Maryland Regulators Reject BGE’s Utility Microgrids; Raise Competition Issues

utility microgrids

View of downtown Baltimore looking Southwest

Maryland regulators made clear this week that utility microgrids won’t be a slam dunk in the restructured state.

The Public Service Commission rejected a proposal by Baltimore Gas & Electric (BGE) to construct, operate and recover costs for two public purpose microgrids.

In doing so, the commission focused on specific problems it had with BGE’s proposal, and not with the idea of public purpose microgrids (aka community microgrids) — which it described favorably. Public purpose microgrids “have the potential to improve reliability and resiliency and to facilitate the incorporation of new, sustainable technologies into our distribution network,” the commission wrote.

Much of the commission’s criticism focused on BGE’s cost recovery methods, treatment of the competitive market, and emergency planning.

The commission also said that BGE should have considered including renewables, combined heat and power, and energy storage in the microgrids, which instead called for natural gas and diesel. Minus the greener alternatives, the proposal does not “capture the full breadth of potential benefits that public purpose microgrids could offer through fuel-diverse generation.”

At the same time, the commission commended BGE for attempting a microgrid pilot program and left open the possibility of the utility filing a revised plan. The utility’s proposal may have been premature, the commission said, given that the state is still looking into grid-of-the-future topics.

….the commission commended BGE for attempting a microgrid pilot program and left open the possibility of the utility filing a revised plan.

The Exelon subsidiary had offered the public purpose microgrids as places of refuge for community members to get medical care, food and fuel, charge phones, and secure other services during power outages. Similar projects are underway by Exelon utility subsidiaries in Illinois and Pennsylvania.

Who pays?

BGE had proposed a surcharge, spread out among all of its ratepayers, to recover the costs of the two microgrids: $7 million for a 2-MW microgrid and $9.2 million for a 3-MW microgrid.

The surcharge would cover BGE’s earnings and depreciation on the plants, operations expense, fuel and administrative costs, ownership and operation expenses, and taxes.

For an average BGE residential customer using 900 kWh/month, the surcharge would cost $0.04 per month, or $0.48 annually the first year, rising to $0.13 per month, or $1.56 annually for the second year and beyond.

The commission took issue with the idea of a surcharge, saying it is a departure from the usual way a Maryland utility recovers costs; generally the utility must justify costs in a rate case before the commission. Surcharges are reserved “for rare circumstances,” which do not apply to the microgrid proposal, the PSC said.

In addition to pursuing traditional rate recovery, the utility could have helped pay for the microgrids through government incentives, shareholders, and contributions from  businesses located within the microgrids, the commission said.

BGE did seek out ways the microgrids could derive revenue in wholesale markets — a move that the PSC praised. But it questioned if PJM would allow the microgrids to participate, given that the utility planned to operate them only during outages.

Utility microgrids and competition

Maryland prohibited utility ownership of generation when it restructured its electricity markets in 1999. In 2006 lawmakers loosened the rule, allowing utilities to build new generation in certain circumstances as needed to meet long-term demand for power.

Exactly how microgrids fit into this competitive framework remains unclear, since microgrids play multiple roles on the grid — acting as generation and distribution resources.

Even as these questions are being worked out, competitive forces are making their way into the market. For example, non-utility microgrids are sourcing generation competitively, the commission said, which is in keeping with the spirit of the state’s electric industry restructuring law.

“This feature is noticeably absent, however, from the BGE Microgrid Proposal, even though third-party generation owners could reasonably assume a portion of the risks associated with microgrids,” the PSC said.

In addition, the commission said that the utility microgrid could run afoul of customer retail choice rules, which allow customers to choose their electricity suppliers. In particular, the regulatory commission took issue with what happens when the microgrid switches to islanded mode during an outage. At that point, all microgrid customers become utility customers billed for standard offer service.

“In this sense, the proposal creates a class of customers who will have little to no access to retail choice in microgrid services during islanded operation,” the PSC said.

Driving to the microgrid

The commission also questioned if utility customers could drive to the microgrids during storm-related outages, and if they did, whether stores, gas stations, restaurants, pharmacies, banks and other businesses in the microgrid could handle the traffic and stock their inventory quickly enough.

The proceeding drew comments from 22 parties, including the Microgrid Resources Coalition, NRG Energy, SunEdison, potential microgrid customers, lawmakers and other interested parties. Commission staff last month recommended that the PSC reject the proposal.

The order (No. 87669/Case 9416) is available on the PSC site.

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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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