PG&E Faces Backlash Over “Optional” Label for Microgrids in Certain California Fire Zones

Pacific Gas & Electric (PG&E) is facing backlash for its proposal to label microgrids “optional” in certain California fire zones, a label that critics say would nearly double the cost of developing microgrids and result in fewer coming online.

The proposal emerged within a proceeding before the California Public Utilities Commission (CPUC) to commercialize microgrids and implement SB 1339, which paves the way for utility microgrid tariffs expected to create more cost certainty and make microgrids easier to finance.

As part of the SB 1339 effort, PG&E is seeking approval for a Community Microgrid Enablement Program (CMEP) to provide technical and financial support for community microgrids in areas prone to public safety power shutoffs (PSPS).

In a proposed CMEP tariff, representing the three California investor-owned utilities, PG&E labeled microgrids as falling under Rule 2, or “optional,” a move that critics say will double the cost to developers by charging them for upgrades utilities make to their distribution systems to bring microgrids online. Opponents of the proposal would prefer to see microgrids labeled as “essential” so that at least some of the upgrades would be paid for through utility rates.

“One of the issues we have with the tariff is that no one was consulted about that or given any justification as to why Rule 2 comes into effect,” said Allie Detrio, senior advisor for the Microgrid Resources Coalition (MRC) and chief strategist for Reimagine Power. The CPUC has yet to approve PG&E’s advice letter so the issue is still pending review, she added.

Onerous fees

With Rule 2 in effect and microgrids viewed as non-essential, developers would have to pay sales taxes and ownership costs to help utilities pay for the system upgrades.

“If the (tariff) is approved by the CPUC, we hope that it will be modified such that microgrids developed under the tariff are not subject to Rule 2,” said Detrio.“Microgrids serving critical resiliency needs in communities that are in high fire threat areas or regions prone to PSPS events should not be subject to onerous fees like those assessed under Rule 2,” she said.

MRC supports efforts to develop community microgrids, but opposes establishing a CMEP tariff because the CPUC is supposed to develop separate rates and tariffs for microgrids as part a larger statewide microgrid commercialization effort under SB 1339, she said.

And the MRC, along with Community Choice Aggregators (CCA), wasn’t happy that one utility — PG&E —  developed a tariff. They fear it could result in a “fragmented and inefficient process” that would undermine microgrid commercialization in California.

“What we are arguing, given the need for microgrids and their value to ratepayers, these costs should be ratebased.” — McDuffie, member, Resiliency and Microgrids Working Group

The MRC also argues that the tariff was created with no stakeholder input on the terms and conditions or tariff language.

“The statute specifically states that the commission should develop separate rates and tariffs, which should be done as part of the CPUC public process with proper stakeholder input. The MRC believes that a statewide tariff should be adopted to promote consistency in microgrid development across California,” Detrio said.

Tim McDuffie, a member of the CPUC’s Resiliency and Microgrids Working Group, said that he opposes the labeling of microgrids as optional and would like to see them treated as essential. In addition, he argued that the utility costs associated with adding microgrids to the grid should be rate-based.

The two extra costs associated with microgrids labeled as non-essential include cost of ownership and Income Tax Component of Contribution (ITCC) costs, he said.

The cost of ownership charge is a 14-year amortized payment microgrid developers would have to make up front or on a monthly basis, said McDuffie. It covers maintenance on upgrades needed to bring microgrids online. The second charge, the ITCC, is basically a sales tax that is added onto the cost of an upgrade.

He noted that there’s a precedent for ratebasing these two costs in net metered solar systems below the size of 1 MW. That’s because the solar systems benefit all customers, McDuffie said.

“What we are arguing, given the need for microgrids and their value to ratepayers, these costs should be ratebased,” he said.

Some PG&E funding available

Paul Doherty, a spokesman for PG&E, provided a fact sheet stating that the CPUC earlier approved with modifications PG&E’s CMEP, and that it included a capital expenditure budget of $17 million in 2021 and 2022 to help pay for the upgrade costs of adding microgrids to PG&E’s system.

“The capital budgets are available for costs actually incurred to provide certain upgrades to PG&E’s electric distribution system that are required in order to implement the islanding function of a community microgrid, or are deemed necessary by PG&E to ensure safe operations,” said the fact sheet.

PG&E will offset 100% of the costs for PG&E owned- and operated equipment, up to a cap of $3 million per project, said the fact sheet. This is for costs that the customer requesting upgrades would have to pay. Eligible equipment that could be covered include equipment to enable part of the grid to disconnect from the larger grid, PG&E’s microgrid controller and fault protection devices and hardening.

This funding will be available on a first-come, first-serve basis to customers who meet the requirements of the Community Microgrid Enablement Tariff. They have to complete a microgrid islanding study and sign a special facilities agreement, said the fact sheet.

However, the information provided by PG&E did not explain the company’s decision to address microgrids under the Rule 2 category.

Fewer microgrids would be built

Responding to the information provided by PG&E, Detrio said, “This is why we want a uniform tariff that applies to all the IOUs and has been vetted properly with stakeholders before it gets approved through an advice letter.”

It’s possible that opponents of the tariff could compromise and agree to have microgrid developers pay for the raw costs of utility upgrades, but avoid paying for the ITCC and cost of ownership charges, McDuffie said.

If the Rule 2 provision remains in place, fewer microgrids will be built to provide resilience in a state that’s grappling with wildfires and PSPS. In fact, without the microgrids, PG&E may continue to install polluting diesel generators near substations in areas affected by wildfires, said McDuffie.

“Additional fees that are assessed on microgrids when they are considered special facilities under Rule 2 are punitive and contrary to the resiliency goals of the state,” said Detrio.

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