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Fuel Cells: White Knight for Natural Gas?

Fortnightly Magazine - March 15 2000

do that," says Anderson, a commissioner at Montana Public Service Commission. "But that puts a burden on regulators to create regulation that facilitates the process." One way NARUC may be able to help, he says, is by creating model rules.

"Part of the problem, maybe, is that this is fairly new technology, and to change rate structures and things to encourage [distributed resources] takes time," says EEI's Hall. "So in a lot of cases, the utilities [and] the PUCs really don't know where to go and how to structure these new rates yet."

Interconnection is an important issue. The ability of fuel cells and other DG to be connected to the grid is a big attraction, in no small part because of the potential for the DG owner to sell excess capacity back to the grid. Whether that sell-back, or "net metering," should be allowed is a matter of great controversy. Large-capacity fuel cells may even play a role in commercial electric markets, competing with grid power.

"[Fuel cell owners would] be in the position to make the economic decision of selling power onto the grid or not, or using it themselves or cutting back on their use," says Hafer. "All of that will have the benefit for the consumer of holding prices down for the commodity."

How large can a unit get and still qualify as "distributed"?

"We've seen some distributed resource advocates who say that a 50-MW [unit] is a distributed unit. Generally we believe that's nonsense," says Linderman. "I mean, a 50-MW unit is bigger than the load that some municipal utilities in this country have their own generators for."

Instead, Linderman says, "We tend to agree with the California Alliance for Distributed Energy Resources that different sizes constitute and stimulate different cost causations."

All of these issues will be resolved in time, according to EPRI's Rastler. "They might involve stranded cost issues, backup charges, the wires charge that's required to back the systems up - these are issues that will be evolving," he says. "As the rules and games start to come forward, they will be resolved in the next year or so."

Should the installation of DG be encouraged through state regulation?

Commissioner Anderson says many regulators think it should. "It's consistent with the trend toward customer choice."

In line with the provisions of the New Jersey electric deregulation law, that state's commissioners took a cautious approach to encouraging distributed generation.

According to Herb Tate, president of the New Jersey Board of Public Utilities, commissioners established three mechanisms as incentives for distributed generation: the bypass of stranded cost, net metering, and funding for renewable projects including certain DG installations. Net metering is capped at $2 million and stranded cost is eroded by a little more than 8 percent.

Adds Tate, "To balance this, we allowed utilities full 100 percent stranded cost recovery, plus stranded cost securitization of up to 75 percent of that stranded cost. We also had no mandatory divestiture [of generation assets], absent a market power issue."

But while most recognize that regulation will be

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