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Community Renaissance

When one age ends, another begins.

Fortnightly Magazine - April 2014

may be owned in whole or in part by either an electric utility or a third-party entity, and must provide services to multiple customers."

For MEA the operative words are "public purpose," instead of NETL's "community." But semantics aside, the concepts are similar, with a key exception: The MEA task force definition explicitly allows non-utility ownership, while NETL's FOA seems practically to forbid it.

These two approaches reveal simmering conflicts in the industry. Who gets to develop community microgrids? And how will they be financed?

Duplicative Distribution

Utilities are more likely to favor NETL's definition than MEA's, because the idea of a third-party owned microgrid that crosses rights of way to serve multiple customers would seem to infringe on the utility's exclusive franchise (except possibly in Connecticut). It also would violate a basic principle of public utility regulation - namely, avoiding investment in parallel distribution infrastructure, which is considered duplicative and uneconomic in most states.

Either way, however, initiatives to develop community microgrids will raise fundamental questions about the role of the regulated utility franchise, versus the role of the free market.

The regulatory compact obliges the franchised utility to provide ratepayers with reliable, safe, and reasonably priced services. It does not oblige the utility to foster innovation or to provide alternatives for serving ratepayers' individualized demands.

The utility wouldn't, for example, be obliged to provide a portable generator and transfer switch to every customer who wanted greater resilience, and if it did regulators wouldn't allow the costs to enter the rate base. Moreover, absent other government mandates, the utility generally isn't required to help customers reduce energy consumption, achieve high renewable penetration, or increase local self-reliance. Individuals who want such differentiated services have to pursue them on their own.

The same generally is true for communities of various types and sizes. To the degree premium assets exist to benefit only certain customers, they don't belong in the general rate base.

However, utilities obviously have critical roles to play in delivering the services communities want. In the months and years to come, the industry and its leaders will be challenged to define those roles in ways that are consistent with the regulatory compact - and that also yield optimal outcomes for customers.

Some utilities are starting to think outside the traditional boundaries of regulated investments. A few are seeking to put microgrids and other distributed energy assets into the rate base, as part of integrated system planning. The utility could justify investments in community microgrids because they'd help sustain critical public services - a goal that seems consistent with the utility's reliability and safety mandate. And if such investments are part of a longer-term, utility-2.0 strategy that makes room for a renaissance of competitive innovation, then regulators might support that strategy for ensuring reasonable prices too.

Note from the editor: As per the announcement in this month's People column, I am stepping down from my position as editor-in-chief and associate publisher of Public Utilities Fortnightly . Starting this month, I will concentrate on my role as director and founder of Microgrid Institute