[BETA] Fortnightly

California again is the proving ground. Analysts see DG as the biggest issue since the PUC first mapped its "vision" for retail competition.

The distributed generation (DG) debate among utilities, environmentalists, power marketers, manufacturers and consumer advocates, set to move into second gear late this year before the California Public Utilities Commission, promises to "be a bloody, back-biting, nail-scratching fight."

That is the belief of Michael Shames, director of advocacy group UCAN, the Utility Consumers Action Network, who participated in early June hearings spurred by a CPUC Order Instituting a Rulemaking (OIR) on DG. (See RM98-12-015, Cal.P.U.C.; also, www.cpuc.ca.gov.)

UCAN's Shames observes that the DG issue pits industry groups against each other because it throws everything done by utilities as part of electricity restructuring into question, both in California and nationally.

"The utilities have recognized that the greatest asset they own is the grid," he says. "They view those wires as the future in which they can offer commodities. The utility distribution companies (UDCs) must view distributed generation as a competitive threat. Their own business, their own assets, the distribution lines are at risk by the development of a distributed generation market."

All of this makes for a spicy stew. On one hand, distributed generation represents a budding and exciting technology. It may demand new policies and standards from regulators on such matters as utility interconnection and net metering. At the same time, however, DG might render obsolete a good deal of what regulators have done so far concerning direct access, functional unbundling and forced divestiture of generating assets.

Fighting for Turf: A Feeding Frenzy

The California PUC recognizes DG's threat to utilities. According to CPUC press materials, "The portability and in-house capability of such facilities could enhance or replace some key functions of the major utility distribution companies - Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric - and thus have significant implications for their transmission and distribution systems."

Nonetheless, the CPUC hopes to explore the potential for competition in distribution services, including distributed generation, and roles and responsibilities of the big electric distributors. Distributed generation (also referred to as distributed energy resources) generally refers to small, modular electric generation and/or storage devices that are installed close to the customer's premises. Microturbines, fuel cells, photovoltaics, wind turbines and flywheels are examples of DG.

"This could well be a shark-feeding frenzy," says Shames. "The utilities clearly want to enter the DG market, but the DG market is actually split on the issue.

"[On one side of the argument], some [microturbine manufacturers] want utility intervention because they believe that utilities will facilitate or accelerate the deployment of their technology. It is big bucks. [Utilities] are the companies with deep pockets who have a vested interest in spending the money," he says.

On the flip side, according to Shames, other DG companies, manufacturers and retailers want nothing more than to avoid utilities entering the market because of market power issues.

For example, when a utility deploys DG - whether on the customer's side of the meter or on