Community Microgrids: Balancing Innovation and Ratepayer Protection in California

A microgrid is a localized power grid in a defined area that delivers energy to customers during grid outages while disconnected from the main grid. Most of the time, microgrids are connected to the utility grid to exchange energy and services with the grid (see Figure 1). 

Figure 1: Schematic of basic microgrid architecture.

^{Source: Comodi, G., Iannarelli, A., & Moneti, M. (2022). Experimental Validation of Systems Engineering Resilience Models for Islanded Microgrids. Systems, 10(6), 245. MDPI.}

Participants within a microgrid footprint (microgrid customers) can pay for the microgrid resources to achieve a higher level of resiliency than provided by the utility. While such an independent system may offer benefits to those customers within the microgrid, these systems need to be carefully managed to ensure the allocation of costs align with the distribution of benefits. To protect against shifting any undue costs that would be incurred by the microgrid to customers who are not part of the microgrid and diminish quality of service for microgrid customers, the following principles should apply:

• There should be no cost shifts from microgrid customers to non-microgrid customers, that is, non-microgrid customers should not bear microgrid-related costs disproportionate to the benefits they receive from the microgrid.
• Oversight by the California Public Utilities Commission (CPUC) of microgrids would ensure the microgrid operates safely and at a fair price to those who use them.

In 2018, the California state legislature enacted Senate Bill 1339,^[1] which directs the CPUC to develop policies and guidelines to facilitate the accelerated deployment of microgrids and resiliency strategies across California. Since then, the CPUC has implemented an array of microgrid standards, protocols, and guidelines to progressively reduce barriers for microgrid deployment. Now, the CPUC is developing a dedicated set of rules and guidelines specifically for community-scale microgrids. The investor-owned electric utilities (collectively utilities) and other interest groups have proposed various frameworks to enable community microgrids in California. Below are some key policies the Public Advocates Office proposes for successful implementation of community microgrids.

• No Microgrid Services Subsidized by Non-Microgrid Customers: Microgrids should not be subsidized by customers who do not benefit from their services. This prevents unfair financial burdens placed on those outside the microgrid system and inequitable exemptions for microgrids to pay their fair share of grid costs.
• Microgrids that Serve Multiple Customers Should Be Subject to CPUC Regulation: Regulated utilities can continue to provide electrical distribution services under fair rate structures. This model ensures that the costs of distribution services within the microgrid remain regulated by the CPUC and guarantees the just and reasonable recovery of costs incurred to operate and maintain safe and reliable distribution systems.
• Regular Reporting and Assessment: Continuous reporting on the commercialization of microgrids is vital for the CPUC to assess their effectiveness and cost-efficiency. This involves evaluating microgrids' ability to reduce ratepayer costs, monitoring trends that might indicate undue impacts on disadvantaged communities, and identifying failures with program operations which hinder microgrid applications.

Several community microgrid proposals from private microgrid developers and organized coalitions present alternative frameworks that could undermine the CPUC’s oversight of microgrids. Under such proposals, any ratepayer who does not participate in a microgrid risks paying higher rates to cover microgrid costs that are not commensurate with the benefits they may receive. The proposals also remove protections that safeguard microgrid customers from being overcharged for an essential service. For instance:

• “Micro Utility” Frameworks: Private developers, such as Sunnova Community Microgrids California, propose employing a “micro utility” framework where companies can build private distribution infrastructure and engage in sales with the utilities through their privately owned distribution system. The micro utility would provide service to microgrid customers with terms and prices set by the micro utility, thereby escaping meaningful CPUC regulation.
• Privately Negotiated Contracts: Some proposals suggest that both microgrid and non-microgrid customers pay for microgrid services, such as resiliency, based on privately negotiated contracts. This approach lacks transparency and could result in customers who do not receive service from microgrids, paying for services they do not benefit from, potentially leading to higher and unpredictable costs.

The CPUC's role in setting and enforcing utility standards, monitoring impacts to the electrical grid, and ensuring fair utility rate structures is crucial to protecting all customers. Without this oversight, there's a risk of falling into a "wild west" scenario where unregulated markets might prioritize profits over people. 

Microgrid deployment must be guided by regulatory oversight to ensure microgrids are cost-effective while the CPUC protects customers from the pitfalls of a completely deregulated market.