Rethinking Local Energy Choices & Costs

Abhilash “Abhi” Kantamneni| Engineer, Michigan Tech Keweenaw Research Center.

Overview

Present Context

• Costs

• Consumption

• Sources

How did we get here?

• Legislative Acts and Impacts

Looking Forwards

• Policy Perspectives

Rethinking

• Individual

• Community

8 Investor-Owned Utility Companies

9 Rural Electric Cooperatives

41 Municipal Electric Utilities

Source: http://www.michigan.gov/mpsc

4 Investor-Owned Utility Companies

3 Rural Electric Cooperatives

19 Municipal Electric Utilities

Utility Electric Rates

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MI AVERAGE RESIDENTIAL ELECTRIC RATES 2013[$/KWH]

MI Average: $0.14/kWhSource: MPSC Utility Company Annual Reports 2013

Average Residential Electricity Retail Rates by State (2013)

StateAverage Price

[$/kWh]

Hawaii $0.37

New York $0.19

Alaska $0.19

Connecticut $0.18

Vermont $0.18

New Hampshire $0.17

California $0.16

New England $0.16

Middle Atlantic $0.16

Massachusetts $0.16

New Jersey $0.16

Michigan $0.15Source: www.eia.gov

Average Residential Electricity Retail Rates by State (2013)

StateAverage Price

[$/kWh]

Hawaii $0.37

Houghton $0.21-$0.24

New York $0.19

Alaska $0.19

Connecticut $0.18

Vermont $0.18

New Hampshire $0.17

California $0.16

New England $0.16

Middle Atlantic $0.16

Massachusetts $0.16

New Jersey $0.16

Michigan $0.15Source: www.eia.gov

Utility Electric Rate Increases

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MI AVERAGE RESIDENTIAL ELECTRIC RATE INCREASE 2001-2013

MI Average: 74%

Source: MPSC Utility Rates Summary

Annual Consumption MI Average: 8MWh/Year

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MI AVERAGE RESIDENTIAL ELECTRIC CONSUMPTION 2013 [MWH/YEAR]

Source: MPSC Utility Company Annual Reports 2013

Utility Fuel Source Summary

Fuel Source USA OCREA UPPCO Region

Coal 39.10% 63.80% 54.11% 59.43%

Nuclear 19.18% 23.10% 23.08% 25.36%

Gas 27.57% 5.50% 8.90% 9.77%

Oil 0.67% 0.10% 0.50% 0.55%

Hydroelectric 7.07% 3.40% 9.55% 0.65%

Biofuel 0.00% 0.00% 0.45% 0.49%

Biomass 0.92% 0.10% 0.41% 0.45%

Wind 4.11% 2.80% 2.50% 2.75%

Wood 0.48% 0.10% 0.44% 0.49%

Other 0.71% 1.10% 0.50% 0.44%

Solar 0.20% 0.00% 0.02% 0.02%

Present Context Review

Local > Region > Country

Local < Region < Country

Local = Region > Country

How did we get here?

• Renewable Energy Standard

• Energy Optmization

• Net Metering

MI Public Act 295

• Electric Choice LimitationMI Public Act 296

MI Public Act 295 (2008) Overview

Renewable Energy Standard

(RES)

10% of all retail electric sales for all

utilities in MI to come from renewable

sources

Energy Optimization Program (EO)

Authorizes EO surcharge on monthly

bills to finance customer Energy

Efficiency upgrades

Net Metering Program

On site renewable electric generation

with credits for monthly excess

generation

Renewable Energy Standard

(RES)

All utilities on track to meet 10% RES by

2015

Cost of Generation from renewables

50% the cost of new coal generation

Energy Optimization Program (EO)

All utilities met or exceeded near term

targets

Cost of energy conservation 10%

the cost of new coal generation

Net Metering Program

Total customers self generating increases

from 20 to 1500

Total installed self generation increases

from 300*kW to 13,300kW

MI Public Act 295 (2008) Impact: Positive

* estimated

Renewable Energy Standard

(RES)

