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A Wisconsin utility is seeking regulatory approval for a revised rate structure that adds new fees for customers who generate some of their own power with wind, solar, and other renewable energy systems, and cuts the amount of money they are paid for excess electricity through net-metering.
We Energies’ proposal would hike the fixed service charge (what it calls a “facilities charge”) for all residential electric customers from $9 to $16 per month.
The rate charged for electricity would drop from 13.94 cents per kWh to 13.49 cents per kWh. For a customer using 708 kWh per month, roughly what the U.S. Energy Information Agency says is typical for the state, the charge for electricity would drop from $98.70 to $95.51 (not including the mandatory facilities charge).
ThinkProgress reports the utility wants to impose a fee of $3.80 per kilowatt of capacity per month for customers who own photovoltaic (PV) arrays and wind generators. For a customer with a system rated at 5 kW, this new “standby charge” would amount to $228 per year.
In addition, We wants to reduce the amount it pays for excess generation from about 14 cents per kilowatt hour (kWh) to between 3 cents and 5 cents per kWh.
Milwaukee-headquartered We Energies, a subsidiary of Wisconsin Energy Corporation, has customers in parts of Wisconsin and Michigan’s Upper Peninsula, with a total of about 1.1 million electricity customers. It gets most of the electricity it distributes from coal-fired plants (about 53%), another 26% from natural gas and 1.5% from renewable sources.
We spokeswoman Cathy Schulze said the number of customers with the ability to generate some of their own power, with wind, solar and other forms of distributed generation, is less than 1,000. But, she said, as the renewable energy industry grows, those numbers will increase.
High net-metering rates helped solar and other forms of renewable energy get a foothold early on, she said, but they are no longer fair or necessary. The new rate structure would “even things out,” Schulze added, and allow We to pay a “wholesale price for a wholesale product.”
No third-party ownership
The rate proposal would prohibit homeowners from leasing or renting solar and other renewables. That’s consistent with current state law, Schulze says, which does not permit third-party ownership.
“State law currently defines third-party generators as ‘public utilities’ which would be subject to public utility laws, rules and [Public Service Commission] orders,” she said in an email. “Allowing third-party generators to sell power to individual customers would expand the problem of shifting the fixed costs of maintaining the system to other customers.”
Solar leasing is big business in some states, particularly California. It gives homeowners a chance to get into renewables with no big upfront charges, and the rate they pay for electricity is typically lower than what they had been paying.
Solar installers cry foul
We Energies says the new rates would be fair to all customers, but solar advocates in Wisconsin are anything but happy.
“It would not only end solar but remove the economic viability for any renewable energy in Wisconsin,” Matt Neumann, owner of the largest solar installation company in the state, told ThinkProgress.
The sharp increase in fixed charges, Neumann added, would punish everyone, including those who have taken steps to reduce their consumption of electricity.
It might not be the end of solar in the state, but customers with their own PV systems clearly wouldn’t be happy. For someone with a 5 kW solar system, for example, monthly charges would go up by $26, and any power sold to the grid would be worth between 21% and 36% of what it is now.
We Energies customers currently pay the second highest electricity rates in the state, The Milwaukee-Wisconsin Journal Sentinel reported. Since 2005, residential bills have gone up by 51%, the newspaper said, more than twice the rate of inflation.
The rate request comes as We’s parent company seeks regulator approval for a $9.1 billion purchase of Integrys Energy Group, a Chicago-based natural gas and electric utility, The Journal Sentinel said.
The state’s Public Service Commission will rule on the requests after public hearings over the next several months. Schulze said no decision is likely until December.
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7 Comments
They can sure ask...
...but the regulators don't have to actually give it to them.
All fixed-rate residential billing is too crude to reflect the actual cost of the services provided- the structure is just all wrong. Depending on the orientation of the array some PV operators are deliverering effectively zero value to the grid operators, and others are providing value well-beyond what a simple net metering scheme compenstates them for. eg:
https://medium.com/solutions-journal-summer-2014/meet-the-megapixel-kilowatt-hour-18e8fb0762c
Re-designing rates around time-of-use would be a small start in the right direction as would "demand charges" at the residential level, to make those with very high but short duration peak loads pay a more realistic share of the distribution infrastructure necessary for supporting a high peak load, while those who only sip power at any given time pay less.
Sticking it all to the PV operator is just too crude- the notion that PV is creating a cost shift to the non-PV customers in the WE case would rightly need to be proven before allowing the proposed fee structure to be implemented, as well as demonstrating that the fee is the right amount.
What is more likely at this stage of development, the PV operators are SAVING the other customer's money by putting off the need for new infrastructure upgrades, since it reduces the peak power draws on that feeder. Only when PV implementation is over half the mid-day load with potential backfeeding through the substations (typically something like 25% of the peak capacity on a typical system), does PV begin to add real cost. While this issue is real in parts of Hawaii, and parts of Western Australia, but it's probably at least a decade away in Wisconsin. Charging $3/kw wouldn't necessarily cover the cost of treating when that day comes, but until that day comes it's just a gouge.
While that may protect the business model of a utility that has sunk-costs in low capacity-factor peaker plants, the presence of distributed PV on the grid will in-general reduce the cost of peak power, which should be reflected in lower rates to the customers. What needs to be scrutinized is whether the rate payers are unfairly stuck with the sunk costs of those un-needed peakers going forward rather than making the utility or their investors absorb the hit. As regulated monopolies utilities have had a real cradle-rocker of a ride, and are unaccustomed to competition. They (rightly) see widely distributed PV as an existential threat to their business model, but if business-as-usual compensation by being able to rate-base all of that capital cost is causing rates to soar (as it is), it's downright un-American to be able to then assess charges on their small-time competition, the small scale PV operator.
