Some advocates of distributed generation (DG) claim that the DG customer derives no benefit from being connected to the host utility’s distribution system. While it is easy to say that a DG customer is “free from the grid,” that is simply not true – even for a DG customer (or a micro- grid) that produces the exact amount of energy that it consumes in any given day or other time interval.

This paper describes how a DG customer (or a micro grid) that is connected to the host utility’s distribution system 24/7 utilizes grid services on a continuous, ongoing basis. The point is to recognize the value of these grid services and to develop a methodology for the DG customer to pay for using the services. The utility’s cost of providing grid services consists of at least four components – the typical fixed costs associated with: (i) transmission, (ii) distribution, (iii) generation capacity, and (iv) the costs of ancillary and balancing services that the grid provides throughout the day for the DG customer.