MPSC currently makes no

recommendation

Bill to expand RES to 22% currently

pending

Energy Optimization Program (EO)

MPSC currently makes no

recommendation

Net Metering Program

MPSC Solar Working Group

makes 3 recommendation

s

Expand Net Metering to state

wide 50MW

Credit on net generation

Credit on generation

Several bills pending

Remove 1% cap

Allow community renewable generation

Allowing payment in lieu

of credit

MI Public Act 295 (2008): Moving Forwards

* estimated

MI Public Act 296 (2008): Overview

Limits Electric Choice

Only 10% of utilities retail sales

may seek alternative supplier

Creates Exception for

Mining

Iron ore mining or processing not

subject to choice limits

MI Public Act 296 (2008) Impact: Negative

• Single line High-voltage transmission and low-voltage distribution are economical.

• High-capacity line minimizes capital costs and losses

• Transmission and distribution are natural monopolies.

Generation: Presque Isle Power Plant (PiPP) owned by WEPCOTransmission: American Transmission Company (ATC)Distribution: Upper Peninsula Power Company (UPPCO)

Source: www.econlib.org

State Regulation: Michigan Public Service Commission (MPSC)Regional Regulation: Midwest Independent System Operator(MISO)Federal Regulation: Federal Energy Regulatory Commission (FERC)

Source: www.econlib.org

• Utility serves ALL customers in the area

• Utility maintains reliability and dispatches generation

• Utility designs rate structures to distribute costs (Cost of Service Study)

* Some coops, like REA have voluntarily chosen to regulate their own rates.

• Govt. grants utility monopoly over a service area

• State commission approves utility rates*

• State guarantees “fair” return on equity and “prudently” incurred expenses

• ‘Return on Equity’ high enough to attract capital, but low enough to be economical

Government Responsibilities Utility Responsibilities

State Regulation: Michigan Public Service Commission (MPSC)Regional Regulation: Midwest Independent System Operator(MISO)Federal Regulation: Federal Energy Regulatory Commission (FERC)

Source: www.econlib.org

• Utility serves ALL customers in the area

• Utility maintains reliability and dispatches generation

• Utility designs rate structures to distribute costs (Cost of Service Study)

* Some coops, like REA have voluntarily chosen to regulate their own rates.

• Govt. grants utility monopoly over a service area

• State commission approves utility rates*

• State guarantees “fair” return on equity and “prudently” incurred expenses

• ‘Return on Equity’ high enough to attract capital, but low enough to be economical

Government Responsibilities Utility Responsibilities

Problem: Electric Utility Markets are a “Zero-Sum Game”

Rates = Generation + Transmission + Distribution + Administration + Return on Equity

YEAR UPPCO PRESS STATEMENTS*(emphasis mine)

UPPCOREQUEST (Annual)

MPSC DECISION

ROE [%]

2013“covering expenses for several

improvement projects and inflation”

$7,883,410$5,819,583(25% less)

5.80%

2011“Fund safety improvements to

McClure, Bond Falls, Victoria, and Prickett dams to comply with federal

standards”

$7,701,288$4,200,000(46% less)

6.27%

2010“Hydroelectric projects, Reduced electric

sales, increased cost for reading meters monthly, General inflation”

$15,559,133*$8,868,706(43% less)

7.12%

2009

“Hydroelectric facility upgrades, Cost of capital, Low sales growth, It's been three years since our last base rate increase” $12,182,239

$6,499,934(47% less)

7.83%

2006“inflation, new customer service system,

improve system reliability, and increased generator maintenance”

$6,230,897$3,813,000(42% less)

N/A

2005“recover costs associated with improving

service quality and reliability and managing rising employee and retiree

benefit costs”

$4,547,800UPPCO

withdraws request.

