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Power play: Utilities, independent generators face off over state regulations

Murry Sim (left) and Gary Bollenbach, both of Clean Energy North America, stand at the site of a biodigester the firm plans to build this year at the New Chester Dairy. Methane produced at the site will be sent by a pipeline to the Brakebush Brothers plant about 15 miles away, where it will be burned for energy. (Staff photo by Kevin Harnack)

Murry Sim (left) and Gary Bollenbach, both of Clean Energy North America, stand at the site of a biodigester the firm plans to build this year at the New Chester Dairy. Methane produced at the site will be sent by a pipeline to the Brakebush Brothers plant about 15 miles away, where it will be burned for energy. (Staff photo by Kevin Harnack)

Murray Sim contends his plan to sell electricity from a biodigester to a private chicken-processing plant already is regulated to the hilt and wonders where there could be room for more government intervention.

But if Wisconsin utilities and their representatives have their way, Sim and those like him will find they are operating public utilities, at least in the eyes of state officials. That almost certainly would force customers of those newly named utilities to pay more for the privilege of obtaining power from an alternative source, said Sim, the executive vice president of the Milwaukee-based Clean Energy North America.

Similar deals then could become all but impossible to put together, he said.

But, Sim said, there is little reason why such a change would happen.

“We think that Wisconsin clearly states the definition of a public utility,” he said. “You have to hold yourself out to a service territory. You have to have a distribution system that is serving multiple customers.”

Room for disagreement

Despite Sim’s professed certainty, projects such as his, in which a private developer builds generation equipment and then sells electricity to another private party, fall into a legal gray area in Wisconsin. According to a 2012 letter sent by utility regulators to the office of state Rep. Gary Tauchen, R-Bonduel, most so-called third-party owners of generation equipment may not operate in the state without first being certified as a public utility.

Even so, Sim said he has consulted the state’s utility regulator, the Public Service Commission, and received at least a tacit blessing to proceed without a more formal approval. But rumblings have been heard elsewhere.

Madison Gas & Electric, a public utility, sent a letter to the PSC in December raising questions in an oblique manner about a private developer’s installation of solar panels to provide electricity to city government and the local library in Monona. A spokesman for the PSC said the letter is under review, and an MG&E representative could not be reached for comment.

Although projects such as Sim’s and the one in Monona remain rarities in Wisconsin, MG&E’s response is evidence those ventures are starting to be perceived as threats. The main concern expressed in the Madison utility’s letter stems from the idea that a proliferation of independent power generation could cause some ratepayers to subsidize the electrical service received by others.

Like their counterparts in other states, Wisconsin utilities contend that those who lower their utility bills by producing their own electricity are inadvertently not paying their fair share for the maintenance and operation of the electrical distribution system. And they should be responsible for some upkeep, utility advocates say.

No matter how much homeowners and businesses succeed in going “off the grid,” the argument goes, they inevitably will need to draw some power from the wires when, for instance, an overcast day reduces the output of a rooftop solar array.

Such contentions are gaining an audience in some places. In November, Arizona regulators let the state’s largest public utility charge ratepayers an average of $5 extra per month if they choose to install solar panels atop their houses.

And the Electric Power Research Institute released a paper in February contending that a greater proliferation of independent generation could overtax the grid’s ability to absorb excess power, citing the strain that solar generation in Germany has put on that country’s grid.

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Murry Sim, executive vice president of Clean Energy North America, holds an example of the pipe that will be used to transport methane from a biodigester at the dairy to the Brakebush Brothers plant in Westfield. (Staff photo by Kevin Harnack)

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Murry Sim (left) and Gary Bollenbach, both of Clean Energy North America, stand at the site of a biodigester the firm plans to build this year at the New Chester Dairy. Methane produced at the site will be sent by a pipeline to the Brakebush Brothers plant about 15 miles away, where it will be burned for energy. (Staff photo by Kevin Harnack)

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Snow covers the town of New Chester site where Clean Energy North America plans to build a biodigester this year. (Staff photo by Kevin Harnack)

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Snow partially covers a manure pile stored at the New Chester Dairy. The dairy plans to feed the manure into a planned biodigester in the town of New Chester. (Staff photo by Kevin Harnack)

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Gary Bollenbach, of Clean Energy North America, walks past a manure pile Jan. 27 at the New Chester Dairy. (Staff photo by Kevin Harnack)

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Alfalfa and corn feed is pulled from a pile before it is prepared for dairy cows at the New Chester Dairy. (Staff photo by Kevin Harnack)

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Sun shines on tanker trailers parked outside the New Chester Dairy. (Staff photo by Kevin Harnack)

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(Staff photo by Kevin Harnack)

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Public or private?

