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Distributed Generation: Last Big Battle for State Regulators?

Fortnightly Magazine - October 15 1999

someone's roof or house - it benefits from a distribution perspective, he says. Even if utilities install DG at a loss or at cost, the bolstering of circuits on the distribution line allows it to avoid upgrading that line or putting in transformers or substations, Shames says. These benefits give utilities a distinct competitive advantage.

"There is no way that any DG company could compete with a utility [because of utilities' cost benefits] he says.

But Michael D. Montoya, attorney for Southern California Edison, argues that control of grid operations must remain with the utility. He notes, "As the responsible provider of distribution service, the utility must have control over on-grid DG applications and be responsible for planning, designing, constructing, owning, operating and maintaining such on-grid DG."

SCE says it is imperative that utilities determine the location of on-grid DG applications in order to ensure reliability, integrity and safety of the system. But not all utilities agree with this view.

San Diego Gas & Electric, in comment filings, stated, "Even with over 70 cogeneration systems installed on its system, SDG&E has not, with a few isolated exceptions, experienced significant problems with existing customer generators that ¼ adversely [impacted] the overall T&D system with regard to integrity, safety and reliability."

SCE, however, asserts that DG is a wires asset. The utility agrees with the Coalition of California Utility Employees that non-utilities should develop and own DG owned and operated for the benefit of the grid.

In filed comments, the CCUE notes, "The question implies that there is something intrinsically different between DG and any other component of the distribution system. Utility Distribution Companies are not required to let others own or install transformers, and the same should be true for DG."

Yet Jay Morse, project coordinator at the CPUC's Office of Ratepayer Advocates, says that the implementation by commercial and industrial customers of "islanded" self-generation [generation running apart from the grid] demonstrates that the UDCs no longer have a monopoly on distribution service. Since distribution is not a monopoly for customers with DG, it cannot be a "natural monopoly."

"To put it simply, permitting UDCs to own, lease or control DG as distribution investment or expense violates electric restructuring. Just as reducing transmission costs does not justify booking central station generation as a transmission asset, so does reducing distribution expenses not justify booking distributed generation as distribution," he says.

Permitting UDCs to own or lease DG as wire assets is different only by degree from permitting them to exclude others from doing so, Morse says. "Neither AB1890 [California's principal electric deregulation law], nor the CPUC's Preferred Policy Decision [D.95-12-063, Dec. 20, 1995, 166 PUR4th 1] treat or define generation in any way that could be interpreted as excluding DG. Therefore, DG, like central station generation, must be functionally separated from transmission and distribution and excluded from transmission or distribution rates."

SCE's Montoya disagrees. "While SCE acknowledges that there are some conceptual similarities between the relationship of central station generation and transmission on the one hand, and distributed generation and distribution on the other,