1

Boston Microgrids Workshop #2 – Workshop Summary District Hall, Innovation District--May 28, 2014

Conveners: City of Boston and Pace University

Facilitator: Dr. Jonathan Raab, Raab Associates, Ltd.

Supported by the John Merck Fund

Introductions and presenting the Distribution Company Owned Microgrid

Model

55 invitees RSVP’d for the workshop. The names and organizations are listed in Appendix A.

Presentations and other documents used during the course of the day can be accessed by using

the hot links embedded in the meeting summary. Presentations and workshop materials can also

be accessed on the Pace Energy and Climate Center website.

Sam Swanson from the Pace Energy and Climate Center welcomed everyone to the workshop,

and Jonathan Raab (the facilitator) reviewed the agenda for the workshop. Chairman Ann

Berwick of the MA DPU and Brad Swing of the City of Boston also welcomed the participants

and explained why the Commonwealth and City, respectively were interested in microgrids.

Then Camilo Serna from Northeast Utilities and Peter Zschokke from National Grid described

briefly the microgrid related projects that the utilities were already involved in or planning for in

Connecticut and City of Northampton respectively.

Laxmi Rao of the International District Energy Association laid out a prototypical vision of

microgrid development, accompanied by an explanation of some of the advantages of developing

microgrids at scale, either from the increasing returns of larger generation, or the ability to more

manageably incorporate renewables. (See introductory slides.)

Seth Hoedl laid out the utility ownership model for developing microgrids. His attached

presentation explains this model clearly and in more detail. (See presentation.)

During a question and answer period, our presenters clarified that:

The utility ownership model as presented discusses electricity, although the economic

operation of microgrids will presumably require CHP and/or thermal distribution to

succeed.

A customer’s right to choose between generation sources is limited during an islanding

event, so that the microgrid will not incidentally violate any policy to that effect by

operating in emergency circumstances.

Who operates the point of common coupling or the islanding point between the microgrid

and the macrogrid is a matter that can be contractually resolved between the utility and

the microgrid operator.

2

While a distribution company could not require a customer to take a certain service as a

matter of policy, a customer could contractually agree to the terms of its new relationship

with the distribution company, allowing some assurance that the customer will remain a

revenue source for the distribution company going forward.

Breakout Exercise #1: The Utility Owned Model Participants identified a variety of deal makers and potential deal breakers for each of the

potential contracts in a utility-owned microgrid configuration. (The use of the term “deal

breaker” here does not necessarily imply that a model or a transaction would really be impossible

or infeasible.)

Contract #1: Between the Distribution Company and microgrid participants

(building owners)

Deal makers in this contract path include:

The model’s potential to leverage existing utility infrastructure, franchise framework,

interconnection process and regulatory accountability (e.g., participants will be assured

that the microgrid will be operated in accordance with appropriate regulatory frameworks

and utilize appropriate infrastructure)

The potential for alternative lease arrangements for the ownership and operation of the

microgrid (e.g., the ownership and operation of certain microgrid assets could be

subcontracted out to an independent party)

Customers may have an incentive to refrain from opting out of the microgrid if contract

distinguishes microgrid power from macrogrid power

Enabling the Distribution company to maintain service and own additional assets

Increased resilience

The level of insurance carried by each party

Potentially lower costs of energy due to utilizing waste heat

On bill payment for microgrid assets helping ensure the credit-worthiness of the project

Long term contracts

Potentially better economic proposition for delivering heat and power

Potential deal breakers in this contract include:

There is no existing rate structure for the “premium” services provided by a microgrid,

introducing concerns over who will pay for the microgrid

Regulatory barriers to DPU approval for socializing costs of utility-owned microgrid (i.e.,

to other ratepayers)

The tension between having multiple utility feeds and the complications that creates

within the microgrid technically, and having high power reliability

Unclear delegation of responsibilities for the customer (e.g., who will bill, meter, etc.?)

