California Regulators Waive Key Standby Charges for Eligible Microgrids

In a win for microgrid developers, the California Public Utilities Commission (CPUC) yesterday suspended a key component of standby charges for eligible microgrids.

The July 15 decision to suspend capacity reservation charges is part of the CPUC’s multiphase effort to spur the commercial development of microgrids, with the upcoming phase centered on the value microgrids can provide to the grid (R.19-09-009).

The decision is a “step in the right direction,” according to Bloom Energy, a fuel cell company.

“While there is still more work to be done, we look forward to working with the CPUC and key stakeholders to further explore the value of resilient energy and revisiting the [behind-the-meter] tariff in Track 4,” said Jennifer Duffourg, a Bloom Energy spokeswoman.

CPUC to revisit decision in 2026

In its decision, the CPUC dismissed calls to eliminate standby charges entirely, but said it was reasonable to waive capacity reservation charges for certain microgrids and to evaluate the policy in 2026.

“The commission, the utilities and stakeholders can gain experience, learn lessons, collect data and information, and determine whether this suspension is fair and provides value to the public,” the CPUC said.

After two initial phases, the commission turned its attention to 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.

The charges, which total about 2 cents per kWh in California, can make microgrid projects financially unviable, according to microgrid advocates.

Agency dismisses utility arguments

In its decision, the CPUC rejected arguments raised by Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) that eliminating the charges would violate a ban on shifting costs from one group of customers to other ones.

The utilities wanted to continue levying capacity reservation charges.

The decision largely mirrored a proposal released in June by a CPUC administrative law judge.

Under the decision, eligible microgrids must meet the California Air Resources Board’s distributed generation air pollution standards.

Eligible microgrids also include those that show by manufacturer certification that they can use renewable fuels, such as renewable natural gas, biogas or green hydrogen, and that commit to only using renewable fuels by Dec. 31, 2030.

In a change from the proposed decision, microgrids that receive payments through the CPUC’s Self Generation Incentive Program are ineligible for a suspension of the capacity reserve charge, unless the owners show their microgrids provide incremental benefits.

Eligible microgrids must also meet performance standards. Eligible microgrids, for example, must have a capacity factor of at least 85%. In a change from the proposal, the CPUC said a microgrid could also have a self-supply factor of at least 85%. They must also have an availability factor of at least 95%.

Microgrid owners must give utilities data showing they meet the performance standards.

In addition, microgrid owners must recertify twice a year that they meet the performance standards. The proposed decision called for quarterly recertifications.

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If a microgrid 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 demand assurance amount will be double the monthly capacity reservation charge the microgrid would have been paying during the month of the outage.

Microgrid supporters such as Bloom Energy and the Clean Coalition back reductions in standby charges for behind-the-meter generation microgrids, in part, because microgrids offer holistic benefits including the reduction of greenhouse gas emissions and the need for capacity on the grid.

They also argued that standby charges do not pay microgrids fairly for increased redundancy and resiliency, according to the CPUC.

The CPUC gave PG&E, SCE and SDG&E 90 days to revise their tariffs in line with the decision.

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