N/A

2002

“Our last rate increase was granted in 1993 and was phased in over two years,

1993 and 1994” $9,938,841$4,868,158(51% less)

N/A

High Utility Costs

Businesses defect/downsize

Unemployment increases

Households can’t pay

bills

Electric sales decrease

Utility increases

rates

Grid Death Spiral

State & Federal Legislation

Unforeseen Impacts

Local communities disadvantaged

Top Down Approach Pitfalls

1955• Presque Isle Power Plant

(PiPP) built by Cliffs

1980• PiPP sold to WEC.

• Iron Ore Mining CompanyCliffs:

• Generation Utility based in WisconsinWEC:

• Coal fired Power Plant in Marquette, MI. Net Generation: 431MWPiPP:

Source: WNMU Public Broadcasting

Source: www.geo.msu.edu

2000•ATC is formed

2001•MISO is formed.

• Independent System Operator (ISO)

• Maintains Reliability in Midwest Region

MISO:

• Nation’s first transmission only utility

• Builds and maintains Transmission in WI, UP

ATC:

2004

• MISO and ATC create SSR Tarrifs

2008• MI PA 296 passes

• System Support Resource

• Gen. Units that HAVE to run to ensure grid reliability (92%/8% - WI/UP)

SSR:

• Regulates MI Electric Utility Markets

• Electric Choice limited to 10% of retail sales and iron ore mining Facilities

MI PA 296:

Source: http://www.michigan.gov/mpsc

May 2013•Cliffs move from WEC to Integrys

Aug 2013•WEC notifies MISO of PiPP Closure

Oct 2013•MISO designates PiPP as SSR

Feb 2014•MISO agrees to pay WEC $52,230,000/year

Mar 2014• PSCW sues MISO at FERC

July 2014• FERC orders MISO to do ‘load shedding’ study

• Wisconsin Regulatory Authority

• Oversees public utilities, serves public interest PSCW:

• Federal Energy Regulatory Commission

• Regulates interstate transmission of electricity, gas and oil.FERC:

Aug 2014•MISO completes ‘load-shedding’ study

Nov* 2014•FERC schedules final settlement call

Rethinking: The Bottom Up Approach

Drive Legislative change

Prototype and replicate

Community self determination

Georgetown University Energy Prize Quarterfinalist: Houghton County

What is GUEP? ($ 5,000,000)

•Quantitative (aggregate gas and electric consumption over 2 years)

•Qualitative (community engagement and involvement)

•Sustainability (planning for our energy future)

The $5 million GUEP challenges small- to medium-size towns, cities, and counties

to rethink their energy use and implement creative strategies to increase

efficiency.

Category Points

Competition Performance

25

Innovation 15

Replication 15

Future Performance 10

Equitable 10

Education 10

Overall Quality 10

Goals

Efficiency Alternatives Education Equitable

Residential

Gas: 10%

Electricity: 10%

Municipal

Gas: 10%

Electricity: 10%

Efficiency Goals: 2016

Energy Goals

2016

• Meet Net Metering Capacity

• Self Generation up by 500%

2025

• 25% Renewables

• 50% Regional Generation

2040

• 50% Renewables

• 100% Regional Generation

Education Goals: 2016

10

0%

School Districts Energy Plan

Develop Energy Curriculum

Community Reached

Service Orgs

Churches

Equal Access

Income

Age

Location

GenderVeteran Status

Ethnicity

Housing

Houghton County will be a

model for rural communities

in creating an affordable,

sustainable, and community-

driven energy landscape to

support a vibrant regional

economy and high quality of

life for all its members.

Houghton County will be a model for rural communities in creating an affordable, sustainable, and

community-driven energy landscape to support a vibrant

regional economy and high quality of life for all its members.

Georgetown University Energy Prize Quarterfinalist: Houghton County

Thank You!

www.facebook.com/HoughtonEnergyEfficiencyTeam /

www.HoughtonEnergyEfficiency.com

Contact Information

Abhilash Kantamneni

221 Rekhi HallMichigan Tech1400 Townsend DriveHoughton MI

akantamn@mtu.edu

www.SolarizeHoughton.org