WE Energies Launches Assault on Distributed Generation

Rate Filing Aims to Drive Small Renewables Out of SE Wisconsin

August 2014

In its current rate filing, We Energies unveils a punitive package of terms and conditions for owners of distributed generation, planned to take effect on January 2016. If approved by the Public Service Commission, these measures would throttle the distributed energy marketplace in WE territory and bring it to a standstill.

These following slides document the rates, charges and penalties proposed by We Energies to squeeze small-scale electricity producers. Their aim is clear: to preserve its generation monopoly at all costs, even if it means denying customers the ability to self-generate with clean energy.

Warning!

This filing could be contagious

Should the Public Service Commission approve WE’s harsh measures, you can be sure that other Wisconsin utilities will propose similar terms in their 2017-2018 filings.

A Three-Pronged Assault on Customer-Sited Renewables

In a nutshell, WE proposes to:

Impose hefty capacity charges on all net metered customers and stand-by charges on larger self-generators

Change the terms of service to diminish returns on existing renewable energy investments by one-third

Deny net metering service for leased and third-party owned solar systems

New Terms of Service

Beginning January 2016, all distributed generators (under 15 MW) interconnected to WE will be placed in one of four new categories of customer generation.

1. COGS-NM (net metering)2. COGS-NP (non-purchase)3. COGS-DS (direct-sales)4. Cp-4/Cg-4 (stand-by service for large self-generators)

Breaking Down COGS-NM

1. Two-tiered rate structure (in place)2. Two meters w/ extra charge for second meter (new)3. Monthly netting instead if annual netting (new)4. Capacity demand charge (new)5. Capacity limit set at 300 kW (new)6. Customer must own system (new)

COGS-NM Rates and Charges

Revenue from GenerationOffset Consumption Retail energy rate 13.9 cents/kWhAbove Consumption Avoided energy rate ~4.2 cents/kWh

Note: As of 1/1/2016, the net will be calculated each month

New WE chargesCapacity demand charge $3.79/kW or $8.60/kWFacilities charge (2nd meter) 2-10 cents/day

Note: the lesser of the capacity demand charges would apply to solar and wind systems. All other customer generators would be subject to the higher charge, unless they are demand-metered.

Case study of 4 kW solar system installed in 2013

Assumptions

Annual household consumption is 6,000 kWh PV system produces 80% of household use

(4,800 kWh) Current return –> 4,800 x 13.9 cents/kWh =

$667/yr ($55.60/month)

Economics of same system in 2016

AssumptionsOf the 4,800 kWh produced each year, 400 kWh is credited at avoided cost rate (excess over consumption) Energy value – 4,400 x 13.9 cents + 400 x 4.2 cents = $628 or

$52.33/month Capacity demand charge – 4kW x $3.79/kW = $15.96/month Facilities charge - $0.65 cents/month

Result$52.33 - $15.96 – $0.65 = $36.72/month

Quantifying the Hit to This PV System Owner

Year Average monthly return

2014 $55.602016 $36.72

Difference ($) $18.88Difference (%) 34.3%

How Radical Is this Proposal?

Does any other WI utility impose (or plan to impose) demand-based penalties on customer generators?

No

Does any other WI utility require customer ownership of net metered systems?

No

Does We Energies Provide Any Numbers to Support the Need for Additional Charges and Penalties?

No

Comparing Net Metering Costs to We Energies Own Plants

Generation Source

Fuel source Size(in MW)

2013 Production Costs (cents/kWh)

Elm Road* Coal 1275 14.76

Valley Coal 280 10.0

Port Washington

Natural Gas 1150 7.3

Net metered Renewables

Solar, Wind 4 13.9

Note: In 2012, Elm Road’s all-in production costs were 22.3 cents/kWh

Sources: We Energies 2014 Report to the PSCW, RENEW

Numbers That Matter

Anticipated We Energies purchase price of Integrys Energy Group

$9.1 billion

Elm Road – Monthly and annual lease payments from We Energies customers to We Power (plant owner)

$19.33 million$233 million

We Energies CEO Gale Klappa’s compensation in 2012 $13 million

Aggregate solar capacity interconnected to We Energies 7.5 megawatts

Anticipated revenues in 2016 from demand penalties assessed on solar system owners

$30,000/month$360,000/year

*Subject to check: not yet confirmed

Schools powered by renewable energy that will be hurt by these changes

School

MATC - Milwaukee Menomonie Falls North M.S.

