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NET METERING & FEED IN TARIFF REVIEW

IURC Technical Conference Cause No.43922

September 21, 2010

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Agenda

1. High Level Overview of NIPSCO Proposal and Interaction Between Net Metering and Feed-In Tariff• Example Customer “Decision Tree” to Demonstrate

2. Net Metering Proposal (generally following proposed tariff language)• Overview • Discussion of Questions re Net Metering Proposal (e.g. eligible technologies, facility size,

facility ownership, meter aggregation, system cap)• Interaction and Consistency with Draft Commission Rule

3. Feed-In Tariff Proposal (generally following proposed tariff language)• Overview • Discussion of Questions/Issues re Feed-In Tariff Proposal (e.g. eligible technologies, facility

size, facility ownership, pricing, system cap)

4. Any Other Related Matters (e.g. interconnection, etc.)

5. Next Steps

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Policy Overview

• Feed-in Tariff– Renewable initiative– Increasing customer interest – Technological advancements (both application and cost) and federal initiatives

through tax credits– Gather information about how and when customers use these programs

• Experimental rates under a three pilot program– This effort is consistent with the Hoosier Homegrown Energy Policy

• Net Metering – Permanent change that is supportive of the renewable initiative – Complimentary to the feed in tariff– No sunset on the effectiveness of expansion to net metering

• Part of NIPSCO’s Mission to invest in clean, modern and affordable energy solutions

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Policy Overview (cont.)

• Encourage job and economic growth

• Increase diversity of energy supply system

• NIPSCO filed a request to enhance the current Net Metering tariff and provide a Feed-in tariff for its customers on July 16, 2010

• Based on customer requests– Higher project limits and expansion of availability beyond residential and K-12

customer for Net Metering– Adding Feed-in tariff for larger projects

• Feed-in tariffs can be implemented alongside net metering

• IPL has the only Feed-in tariff in Indiana at this point

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Customer Feedback

• Approached by a customer looking to install a solar farm in Porter County– Told by the solar project developer that a long term contract is

essential– Limited window due to the expiration of a federal tax credit

• A developer responding to school’s request to install wind power in Elkhart County– Indicated that fixed-price and long-term contract are desirable– Use of feed-in tariff affords multiple locations for project

• Approached by a large agricultural business for pricing to support a bio-gas to electricity project in White County

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Project Facts

• A 50 kW wind machine costs around $365,000 installed

• For solar applications, Indiana there are 35 systems in the database with an average cost of 11.84 $/W installed – Illinois: 8 systems with an average cost of 7.94 $/W installed – Michigan: 7 systems with an average cost of 9.67 $/W installed – Ohio: 166 systems at an average cost of 12.67 $/W installed – Missouri: 5 systems at an average cost of 7.26 $/W installed – Avg. of all 5 – 9.87 $/W installed

• 7-10 $/W installed is probably the range for the Midwest, though other factors for your area such as labor costs and numbers of installers could change that – In the cases of Ohio and Indiana, the majority of systems are from 2008 and

back– Illinois and Missouri (the lower $/W) have the majority of their systems from

2009 – 2010

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Customer Decision Model

5 10 100 1 5 kW kW kW MW MW

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Cost and Complexity

Net Metering Feed-In

Net Metering Only

Net Metering and Feed-In

Feed-In Only

Proposed Net Metering and Feed-In Tariffs

• Ease of Installation

• Low Cost

• Residential/ Small Commercial

• Engineered System

• Technical Interconnect

• Large Commercial/ Light Industrial

• Complex Engineered System

• Wind Farms

• Solar Farms

• Large Farming Operations

For Illustration Only

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NET METERING PROPOSAL

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Net Metering

• Customers owning qualifying renewable generators are billed only for their net energy consumption over a given billing period

• Obtain a credit for future billing periods if production exceeds consumption

• Provides a direct, inexpensive, and easily administered mechanism for encouraging the customer installation of small scale renewable energy facilities on their buildings

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NIPSCO Proposal Highlights

• All Customers eligible

• Participation level increased to 100 kW (from 10 kW)

• Wind, Solar and Hydroelectricity generation qualify– The state proposal

• A renewable energy resource as defined in IC 8-1-8.8-10• Hydrogen• Other emerging renewable energy technologies the commission determines

appropriate

• No changes to interconnection policy

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NIPSCO Proposal Highlights (cont.)

• Aggregate amount increased to 6 MW (was 1 MW previously)– State proposes an optional limit of (1%) of the most recent summer peak load

of the utility, with at least fifty percent (50%) of the capacity reserved solely for participation by residential customers

• Metering requirements remain unchanged

• Allows all customers to roll over credits from month to month– State proposes to limit customers with capacity up to 200 kW rollover credits

from month to month

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Customer Benefits

• Expanded to all customer groups

• Allows for the customer to “spin the meter backward” and be credited for feed back at retail value

• Fits in with the “Green” Building movement

• Supports the growth of the renewable energy equipment sales and service industry

• Moves the renewable energy option for our customers beyond the test period and allows for mainstream use

• Gives our customers another option for conserving energy

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Net Metering Customer Solar Site

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Net Metering Customer Solar Site

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Net Metering Customer Wind Site

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Overview of NIPSCO Proposal and Interaction Between Net Metering

and Feed-In Tariff

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Interaction and Consistency with Draft Commission Rule

• Eligible facilities

• System Wide Cap (.2% vs. 1%)

• Unit Cap (100 kW vs. 1 MW)

• 50% Reserve for Residential Customers

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FEED-IN TARIFF PROPOSAL

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Feed-in Tariff

• Encourages new renewable energy development – Long term financial incentive to customers who generate renewable electricity– Standardized and streamlined process to do so, easing the entry of new systems

• Contract term up to 10 years obligates NIPSCO to purchase eligibility renewable energy

• NIPSCO’s feed-in tariff is its first comprehensive purchase rate schedule for renewable electricity production

• It offers stable prices under long-term contracts for energy generated from renewable sources, including:– Biomass – Biogas – Landfill gas – Wind– Solar photovoltaic (PV)

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Feed-in Tariff (cont.)

• Attributes– Rates developed using a standard Discounted Cash flow model– Capped at 1% of project peak system demand – 30 MW– No Single technology can exceed 50% of the 30 MW cap– Could use up to 100 kW of renewable generation against own

energy load– NIPSCO will retain all environmental attributes

• Contracts subject to IURC approval

• One year from contract signing to put project into service

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Purchase Rate Schedule As Filed July 16, 2010

• Discounted Cash Flow Model Approach– Solar = $0.26/kwh– Wind 0-100kw = $0.17/kwh– Wind 100-2MW = $0.10/kwh– Biomass = $0.07kwh + $6.58/kw

• Long Term Contract 10 years

• Contracts subject to IURC approval

• One year from contract signing to put project into service

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FEED-IN TARIFF PROPOSAL

Discounted Cash Flow Modeling

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Discounted Cash Flow Model Assumptions

• 20-year DCF model

• 2% Inflation Rate

• Includes 30% investment tax credit

• Effective Tax rate 40.53%

• Accelerated depreciation

• Prices set to achieve approximate zero net present value at year 20

• Assumptions were used for capital, operating and maintenance expenses, capacity availability, and installed project size

• Positive cash flows range from year 10-13

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Project model Size Considerations

• Net metering option available at 100 kW

• Economies of scale

• Footprint of the project (land required)

• Simple to sophisticated operating requirements

• Construction Expertise- Home owner to Professional developers

• Customer applications and load considerations

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FEED-IN TARIFF PROPOSAL

Discounted Cash Flow Modeling

Review of Spreadsheets

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Other Related Matters and Next Steps