Microgrid Supporters and Utilities Duke It Out Over Standby Charges in California

California utilities and microgrid advocates are at odds over whether microgrid customers should be spared paying standby charges, a fee that some argue stifles microgrid development.

The California Public Utilities Commission (CPUC) is sorting through comments it received in an initiative that aims to spur the commercial development of microgrids.

The commission has been moving through the process in phases and is now focused on standby charges, which are rates that utilities use to cover their costs for being available to supply electricity to self-generation customers when their systems aren’t producing electricity.

The proceeding (Rulemaking 19-09-0090) focuses on whether Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) should be required to waive or reduce standby charges for a customer operating a microgrid, regardless of fuel sources, as long as waiving the charge will enable the microgrid to benefit other customers in an amount at least equal to the standby charges.

Microgrid supporters oppose standby charges

In comments filed earlier this month, microgrid supporters, such as the Microgrid Resources Coalition (MRC), generally said the commission should exempt microgrids from standby charges, noting that the issue of standby charges hasn’t been comprehensively addressed by the agency since 2001.

The MRC urged the commission to eliminate standby charges for microgrids under 5 MW. The group also suggested reevaluating standby charges for all behind-the-meter distributed energy resources and elimination of the distribution component of the reservation charge for all microgrids 5 MW or larger.

The coalition contends that utilities are unfairly foisting their costs on microgrids through the standby charges.

“The current charges fail to take account of diversity of resources both on the distribution system and within microgrids,” the MRC said. “In addition, standby charges have risen disproportionately to demand charges for use of the distribution system and are not based on commission principles of cost causation.”

Microgrids provide wide grid benefits

Microgrids provide a range of broad benefits, such as increasing grid resilience, taking load off the grid and reducing the need for ramping capability to handle the “duck curve” at the end of the day when solar generation declines, according to the MRC.

Fuel cell company Bloom Energy also urged the commission to eliminate standby charges, saying standby service is hardly needed for microgrids that can island for a long time.

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“These microgrids have high predictability and reliable output, allowing utilities to adjust their planning and, thus, associated investments based on the capacity being provided,” Bloom Energy said.

In an era of public safety power shutoffs, wildfires, floods and other grid threats, customers must make their own investments to make sure they have power when the grid fails, according to Bloom Energy.

“Microgrids offer a new paradigm in which highly reliable on-site sources serve as the primary source of power, improving service for those customers and providing valuable predictability and flexibility to the entire grid,” Bloom Energy said.

Standby charges hurt microgrid economics

The standby charges, which total about two cents per kilowatt-hour, can make microgrid projects financially unviable, according to the California Clean DG Coalition.

In the last decade, hundreds of combined heat and power projects, ranging from 60 kW to 20 MW, failed to move out of the planning stage because they weren’t economically feasible, according to the group.

Waiving the standby charges would have helped justify private investment in microgrids by reaching private investors’ economic hurdle rates, the coalition said, noting it is unlikely more than 1,000 MW of microgrids would be built in California if the standby fees stay in place.

As an example of a microgrid project that was hurt by standby charges, Energy Pathways planned a $16 million, 4-MW gas cogeneration microgrid on a University of California campus, according to the MRC. The project faced $590,000 in annual standby charges. Without those charges or an annual departing load charge of $455,000, the project would have produced an estimated $1.5 million in energy savings. 

Other groups and companies opposing the existing standby charges include the Clean Coalition, FuelCell Energy, Enchanted Rock and the California Energy Storage Alliance. 

Utilities oppose lifting standby charges

California’s three major investor-owned utilities generally opposed lifting the standby charges, saying they are needed to make sure microgrid customers paid for the utilities’ investments in their systems that were needed to provide backup power.

“Standby service charges are founded on the principles of cost causation and, for purposes of transparent ratemaking, these charges should continue to be assessed on microgrids to avoid cost shifts,” PG&E said.

SCE echoed PG&E’s concerns. “Standby charges are rooted in cost causation principles and should not be modified to incentivize a particular technology or configuration such as microgrids,” the utility said. 

Instead, if microgrids deserve payments for incremental benefits they provide to the wider grid, the compensation should take the form of a distinct payment, according to SCE.

“Microgrids offer a new paradigm in which highly reliable on-site sources serve as the primary source of power” — Bloom Energy

SDG&E said standby charges should only be waived if a microgrid doesn’t import power from the grid. Any exemption would shift costs from the microgrid to other customers, according to the utility.

Southern California Gas urged the CPUC to skirt the issue of standby charges and instead focus on the value microgrids can provide to the overall electric system.

“The commission must first perform a cost benefit analysis of the benefits to other customers and potential utility deferrals,” SoCalGas said. “This way, customers who develop microgrids are given full value for the benefits they are providing and are charged fairly for the services not covered.” 

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