3

Potentially higher total costs of energy

Increased risk exposure for distribution company microgrid owners

If system should fail to function during an emergency, a distribution company owned

microgrid may suffer the same wait times for restoration of service as the entire rest of

the macrogrid

Potential penalties for noncompliance with the obligation to serve

Contract #2: Between the Distribution Company and the Microgrid

Operator

Deal makers in this contract include:

The ability of the microgrid operator to assist with recovery after an outage

Provision of ancillary services by the microgrid operator to the macrogrid

Removing any uncertainty about the rights of the microgrid to cross public rights of way

under this ownership model

The microgrid operator will be more aware and able to respond to the power quality

needs and load profiles of microgrid customers than the distribution company’s operators

would be

High system efficiency

The ability to choose between a number of generation sources

Financing concerns (e.g., bonding capacity, a good balance sheet, or a favorable take-or-

pay contract)

The level of insurance carried by each party

The potentially positive value proposition of this model for the distribution company, in

terms of receiving revenue for services

Microgrid operator may bear the cost of isolating equipment and connection to generators

Deal breakers in this contract include:

Uncertainty over whether or not franchise rights are violated by the microgrid operator

Uncertainty over who owns infrastructure

The lack of markets to provide services to the distribution company

Winning over investors concerned about the technical feasibility of the system

Complexities in how to delineate responsibilities on the customer side

Complexities in splitting the ownership and control of assets at and within the point of

common coupling, including who ensures reliability with respect to the micro and

macrogrid

Lack of standards in communications and protocols for the microgrid operator to follow

Contract #3: Between the Competitive Supplier and the Microgrid Operator

4

Deal Makers in this contract include:

Competitive supplier has inherent expertise in integration with the macrogrid (how to

island, etc.) and working with wholesale markets (price response software, etc.)

The role of the competitive supplier is defined and allowed by current rules

Pricing advantage offered by competitive suppliers

Increased market opportunities for existing competitive suppliers

Increased system efficiency

The ability to choose between a number of generation sources

Price of power should incorporate the cost of microgrid assets, so that there is no

difference in price for power purchased during normal operation and during an outage

Competitive supplier can time power purchases to cost-effectively recharge storage assets

Deal Breakers in this contract include:

The cost of compliance to be a licensed supplier

Potential penalties for noncompliance with the obligation to serve

Potentially losing net metering eligibility for PV

Price volatility (need for software to know real time prices and respond to that at

customer’s wishes) or inability to meet customer demand

Will customer protections in terms of choice (both of price and service) and billing be

preserved?

Contract #4: Between the Competitive Supplier and Microgrid Participants

(building owners)

Deal Makers in this contract include:

Transparent existing competitive supplier contracts

Increased system efficiency

The ability to choose between a number of generation sources

The ability to contract for a given quality of service

Pricing advantage offered by competitive suppliers

Inherent expertise of competitive suppliers in understanding the wholesale value chain

Providing demand response, load shedding during islanding

Rule changes could alleviate the burden of compliance cost to be a licensed supplier

Choice between competitive suppliers must be limited

Power prices must be indexed to the wholesale market

Deal Breakers in this contract include:

The cost of compliance to be a licensed supplier

5

Uncertainty over who bears the responsibility to provide reliable service

Uncertainty over whether customers will be able to retain any choice between

competitive suppliers, or whether this will amount to a “forced selection”, and if so, how

do participants know they’re getting a fair deal?

Potential lack of long term contracts securing customer participation

Potentially higher costs for end customers

Goals of participants in a given system may change, necessitating changes to the

microgrid and their relationship with their competitive supplier

Contract #5: Between the Microgrid Operator and Microgrid Participants

(building owners)

Deal Makers in this contract include:

The potential for alternative lease arrangements for the ownership and operation of the

microgrid (e.g., the ownership and operation of certain microgrid assets could be

subcontracted out to an independent party)

Increased system efficiency

Increased system resiliency

Distinguishing between levels of service offered within the microgrid

The ability to choose between a number of generation sources

The fact that the distribution company will be maintaining its rate base

Total savings over the life of the system

The ability to plan the project so that it proceeds in phases

Ensuring the rights of the customers

Option of signing thermal contracts with specific customers

Clarity in understanding who responds in the event of an emergency

Deal Breakers in this contract include:

Potential penalties for noncompliance with the obligation to serve

Potentially high operating costs

Lack of local government sophistication

Difficulties in managing load to match generation

Potentially high transaction costs

Concerns over when microgrid participants may wish to opt out of the system

Goals of participants in a given system may change, necessitating changes to the

microgrid and their relationship with their microgrid operator

6

Presenting the Joint Venture Model Seth Hoedl of Harvard Law School presented on the legal issues surrounding a potential joint

venture framework of microgrid ownership. (See presentation.)

During a question and answer session, Seth clarified that:

The construction of distribution lines is regulated separately from the regulation of the

microgrid at the DPU level. Municipalities control separate processes to approve such

construction.