Lakeshore Technical College MATC – Oak Creek

MATC – Ft. Atkinson Waukesha County Tech. College

Kettle Moraine Lutheran H.S. Purdy Elementary – Ft. Atkinson

Fort Atkinson H.S. Lake Country School

Random Lake H.S. Lawrence University

Fox Valley Lutheran H.S. Shorewood School District

Lakeside Lutheran H.S. WI Lutheran College

UW-Whitewater UW Milwaukee

UW- Parkside HOPE Christian Schools

WI Lutheran H.S. MKE Fairview School

Concordia Univ. MKE Cooper School

Faith communities powered by renewable energy that will be hurt by these changes

House of Worship/County of Location

Atonement Lutheran - Milwaukee St. Paul’s (Ixonia) Jefferson

St. Paul’s Lutheran -Waukesha Church of the Resurrection - Waukesha

Garden Homes Lutheran - Milwaukee Lake Country Unitarian - Waukesha

Fox River Christian Church - Waukesha Good Shepherd Lutheran - Washington

Risen Savior Lutheran - Waukesha Pilgrim United - Ozaukee

Crown of Life Lutheran - Dodge First Congregational Church - Ozaukee

St. Marcus Lutheran - Milwaukee Ascension Lutheran - Shawano

Racine Dominicans EcoJustice Center - Racine Lake Park Lutheran Church - Milwaukee

Bethlehem Evangelical Lutheran - Waukesha E&R United Church of Christ - Waukesha

Morning Star Lutheran - Washington Cross Lutheran Church - Milwaukee

Elm Grove Lutheran – Waukesha

Local governments powered by renewable energy that will be hurt by these changes

Local governmentCity of Racine (City Hall) City of Whitewater

Outagamie County (ATW) Town of Greenville (Outagamie)

City of Milwaukee (Public Library) City of Wauwatosa (Fire Dept.)

Town of Menasha (Winnebago) City of Brookfield (Safety Building)

MMSD (Milwaukee)

Businesses powered by renewable energy that will be harmed by these changes

BusinessJohnson Controls JJ KellerKohl’s Dept. Stores (3 stores) American Transmission Co.

GE Health Care (3 locations) Full Circle Farm

SCA Tissue Osborn NurseryPreder Farm Werner ElectricMenasha Corp. WAGO CorporationPotawatomi Bingo Casino Bergstrom MiniCedar Lake Rehabilitation UW Milwaukee

What’s Different about COGS-NP?

The trade-off here is: the non-purchase service would allow customer-generators to keep their existing meter and avoid the facilities charge. However, any generation that is exported to the grid is effectively donated to WE.

Amazingly enough …

Those who elect this service option would still be subject to the capacity demand charge, even though they receive no credit for exported electricity.

Which Begs the Question …

What is the difference between cutting one’s bill in half through conservation measures vs. self-generation whose costs and benefits are fully internalized within the customer? Put another way, why does self-generation warrant a capacity penalty but not conservation?

How is this not discriminatory?

What is COGS-DS?

This service is planned to be mandatory for generators between 300 kW + 15 megawatts. Most biogas generators fall into this range. When current contracts between owners of biogas generation and WE expire, WE will move the generators to this rate.

What is WE’s proposed rate for purchasing electricity under this service? ~$4.2 cents/kWh.

Are There Other Penalties in Store for Self-Generators?

Yes. WE is proposing to levy stand-by charges on customer-generators who meet the following requirements:1. Have 300+ kW of generating capacity2. Supply a minimum of 35% of their usage

from their own generating units

Example: SC Johnson’s Waxdale plant

How much are the stand-by charges?

3 cents/kWh on-peak2 cents/kWh off-peak

Basically, the utility is looking to force these self-generators to pay WE for every kWh produced and consumed on-site.

About the Ownership Requirement Provision

Neither Wisconsin law nor the PSC’s interconnection rules (PSC 119) preclude utility customers from entering into lease agreements or energy purchase agreements with third party owners of distributed generation.

Meanwhile, in Iowa

Culminating a legal fight that lasted 2 ½ years, the Iowa Supreme Court ruled that companies and customers can legally enter into contracts for energy produced behind the customers’ meter.

Iowa’s electric utilities are regulated much like Wisconsin.

What Is the Magnitude of the “Problem” Triggering This Array of

Punitive Measures?

From We Energies’ filing:

“The magnitude of this problem has been negligible as long as the amount of customer-owned generation has been relatively small, but as the number of these systems grow, so too will this problem.”

Direct-WEPCO/WG-Rogers-54

Note: Emphasis supplied by RENEW

What Overall Effect Will These Punitive Measures Have on DG?

We Energies knows fully well that clawing back one-third of a system owner’s return on investment will permanently shut down the local clean energy marketplace. Problem solved.

Stand Up to We Energies!

The utility’s proposal to shut down distributed generation in its territory is on a fast track! The Public Service Commission has started its review, and will issue its decision in December.

How to post a comment: Go to the PSC's web site (http://psc.wi.gov), and click on Public Comment, then search for WE 2014 rate case (Docket No. 5-UR-107). The public comment page will stay open until September 23, 2014.

AND …

Broaden Your Reach!

Send copies of your comments to: The Governor’s office Both state legislatorsCounty executive County supervisorLocal govt. executiveLocal govt. councilpersonYou neighborhood associationYour local newspaper

Michael Vickerman

Program and Policy Director 608.255.4044

mvickerman@renewwisconsin.orgwww.renewwisconsin.org

http://renewwisconsin-blog.org/