Illinois Case Could Help Other Utilities Seeking to Fund Microgrids

A recent Illinois decision could make it easier for utilities else where to pass costs for microgrid projects on to ratepayers

Energy experts and consumer groups are monitoring the recent Illinois decision to allow ComEd to build a microgrid and recoup the $25 million cost from a broader group of ratepayers.

But while a bill to authorize similar cost recovery is in motion in Pennsylvania, most observers plan to wait for details on how the Chicago microgrid performs before pushing similar regulatory changes.

Richard Berkley, executive director of New York’s Public Utility Law Project, says the Illinois decision will be discussed at an upcoming meeting of the National Association of State Utility Consumer Advocates.

“I’m sure we’ll be talking about that,” Berkley said. The group includes consumer advocates from all 50 states and the U.S. territories.

In Illinois, the Citizens Utility Board and the Environmental Defense Fund supported the proposal, but the Attorney General’s office said it was too expensive.

Berkley says there hasn’t been a similar regulatory case in New York, but the state approved a small pilot Brooklyn microgrid that in 2016 began using blockchain software to manage energy trading among the members.

‘A worthwhile pilot’

Liza Tucker, an advocate with Consumer Watchdog in Santa Monica, California, says she hasn’t heard of a case in California that mirrors the Illinois one. While microgrids generally refer to a localized group of energy sources that can operate independently from the main grid, there is still a need for regulators and advocates to adopt a more concise definition, she says.

But Tucker says the Illinois decision brought up important questions about possible ways to pay for microgrids. “It’s a worthwhile pilot, because we need to switch to new technologies and we need to switch to new business models,” she says.

The challenge of paying for microgrids was a key message in a draft report released last fall by the California Energy Commission. The “Roadmap for Commercializing Microgrids in California” found that while there are added costs to design, install and operate a microgrid, “regulation and planning processes leave unclear who carries the cost of implementing microgrids and what fees will be applicable.

Currently, microgrids in California struggle to be cost-competitive because they are subject to standby charges and departing load charges. Current regulation also leaves unclear how microgrids may bundle their costs and who pays the cost of interconnection.”

In Pennsylvania, a bill that would allow utilities to bill ratepayers for microgrids has moved out of committee, with support from several utility companies.

HB 1412, introduced by State House Rep. Steve Barrar, a Republican, would allow utilities to recoup the costs of pilot microgrid and energy storage projects. The bill stresses potential resilience benefits, and calls for a review of any such projects after five years, with a final regulatory decision based on cost/benefit analysis and public interest.

The Edison Electric Institute, a leading utility industry trade group based in Washington, D.C., says the recent regulatory actions are very encouraging.

“Both PA bill (HB1412) and the recent decision by Illinois regulators highlight the important and positive role that electric companies can and should play in advancing the development of microgrids. Both decisions also recognize that microgrids can provide benefits that extend beyond just the customers being directly served by the microgrid, to the entire grid itself,” says John Caldwell, EEI’s Director of Economics.

Proceeding with caution

Caldwell says the question of who pays for any microgrid should be project-specific, “depending on such factors as the size of the project, the type of customer served on the microgrid, and the particular regulatory structure within the state.”

Christie Hicks of the Environmental Defense Fund worked on the Illinois project, and says “questions of cost recovery and cost allocation for smart grid investments should be considered on a case-by-case basis, balancing customer and environmental benefits with affordability.”

A separate microgrid tariff that EDF is developing with ComEd and the Citizens Utility Board will allow non-utilities to use ComEd wires for microgrids, and those projects could have a different cost structure.

Michael Dworkin, the founding director of the Institute for Energy and the Environment at Vermont Law School, says the need for hard cost and performance data justifies the Illinois decision. Dworkin is also a former director of the Electric Power Research Institute.

“I personally am in favor of experiments like the Illinois project because I think we’re going to have to learn the answers by gathering data and experience, and not just by thinking about it,” says Dworkin. He also thinks the Illinois agreement to allow third party ownership of microgrids is important, because it opens the door to widespread use of new technology that is publicly accessible by multiple parties, and “not just the technology that is controlled by the (utility) franchises themselves.”

Berkley says New York regulators and advocates are examining the costs and performance of the Brooklyn microgrid, and in Illinois, Citizens Utility Board executive director David Kolata also spoke of using the project to “better learn how cost-effective microgrids” can advance clean energy and help electric customers.

Berkley says the potential for microgrids to help improve grid resilience and survivability may help utilities, regulators, and consumer advocates find common ground. If microgrid pilot projects deliver those benefits, the various stakeholders “will all work together to get an answer” on how to regulate and pay for them. And while figuring that out might take time, “that’s not going to hold back the technology necessarily,” Berkley says.

Dworkin doesn’t think microgrids will take over as fast as cell phones and deregulation changed the telecom business. “But I do think there are a whole lot of people out there looking for ways to make it happen, and some of them are going to find some success,” he says.


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