The Joint Venture microgrid model has not gone before the DPU as yet.

A third party may be contractually obligated to operate the power lines themselves, while

the joint venture maintains ownership of them.

The term “joint venture” is used broadly, to stand in for all forms of ownership of the

microgrid assets by participants, including cooperatives and special improvement

districts.

Commissioner Ann Berwick of the DPU noted concern that the Joint Venture model, as

presented here, might be vulnerable to the argument that it is engaged in “creative

conveyancing,” as prohibited by the Owen College case. She also expressed concern that

this model might be more likely to attract utility opposition, which may pose unnecessary

hurdles in light of the existence of the utility ownership model.

Breakout Exercise #2: The Joint Venture Model

Participants identified a variety of deal makers and deal breakers for each of the prospective

stakeholders in a joint venture microgrid configuration. The group suggesting each deal maker or

deal breaker is indicated after the comment in parentheses.

Distribution Companies

Deal makers from the perspective of a distribution company may include:

Microgrids sited at areas of new construction, which wouldn’t create stranded costs

The ability to aggregate larger amounts of DG behind a single point of control

A change of statute or regulation to address utility concerns, e.g., mechanism to ensure

adequate payment for utility service (new revenue streams)

Value conferred by microgrid to distribution system, e.g., by flattening load curve,

providing ancillary services, or storm resiliency

Utility consent (i.e., utilities may be more favorable to joint venture microgrids on a case

by case basis where their consent to an individual project does not create the precedent

that this is a permissible encroachment onto franchise rights)

Favorable standby rates

Assurance of safe and reliable operation at the microgrid

7

Conversely, a number of potential deal breakers were identified from the distribution company’s

perspective:

Potential infringement on utility’s franchise territory

Potential lost revenue, or reduced payment for distribution services

Uncertainty over whether this configuration is allowable under franchise rules

Uncertainty over whether obligation to serve attaches

The potential utility “death spiral” – i.e., could a large number of these systems aggregate

and supplant the grid?

Stranded costs, especially if these are passed on to other ratepayers

An influx in misdirected service calls, if the utility cannot control microgrid operation

Difficulty in ensuring reliability and safety, and proper functioning at the interface with

the macrogrid

The potential for non-DC line ownership

Competitive Suppliers

Deal makers from the perspective of competitive suppliers include:

Requirement that a microgrid must use a competitive supplier for service

Aggregation of customers behind a single point of contact

Financial assurance to distribution company

Mandatory time-of-use rates

Substantial numbers of new customers

Deal Breakers:

Potential to lose customer base

Legal risk

Complications in buying power from a microgrid, particularly in terms of FERC

compliance

Lack of long-term agreements

Joint Venture Parties (Building Owners)

Deal Makers:

Many owners already do efficiency work, and this would allow them to join with their

neighbors for that purpose

Lower cost of commodity

Long term agreements

Value proposition from the perspective of cost, reliability, and sustainability

Increased security and resiliency

8

Having the distribution company own generation infrastructure, and 115 kV and 69 kV

transmission lines

Potential to self-provide premium power quality

Economies of scale between multiple participants

Increased thermal efficiency

Potential increased building space availability, e.g., resulting from having on-site power

located with nearby neighbors

Financial assurance provided to distribution company

Mandatory time of use rates

Stable customer groups (i.e., proper assurances in place to ensure that customers cannot

abandon the microgrid, destabilizing its load and revenue streams)

Deal breakers:

High up front capital costs and difficulty in obtaining 3rd

party financing

Participant choice when long term contracts expires, and associated concerns related to

unstable customer groups (e.g., will there be opting out allowed? Exit fees?)

Increased potential liability

Potential for increased O&M expenses, especially for smaller systems. Concerns over

how to allocate these costs

Lack of clear ownership of the system, especially as regards the allocation of costs, the

bankruptcy of one or more participants, and concerns over how that risk should be

allocated

Financing concerns (e.g., will credit be available at the rating attributable at the rate

attributable to the most credit-worthy participant? The least?)

Free rider problem: How do you ensure all parties are responsible for responsibly

contributing to energy efficiency?

Legal risk that SJC will agree that the Joint Venture is a viable configuration

The burden of technical risks and operational complexity on owners (e.g., will there need

to be expert staff brought on?)

The potentially limited applications of this configuration. This will require the right

customers, the right thermal loads, and the right long term obligations by each party.

