Post on 19-Jan-2016
Reallocating Distribution Upgrade Costs for Farm Digester
Projects
byEd Cubero, Sam Harms, Sam Shannon
University of Wisconsin-Madison
Dairy Industry in Wisconsin
• 141,000 jobs
• $5.2 billion in annual sales
• $26.5 billion economic impact
• Trend towards larger CAFOs, more concentrated waste streams
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Anaerobic Digesters
3Source: Hallmark Power Ltd.
Digester Potential in Wisconsin
• 251 dairy farms in WI are candidates for Anaerobic Digestion (500+ cows)– Currently, 30 on farms (≈10% of potential)
• Approx. 44 MW of potential capacity (386k MWh/yr) from manure alone – Co-digestion w/ other wastes would increase
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Benefits of Anaerobic Digestion• Environmental
– Odor Reduction
– Methane Reduction
– Pathogen Reduction
– BOD Reduction
• Economic
– Electricity offset / sales– Fiber– Heating– Fertilizer
– Jobs• 75-80 Construction• 3 long term
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Interconnection
• Often requires upgrades to distribution system – wires, substations, protection equipment
• State admin. code allows utility to recover these costs from connecting customer
• Liability on balance sheet, but no asset– Especially tough for capital-constrained smaller farms
Distribution Upgrade CostsDigester Costs
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Troubling Trifecta• Low utility buyback rates for dist. generation
Source: Federal Energy Regulatory Commission
MISO 30-Day Rolling Average LMP ($/MWh)
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Troubling Trifecta• High material costs for upgrades
Source: U.S. Dept. of Labor
Price of Nonferrous Wires and Cables (Index)
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Troubling Trifecta• Requirements for expensive equipment– Fiber optic cables
• Wis. Admin. Code PSC 119.25(3)“A Category 2, 3, or 4 DG facility shall include…Other equipment, such as other protective devices, supervisory control and alarms, telemetry and associated communications channel, that the public utility determines to be necessary.”
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Wisconsin Precedent
• WP&L: Shared Savings Program– Low-interest loans for Ag-related businesses
• Econ. Development Rates/Real-Time Pricing– WP&L, WEPCO
• Recent shifting of rate increases away from large users, towards other ratepayers
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Status Quo
• Wis. Admin. Code PSC 119.08(2)“The public utility may recover from the applicant an amount up to the actual cost, for labor and parts, of any distribution system upgrades required.”
• All major utilities require customer to pay for upgrades
• Must be paid in full prior to (or soon after) startup
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Policy Options
1) Utility option
2) Net metering option
3) Transmission utility option
4) Operating lease option
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Utility Option
• Require utilities to cover costs of distribution upgrades and earn rate of return
• Advantages– Spreads the costs across the rate base– Keeps the upgrades off the generator project
• Disadvantages– Fairness Issues– Largest impact to ratepayers
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Utility Option
• Energy chargesUtility Number of Farms
with 500+ cowsRate Class Energy Rate Increase
– Lower Bound (cents/kWh)
Energy Rate Increase – Upper Bound (cents/kWh)
Madison Gas & Electric
1Residential 0.02 0.06
Small Commercial 0.01 0.03
Northern States Power
27Residential 0.24 0.63
Small Commercial 0.17 0.46
Wisconsin Electric Power Company
34Residential 0.07 0.19
Small Commercial 0.07 0.18
Wisconsin Power & Light
20Residential 0.11 0.29
Small Commercial 0.15 0.39
Wisconsin Public Service Corporation
57Residential 0.35 0.92
Small Commercial 0.25 0.67 14
Net Metering Option
• Change to state net metering rules• If utility does not pay for upgrade, required to
offer net metering (up to 1 MW) for ADs
• Advantages– More assistance to smaller generators (more capital constrained)– Already being done in NY
• Disadvantages– Does not accurately reflect the cost of the upgrades– Upgrades show up as a liability on the generator project
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Net Metering Option• Energy charges
Utility Number of Farms with 500+ cows
Revenue Impact Residential Energy Rate Increase (cents/kWh)
Commercial Energy Rate Increase (cents/kWh)
MG&E 1 $36,000 0.004 0.002
NSPW 27 $1,998,000 0.104 0.075
WEPCO 34 $2,240,000 0.028 0.026
WP&L 20 $754,000 0.024 0.033
WPSC 57 $3,794,000 0.136 0.098
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Transmission Utility Option
• Require local transmission utility to pay for the upgrade
• Most likely a one-time invoice from the utility company to ATC
• Advantages– Larger rate base– ATC gets a say in the engineering – Michigan pays for 1% of costs
• Disadvantages– Requires a statutory change– Requires a decision from FERC allowing these charges on the rate filings
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Transmission Utility Option• Capacity charges
Utility Number of Farms with 500+ cows
Units of Sale (kW)
Rate Increase – Lower ($/kW)
Rate Increase – Upper ($/kW)
ATC 112 10,014,000 0.015 0.040
Utility Number of Farms with 500+ cows
Peak Demand (kW) Annual Expense Increase – Lower Bound
Annual Expense Increase – Upper Bound
MG&E 1 957,000 $91,000 $242,000
WEPCO 34 9,395,000 $891,000 $2,375,000
WPL 20 4,264,000 $404,000 $1,078,000
WPSC 57 4,045,000 $383,000 $1,022,000
UPPCO N/A 323,000 $31,000 $82,000
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Proportional Cost Sharing:Utility v. Transmission Options
Utility Share of Costs under Utility Option
Share of Costs under Transmission Option
Madison Gas & Electric0.7% 4%
Northern States Power19% 19%
Wisconsin Electric Power Company 24% 40%
Wisconsin Power & Light14% 18%
Wisconsin Public Service Corporation 41% 17%
Upper Peninsula Power Company -- 1%
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Operating Lease Option• Utility recovers the cost of the upgrade via long-term lease
to generator• Ratepayers secure lease in case of default• Leases could be combined with other options
– Ratepayers cover lease payments for first 5 yrs (25% of total) – Generator covers payments over remaining 15 yrs (75% of total)
• Advantages– Generator does not need capital financing for upgrades– Easy to implement; no new legislation required– Minimal impact to ratepayers
• Disadvantages– Generator still responsible for the cost of the upgrade
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Recommendation
• Operating leases
– Generator does not need to secure capital financing upfront
– Easiest to implement; no new legislation required– Minimal impact to ratepayers
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Thank You!
Questions?