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Distributed Generation: Last Big Battle for State Regulators?

Fortnightly Magazine - October 15 1999

says.

Of course, there are institutional barriers to on-site generation, which Holman says will ease over time. "These barriers include stringent or prohibitive interconnect requirements, fixed transmission and distribution capacity fees that must be paid regardless of how much electricity is drawn from the grid, and transition charges that can only be avoided by decoupling entirely from the grid (thus losing the grid for backup or baseload power)."

ORA's Morse, who attended a DG conference in mid-September, says he found that much of the software for integrating DG with the grid, while allowing anyone who wants to interconnect and be dispatched for reliability, is improving.

"There is not going to be a problem for hundreds of thousands of small power units to get connected to the grid. It will be possible to orchestrate them for reliability purposes," he says.

Of course, the issue of whether UDCs should be permitted to unbundle services in distribution in a way that utilities were not permitted to do in transmission still remains a hot debate, Morse says.

The most contentious issue in the next few months will be the role of the UDC in DG, he says. In addition, interconnection will prove a top issue for the CPUC, as well as tariff issues such as standby charges, customer charges, exits fees and rate discounting, predicts Morse.

Richard Stavros is senior editor of Public Utilities Fortnightly.

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Interstate Transmission: A Second Front

DG has a bone to pick with the FERC as well.

Even as the California PUC wrestles over who should control the local distribution grid, the Distributed Power Coalition of America (DPCA) has mapped out a direct interest in the formation of interstate regional transmission organizations (RTOs), because owners of distributed power units will become customers of the regional entities. The DPCA is a coalition of companies and organizations whose mission is to advocate the adoption of distributed energy resources.

Sarah McKinley, executive director at DPCA, says that distributed generation, or DG, known to offer residential and commercial customers generation options, also could be employed on the transmission level. She lists several potential benefits.

* Enhancement of grid reliability by strategic placement of DG facilities. DG can enhance grid reliability when transmission service is disrupted through mechanical failure, crippling storms or other natural disasters.

* Commercial use of distributed energy, primarily for peaking load. That will allow customers to take advantage of the "spark spread" between peak electricity prices and the cost of producing their own energy, primarily fueled by natural gas. Pricing software, combined with control technology, would allow units to be turned on at economically opportune moments to capture these efficiencies.

* Combined heat and power applications. Many commercial and industrial users can use waste heat generated in their operations to produce electricity.

* Industrial or large commercial applications. On-site energy production would displace existing load.

* The use of DG to provide ancillary services. An emerging market for ancillary services most likely will include participation by energy service companies or third parties, many of which plan to use DG units to