Reallocating Distribution
Upgrade Costs for Farm Digester
Projects
by
Ed Cubero, Sam Harms, Sam Shannon
University of Wisconsin-Madison
Dairy Industry in Wisconsin
• 141,000 jobs
• $5.2 billion in annual sales
• $26.5 billion economic impact
• Trend towards larger CAFOs, more
concentrated waste streams
2
Anaerobic Digesters
Source: Hallmark Power Ltd.
3
Digester Potential in Wisconsin
• 251 dairy farms in WI are candidates for
Anaerobic Digestion (500+ cows)
– Currently, 30 on farms (≈10% of potential)
• Approx. 44 MW of potential capacity (386k
MWh/yr) from manure alone
– Co-digestion w/ other wastes would increase
4
Benefits of Anaerobic Digestion
• Environmental
– Odor Reduction
– Methane Reduction
– Pathogen Reduction
– BOD Reduction
• Economic
–
–
–
–
Electricity offset / sales
Fiber
Heating
Fertilizer
– Jobs
• 75-80 Construction
• 3 long term
5
Interconnection
• Often requires upgrades to distribution system
– wires, substations, protection equipment
• State admin. code allows utility to recover these costs
from connecting customer
Distribution
Upgrade
Costs
Digester
Costs
• Liability on balance sheet, but no asset
– Especially tough for capital-constrained smaller farms
6
Troubling Trifecta
• Low utility buyback rates for dist. generation
MISO 30-Day Rolling Average LMP ($/MWh)
Source: Federal Energy Regulatory Commission
7
Troubling Trifecta
• High material costs for upgrades
Price of Nonferrous Wires and Cables (Index)
Source: U.S. Dept. of Labor
8
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.”
9
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
10
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
11
Policy Options
1) Utility option
2) Net metering option
3) Transmission utility option
4) Operating lease option
12
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
13
Utility Option
• Energy charges
Utility
Madison Gas &
Electric
Number of Farms
with 500+ cows
1
Northern States
Power
27
Wisconsin
Electric Power
Company
34
Wisconsin Power
& Light
Wisconsin Public
Service
Corporation
20
57
Rate Class
Energy Rate Increase
– Lower Bound
(cents/kWh)
Energy Rate Increase
– Upper Bound
(cents/kWh)
Residential
0.02
0.06
Small Commercial
0.01
0.03
Residential
0.24
0.63
Small Commercial
0.17
0.46
Residential
0.07
0.19
Small Commercial
0.07
0.18
Residential
0.11
0.29
Small Commercial
0.15
0.39
Residential
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
15
Net Metering Option
• Energy charges
Utility
Number of Farms Revenue Impact
with 500+ cows
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
$3,794,000
0.136
0.098
16
Transmission Utility Option
• Require local transmission utility to pay for the
upgrade
• Most likely a one-time invoice from the utility
company to ATC
•
Advantages
–
–
–
•
Larger rate base
ATC gets a say in the engineering
Michigan pays for 1% of costs
Disadvantages
–
–
Requires a statutory change
Requires a decision from FERC allowing these charges on the rate filings
17
Transmission Utility Option
• Capacity charges
Utility
ATC
Utility
Number of Farms Units of Sale
with 500+ cows
(kW)
112
Number of Farms
with 500+ cows
10,014,000
Rate Increase – Rate Increase
Lower ($/kW) – Upper
($/kW)
0.015
0.040
Peak Demand (kW) Annual Expense Annual Expense
Increase – Lower Increase –
Bound
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
18
Proportional Cost Sharing:
Utility v. Transmission Options
Utility
Madison Gas & Electric
Northern States Power
Wisconsin Electric Power
Company
Wisconsin Power & Light
Wisconsin Public Service
Corporation
Upper Peninsula Power
Company
Share of Costs under
Utility Option
Share of Costs under
Transmission Option
0.7%
4%
19%
19%
24%
40%
14%
18%
41%
17%
--
1%
19
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
20
Recommendation
• Operating leases
– Generator does not need to secure capital
financing upfront
– Easiest to implement; no new legislation required
– Minimal impact to ratepayers
21
Thank You!
Questions?