Sim, though, said he is not convinced. His plan to install a biodigester is subject to state environmental rules and local zoning ordinances but otherwise is exclusively a private transaction, he said.

Because there is a slight chance that some of the electricity generated will be more than what is needed, he and his partners will have to pay a hefty price to give that excess an outlet to the grid. Beyond setting those requirements, though, the government should have little reason to complain about a project that promises to aid in expanding two of the larger employers in central Wisconsin, reduce emissions of greenhouse gases, turn animal and food waste into fuel and fertilizer, and make his investors and himself some money along the way, Sim said.

The only possible complication, he said, would be if regulators treat the nearly $29 million biodigester he proposes for the New Chester Dairy site in the town of New Chester as a public utility. Sim said he is not certain what such a determination would mean but does know he does not want it.

The parties to Sim’s project are private: his company and investors; the New Chester Dairy, which is owned by Milk Source, one of the largest dairy producers in the state; and Brakebush Brothers, a chicken-processing plant in nearby Westfield. Brakebush, which would supply food waste to help fuel the biodigester, would be the only buyer of the electricity.

The dairy, meanwhile, would feed cow manure into the biodigester. The process would yield methane gas, which would be sent through a pipe more than 15 miles to be burned at the Brakebush plant. The biodigester also would produce a relatively odor-free fertilizer, which should help endear the project to the hearts and noses of neighbors, Sim said.

As for his investors, he said he has gone to lengths to offer them protection. Even if state regulators decide to saddle the New Chester Dairy project with regulations beyond those already in place, investors should be able to take enough advantage of federal tax benefits to make a profit, Sim said.

“We have a contract that provides some flexibility,” he said, declining to discuss details. “It doesn’t matter which way things go, against us or for us.”

Protection through legislation

Others, though, fear that the independent generation of renewable energy will be stymied in Wisconsin unless steps are taken to clarify that third-party owners are not public utilities. In response, two lawmakers, Tauchen and Chris Taylor, D-Madison, have for months been discussing legislation that would set a legal distinction between the two types of entities. They have not introduced a bill.

The boost third-party ownership gives to renewable energy, meanwhile, is evident in other states. The California Solar Initiative program, one of the longest-standing providers of solar incentives, reckons that not only did California residential installations of solar equipment become more common in 2012 and the first half of 2013, but more than two thirds of those projects were financed using third-party arrangements.

Third-party ownership is advantageous in two ways. It makes renewable-energy projects easier to pay for, shifting the upfront costs to investors and letting the beneficiary pay off the equipment costs in installments over time. The arrangement also lets federal tax credits go to investors, who often have a greater tax liability and thus a greater need for the breaks than, say, homeowners.

Those strong incentives are largely why the utility industry perceives third-party ownership to be such a threat. Bill Skewes, executive director of the Wisconsin Utilities Association, does not mince words about the arrangement.

Until a change is made in state law or rules, his position, he said, is that “third-party ownership is not legal in Wisconsin.”

Skewes said his preference would be for the PSC to devise a means of ensuring that those who start producing their own electricity pay their fair share for the maintenance and operation of the electrical grid. He said regulators should consider a system similar to that in Arizona, where those benefiting from independent generation contribute a little bit extra for grid upkeep.

Defending independent generation

But others such as Frank Greb, president of the nonpartisan Energy Center of Wisconsin, and Michael Vickerman, policy and program director for the renewable energy advocacy group RENEW Wisconsin, questioned the fairness of targeting one particular group. Greb said homeowners who lower their electricity bills by turning off their air conditioners in the summer likewise could be accused of not paying enough for grid upkeep. But nobody is suggesting they pay more, he said.

Vickerman said if regulators must take into account the drawbacks of private generation, then the benefits also should be considered.

Minnesota officials, he said, did exactly that on March 12 when they adopted the first statewide “value of solar” tariff in the country. The tariff, which is the rate utilities pay to solar generators that put excess power on the grid, takes into account the ability that renewable energy projects have to curtail emissions of carbon dioxide and other greenhouse gases.

For Sim, though, much of the talk about who should be paying what for the grid is a distraction. The real threat to utilities, he said, is the possibility that independent generation will erode their monopolies.

For utilities, the price of being shielded from competition was regulation, and many were happy to accept that in return for more or less guaranteed profits, Sim said. But he said there is no reason why he should have to wear the same yoke.

“In this case, there is plenty of competition,” Sim said. “There are lots of developers out there. There are lots of equipment providers.”

About Dan Shaw, dan.shaw@dailyreporter.com

Dan Shaw is the associate editor at The Daily Reporter. He can be reached at dan.shaw@dailyreporter.com or at 414-225-1807.

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