Are microgrids the key to climate resiliency? It’s a question being asked with a new sense of urgency since Hurricane Sandy.

I recently attended a forum on microgrids and storage held by NY-Best and the Pace Energy and Climate Center. The message was clear: we’re witnessing the emergence of a new paradigm of energy generation and distribution. Electric power will follow the path of high tech, becoming increasingly more decentralized and democratized.

A microgrid is a shared network of distributed generation and storage that can operate in “island mode” during grid outages and remains connected to the local utility system. One example is in the Mid-Hudson Regional Sustainability Plan, which proposes to use microgrids as a key component of Community Energy Districts and is part of NYSERDA’s Cleaner Greener Communities Program.

Still, what’s technologically possible isn’t always legally allowed.

Here are six critical legal and policy issues facing microgrid development.

  • Ownership: Deciding who owns the electricity generating equipment and wires for linking the loads can have a big impact on how a microgrid functions. It could be shared among one or more customers, as an electric cooperative, as a corporation, or as a nonprofit association. How much input will the end-users have on the operation of their microgrid and what are the consequences if a customer wants to leave the microgrid entirely?
  • Ownership Rate Structure: How will a microgrid be regulated? Depending on the size, structure, and ownership model, the microgrid can be exempt from most federal and state regulation if it meets the standards as a FERC-jurisdictional Qualifying Facility (QF). The benefits of QF status include avoiding burdensome regulations regarding rate setting, finances, construction and operation. (More on QFs here.)
  • Franchise Rights: Building wires over public streets can trigger franchise rights litigation. A non-utility installing facilities and distributing electricity over public streets will get the attention of the local utility that has a franchise in the street to build power lines. Not only does a microgrid need to avoid infringing on a utility’s franchise rights, but it also needs to work with the utility to avoid having to go through lengthy and expensive litigation just to prove that it’s not doing so. This may require contracting with the utility to pay a rate for using the wires that cross public streets to avoid franchise issues.
  • Size of generating facilities: Want to avoid rate regulation on steam corporations? Again, here, consideration of the benefits of QF status may be beneficial.
  • Customer rights: Going back to the ownership issue again, unless the residential customers own the facilities or are tenants of the microgrid owner, then a microgrid in New York may need to be in compliance with NYS Home Energy Fair Practices Act. Also, if the microgrid takes standby service for peak demand, the standby fees may have to be paid by customers. Customers should have a clear expectation of how this works.
  • Interconnection: Interconnection rules for small generators, especially renewables, are evolving right now at both the Federal Energy Regulatory Commission (FERC) and New York Independent System Operator (NYISO) levels. Staying up to date with these rules and requirements can lead to significant time savings and help build an accurate timeline for project completion.

For more on the factors that could enable more microgrid development, see Katherine Tweed's recent piece.


Ben Falber is a law clerk at The Law Offices of Natara G. Feller and Cleantech Law Partners. He is based in NYC. Connect with him on LinkedIn.