By 2025 the levelized lifecycle cost of PV power will be lower than the residential retail rates everywhere in the US. The utilities either need to adapt or die. Throwing up roadblocks and per-kw fees to small time generators hooked up to the grid only forestalls the inevitable by a few dozen months at best. The utility companies in Hawaii had fair warning that it was coming, even had a substantial buy-out offer from a group interested in re-inventing it as a distributed-generation services grid a couple of years ago and turned it down flat. Now they are under the gun of the regulators to figure it out (and quickly), but the proposals they've put forward to date look like a prescription for bankruptcy. The first one issued in April was turned down flat by the regulators who gave them 90 days to come up with something better, but the re-write, while improved, isn't credible to most analysts. (Jigar Shah, founder of SunEdison, a third party solar company has already called it: The financial demise of HECO will happen before 2020, much sooner if the regulators accept the proposal as-is.)
Meanwhile in New York the NYISO regulations are being massively re-written to promote distributed generation, partly as a way to avoid the onerous cost of revamping the existing grid. Both Con Edison and the Long Island Power Authority are anxious to get this going sooner than later, so that they can avoid the cost of upgrading currently overloaded feeders by selectively subsidizing third party distributed generators to hook up on those part of the grid. That avoids significant capital cost by the utility (and their ratepayers), leveraging the financial resources of the distributed generation owners.
Maybe the regulators in WI will get a clue (there is a hint of dawn next door in MN, with an agreed upon Value of Solar model of compensating PV operators), but it remains to be seen.
Hawaii
Slightly off-topic, but the Hawaii story is fascinating - google for "I Almost Bought Hawaii’s Electric Utility for $6B and Made It a Renewables Paradise" (Really.) :)
Anyway, this all reminds me of the RIAA at the dawn of digital music. Fighting all the wrong fights.
It's a bit more like...
... the telecom monopolies missing the existential threat from cellular services, but the digital music analogy isn't far off the mark either.
The smart utility companies will try to become the disruptors rather than the disrupted, but in many cases they are shackeled by outdated regulation. Some others are trying to beat it by using their financial resources and cozy relationship with the regulators to "own it all", building out a lot of their own PV, with mixed success. (Sometimes the regulators kick them out of bed when they try to rate-base the cost and get a guaranteed profit out of it.)
This will take awhile to shake out, but it surely will. The sh__ has already hit the fan, it just hasn't hit the wall everywhere yet. Hawaii's problems today will be Wisconsin's problem 2025 if they don't manage it better than the track they are currently on.
Today's greentechmedia blog...
...points to a few states where the regulators and utilities are a bit more clued-in to what it will take, though none are quite there yet (NY might be getting close though, since they're not doing it piecemeal.):
http://www.greentechmedia.com/articles/read/5-states-leading-the-distributed-energy-revolution
Question for Dana
Can you comment on the implications from the comparatively recent separation of generating companies from those that distribute power? Aren't the potential risks from solar different for companies that own the grid than for companies that own generating facilities? Here in Maine, Central Maine Power owns the local grid and charges a flat fee, plus a per kwh charge for transmission. We also buy power from various entities that in turn buy power from generators. I imagine that whoever owns the most expensive, least efficient peak power plant must be at a much greater risk from the impact of solar on my roof than CMP is. Should I care what happens to the guy who owns the power plant? Am I still on the hook somehow as a rate payer?
You've pretty much got it.
When the utilities are not vertically integrated, the risks and responsibilities of the grid operators and generators are different. That puts the owner/operators of higher-maintenance or higher fuel cost facilities at a competitive disadvantage.
The major grid operator in Maine is ISO-New England, and power across the high capacity transmission lines are managed by them. Central Main Power owns and manages their own distribution networks (and maybe some of the generating assets?). They (like most decoupled utilities) buy power via both long term and short term purchase agreements with suppliers, as well as on the spot-market, and are allowed by the regulators to rate-base those "energy costs" as well as their maintenance costs to the rate-payers. The rate structures get updated periodically as the average costs rise/fall over time.
In most cases independent "merchant generators" do not get to directly rate-base their costs, and are at some risk. To keep generation assets needed for meeting the absolute peak power loads generation assets from simply going out of business, many states run a "capacity market", whereby generators are paid to simply be available, and that money IS rate-based through the regulators. The capacity fees paid are typically determined by an auction (quarterly or annually), and some states allow "demand response" (an agreement by large users to turn off some amount of load during peak periods) to participate and get paid, though that was recently challenge in the courts in Ohio, which ruled that it could not be treated the same way as a peak generator under the law there, since it doesn't generate electricity (even though it offers the same or better benefits to the grid.) The FERC (Federal Energy Regulatory Commision) is appealing that ruling, since it potentially throws many well-operated demand-response programs in other states under the bus.
FWIW: Those arguing that net-metering PV solar is a cross-subsidy taking from non-PV ratepayers and giving it to the PV operator, since they PV owner isn't paying their "fair share" of the grid costs, would need to also treat houses with central air conditioning the same way. The air conditioned folks are not covering either their fair share of the grid capacity OR their fair share of the expensive peak power "energy costs", if paying the same fixed rates as others. PV on the other hand reduces the wholesale price of power while reducing the strain on the grid from peak loads. The net effect in most cases is that the PV LOWERS the rates for the rest of the customers, whereas the air conditioner operator increases the rates for everyone. If Wisconsin Energy is going to ding the PV operator for a fee for "fairness" on the cross subsidy issue they need to first apply capacity charges to peak energy users- the folks who ACTUALLY cause rates to increase. (But you can guess how popular that would be!)
Green tags
Taxes ought to be imposed upon a utility producing electricity from any non-renewable resource. With carbon offsets coming from their PV producing third parties, they will see them as a value, and not as a fiscal crutch.
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