Rate payer subsidization

Joint venture generators

Deal Makers:

Potential to sell services to Distribution Company/ ISO NE

Good thermal loads onsite

9

Serving a single point of contact, rather than several

Financial assurance to distribution company

System providing for the economic dispatch of cost effective alternatives to new

transmission, etc.

The option of incorporating more renewable generation

Mandatory time of use rates

The right mix of loads and financing

The presence of long-term agreements

Partnership with a local municipality

Ability to serve existing loads/facilities

Deal Breakers:

High costs of financing and upfront capital

Inability to function as a distribution company, as generation and distribution in MA are

separate

Potential dependence on natural gas, which may vary in price

Potential for participants to opt-out

High O&M obligations to distribution company

Not having the right mix of end users

Regulatory uncertainty

Joint Venture operators

Deal Makers:

Increased thermal efficiency

Increased reliability

Decreased costs of power

A third party operator, e.g., with appropriate expertise

Hooking up one building at a time for easier transition of service

The alignment of multiple missions, e.g., GHG reductions, serving public good, storm

resiliency

Deal Breakers:

Potential lack of expertise in owning/operating a system, and associated safety and

reliability concerns

Concern over whether these configurations will only apply to greenfields

Potential lack of expertise in electricity markets on the part of the new operator

High energy fuel costs

10

Questions Going Forward The workshop ended by stepping outside of the exercises to address overarching concerns and

questions going forward. Participants raised a range of questions and concerns, including:

How can these systems attract off-balance sheet financing?

Might the spread of microgrids create a tiered system of power “haves” and power “have-

nots”? Should the spread of microgrids be considered through an equity lens?

Who should be the ideal end users of a microgrid? All users are not the same. Medical

institutions, e.g., have a high priority to operate after Sandy type event.

How will the spread of microgrids affect the funding of successful programs for energy

efficiency and renewables?

What should the overarching purpose of this convention of stakeholders? One purpose

over which parties could come together would be to find the increasing private

investment needed to meet reliability goals, by encouraging investment in microgrids.

Can we produce a set of goals and criteria for microgrid development in the

Commonwealth?

11

Appendix A: Boston Microgrid Workshop #2 Confirmed Invitees

First Name Last Name Organization

Andrew Albers Boston Global Investors

Kevin Slein BioMed Realty

Geoff Lewis Boston Convention Center

Leo Larosa Boston Medical Center

Dean Larson Boston Properties

John Dalzell Boston Redevelopment Authority

Brad Swing City of Boston

Travis Sheehan City of Boston

John Bolduc City of Cambridge

Robert Flottemesch Constellation Energy

C. Baird Brown Drinker Biddle Reath

Shaun Goho Harvard Law School

Seth Hoedl Harvard Law School

Brian Beauregard Beauregard Holyoke Gas & Electric

Michael Webster ICETEC

Laxmi Rao International District Energy Association

Jaimie Scranton JP Morgan

Jamie Oppedisano JP Morgan

Eric Limpaecher Lincoln Labs

John Aubrecht Longwood Area Energy Collective

Galen Nelson Mass CEC

Amy Barad Mass CEC

Gerry Bingham Mass DOER

Dwayne Breger Mass DOER

Dhruv Bhatnagar Mass DPU

Rebecca Tepper Mass DPU

Sharon Ballard Mass DPU

Ben Davis Mass DPU

Sharon Daly Mass DPU

Ann Berwick, Chair Mass DPU

Jolette Westbrook, Commissioner Mass DPU

Kate McKeever, Commissioner Mass DPU

Laura O'Connor Massport

Stewart Dalzell Massport

Teresa Civic Massport

Melissa Liazo National Grid

Jim Perkinson National Grid

Peter Zschokke National Grid

12

Fouad Dagher National Grid

Neven Rabadjija Northeast Utilities

Bob Andrew Northeast Utilities

Camilo Serna Northeast Utilities

Frank Gundel Northeast Utilities

Jordan Gerow Pace Energy and Climate Center

Sam Swanson Pace Energy and Climate Center

Shalom Flank Pareto Energy

Fran Cummings Peregrine Consulting

John Kelly Perfect Power Institute

Chris Bleuher Schneider Electric

Alastair Pim Schneider Electric

John Hurley Siemens

Ajay Prasad Taurus Investment Holdings

Patrick Haswell Veolia Energy

Terry Waldron Waldron Engineering