Follow the Microgrids: Grid Transformation and the Exelon/Pepco Merger

grid transformationIf you want to track electric grid transformation, follow the microgrids.

That was one of the lessons quietly underscored by the otherwise noisy regulatory review of the Exelon/Pepco utility merger, according to Rachel Gold, a senior associate at the Rocky Mountain Institute.

When the $6.8 billion Exelon/Pepco merger closed last month following two years of hoopla and acrimony, it created the largest utility in the nation (based on customer count).

Less conspicuously, it revealed the close tie between microgrids and grid transformation – and the reticence of regulators, at least in the city of Washington, to let utilities control the direction of both.

Merger negotiations opened the opportunity for the city to win four utility-built microgrids. But the Public Service Commission (PSC) of the District of Columbia turned them down, saying that letting the utility develop the microgrids undermined competition and grid neutrality.

“To me that’s where the rubber hits the road and where this topic gets interesting,” said Gold in a recent interview. “There is concern from microgrid developers and regulators in restructured markets around what microgrid ownership by a utility means for competition.”

Here’s how the issue unfolded in the nation’s capital.

As part of a merger settlement brokered by D. C. Mayor Muriel Bowser, Exelon agreed to build four rate-based microgrids over five years in the district. For a city with a somewhat precarious power supply, this might seem like a sweet offer. D.C. has no large power plants within its borders, so it imports much of its power. In recent years, the district has experienced some embarrassing power outages to federal buildings, including the Department of Energy.

The commission eventually approved the merger. But in a February 26 opinion and order, it rejected letting the utility build the four microgrids. Instead, the commission chose to take up the issue of utility-owned microgrids at another time.

The commission said that the offer “prematurely attempts to resolve the issues being considered…by assigning roles to Pepco in the development of microgrids that the commission has yet to determine are reasonable or appropriate in the context of modernizing the district’s energy system.”

Commissioner Betty Kane warned that the utility-owned microgrids threatened industry restructuring, which prohibits utilities from owning generation. Approving the four microgrids could lead to a “slippery slope” of reintegrating the utility as the owner of both generation and distribution.

Next for microgrids in DC?

Instead of letting the merger decide microgrid policy, the commission is taking up the microgrid ownership issue within an ongoing grid modernization docket (Case No. 1130).

The third workshop on the proceeding will be held 10 a.m., April 27 in the commission’s hearing room. The commission is seeking comments in advance. The workshop will focus on the regulatory and legal issues surrounding grid transformation. Among other things the commission will look at:

  • Regulatory barriers to microgrids and distributed generation
  • What constitutes the ‘wholesale’ and ‘retail’ sale of electricity from distributed energy projects.
  • Grid transformation changes underway in other places that DC might adopt

“I think DC is going to continue to be a place to watch. The economics for microgrids are getting better. And the value of resiliency is high here,” Gold said.

Meanwhile, RMI is carefully watching for microgrid activity in other places as liftoff for exploration of larger grid transformation discussions.

“We are a going to see these question of microgrid ownership coming up,” she said. “It is going to more likely in places where the business model of the utility is at risk. They will be more willing, or more interested, or more likely to think about and consider alternative means of creating revenue streams.”

Grid modernization requires re-examination of utility rate design, business models, monopoly and technology changes. Introduce microgrids into the discussion and all of these issues come to the fore, according to Gold. “Microgrids themselves are really interesting focal points for driving change because you inevitably tackle all of these different issues.”

Join us for an exploration of what’s next for microgrids at the Microgrid Knowledge conference in New York, May 19.

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Elisa Wood About Elisa Wood

Elisa Wood is the chief editor of MicrogridKnowledge.com. She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.

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