Distributed Generation: Setting a Fair Price in the Distribution Tariff

1 Some utilities may question this concept. San Diego Gas & Electric argued in California's DG investigation that distributed generation does not always lead to a reduction in distribution plant investment, and that any investment savings is not kilowatt for kilowatt. And the Federal Energy Regulatory Commission has taken a more extreme position, allowing a utility to charge a fee for distributed generators delivering electricity into the distribution grid.

2 This article discusses pricing competitive distribution services in a manner that would allow distributed generation to interact with the central market for electricity on a dynamic basis. Much of the language of the article presumes that the distribution services are being provided by an integrated utility. However, Texas has "dis-integrated" its utilities, prohibiting the distribution wires company from buying any electricity for its customers. Under these conditions, the pricing concepts presented in this article should be viewed as transfer prices between the distributed generator and any entity that has the residual obligations of a utility, such as providing power to consumers and buying electricity from qualifying facilities. The transfer prices then can be separated between the distribution wires company and the "utility." Such separation process is outside the scope of this article.