of the Bronzeville microgrid based on the learnings it is expected to provide.

The second argument focuses on the fact that microgrids can provide benefits outside the microgrid.

“If you’ve got a police station inside the microgrid, or communication centers or fire stations, having all those up and online can help restore the rest of the grid,” Caldwell said.

He noted that people outside the microgrid also can benefit from  grocery stores, gas stations, and fire stations inside the microgrid.

However, regulators sometimes argue that the resiliency benefits can be provided using more traditional means, such as installing underground power lines, replacing power lines with more modern ones, or more aggressive vegetative management.

In addition, opposition may arise because customers inside the microgrid have higher levels of resiliency than those outside it. Some argue that they should pay for that extra resiliency.

What the future holds

Caldwell predicts that in the future, microgrid customers will pay for some of the costs, and some costs — those that clearly serve the public in general — will be covered by ratepayers.

“The regulators will say, ‘We agree there are some benefits to all customers, but probably not to the same extent as customers being directly serviced.’ In the future, they might say, ‘We’ll have some of the costs borne only by microgrid users; any benefits that go to the general grid, those costs will go to all ratepayers,’” Caldwell said.

The approach is already gaining traction in some states. Arizona regulators, for example, approved this kind of cost sharing for a data center microgrid developed by Arizona Public Service that provides backup power for the host and frequency response to the grid.

Treat microgrids like any other reliability investment

Chris King, chief policy officer, Siemens Digital Grid, said that investments in microgrids should be included in rates if they are either cost effective, proven by a cost-benefit analysis, or are needed to ensure reliability.

“If microgrids are needed to sustain sufficient levels of reliability, then they should be included in rates just like any other reliability investment,” King said.

However, a major challenge to convincing regulators to include reliability investments in rates is that microgrids are new; there are no precedents.

“There is no existing body of policy and regulatory decisions on which to base funding approvals. One way to address this barrier is to look at trade-offs between microgrids and traditional investments to maintain or enhance grid reliability. If it can be shown that microgrids can achieve the same or similar reliability benefits at lower costs, then policymakers should favor microgrids,” King said.

He noted that EV infrastructure investments have already been shown to provide benefits.

“Transportation electrification has been shown, in several cost-benefit studies, to deliver net benefits to both EV owners and ratepayers as a whole,” King said.

EV load managed in interest of all

The accord says that efforts to build out EV infrastructure should optimize charging patterns to improve system load shape, reduce local load pockets, facilitate the integration of renewable energy resources, and maximize grid value.

This could be achieved through time-based rates, smart charging and rate design, load management practices, demand response and other applications, said the accord.

“EV loads should be managed in the interest of all electricity customers,” said the accord.

Christopher Budzynski, director of utility strategy, Exelon Utilities, said that utilities should play a central role in building out the EV infrastructure system. “Whether it’s owned and operated by utilities or third-party EV companies, utilities understand the system better than anyone else.”

His company has made investments to ensure the system is smarter, more reliable, and flexible to accommodate resources such as EVs and yield maximum benefits, he said.

All customers benefit from EVs because they provide environmental benefits, he said. What’s more, if infrastructure is properly placed and EV owners charge at the right time, EVs can potentially lower rates for all customers.

EV accord unprecedented

“This is an unprecedented accord,” said Budzynski. “It’s important because there are a large number of stakeholders that have signed on and agreed to the principles of the accord. They range from NGOs to EV companies to auto manufacturers.”

Noah Garcia, NRDC transportation policy analyst also noted the environmental benefit of EVs.

“Utility investments that accelerate transportation electrification should be premised on utility customer and electricity grid benefits. The accord develops a path for realizing those objectives while slashing emissions from the country’s most polluting sector: transportation,” Garcia said.

Stay tuned as the issue of utility rate recovery for microgrids and EV infrastructure continues to play out before state commissions throughout the US.

What’s your take on utility cost recovering for EV infrastructure and microgrids? Join the discussed on our LinkedIn group, Distributed Energy Resources.