1. Reallocating Distribution Upgrade Costs for Farm Digester Projects by Ed Cubero, Sam Harms, Sam Shannon University of Wisconsin-Madison

2. 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

3. Anaerobic Digesters 3 Source: Hallmark Power Ltd.

4. 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

5. 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

6. Interconnection Often requires upgrades to distribution system – wires, substations, protection equipment State admin. code allows utility to recover these costs from connecting customer Liability on balance sheet, but no asset – Especially tough for capital-constrained smaller farms 6

7. Troubling Trifecta Low utility buyback rates for dist. generation Source: Federal Energy Regulatory Commission MISO 30-Day Rolling Average LMP ($/MWh) 7

8. Troubling Trifecta High material costs for upgrades Source: U.S. Dept. of Labor Price of Nonferrous Wires and Cables (Index) 8

9. 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

10. 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

11. 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

12. Policy Options 1) Utility option 2) Net metering option 3) Transmission utility option 4) Operating lease option 12

13. 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

14. Utility Option Energy charges UtilityNumber of Farms with 500+ cows Rate Class Energy Rate Increase – Lower Bound (cents/kWh) Energy Rate Increase – Upper Bound (cents/kWh) Madison Gas & Electric 1 Residential 0.020.06 Small Commercial 0.010.03 Northern States Power 27 Residential 0.240.63 Small Commercial 0.170.46 Wisconsin Electric Power Company 34 Residential 0.070.19 Small Commercial 0.070.18 Wisconsin Power & Light 20 Residential 0.110.29 Small Commercial 0.150.39 Wisconsin Public Service Corporation 57 Residential 0.350.92 Small Commercial 0.250.67 14

15. 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

16. Net Metering Option Energy charges UtilityNumber of Farms with 500+ cows Revenue ImpactResidential Energy Rate Increase (cents/kWh) Commercial Energy Rate Increase (cents/kWh) MG&E1$36,0000.0040.002 NSPW27$1,998,0000.1040.075 WEPCO34$2,240,0000.0280.026 WP&L20$754,0000.0240.033 WPSC57$3,794,0000.1360.098 16

17. 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

18. Transmission Utility Option Capacity charges UtilityNumber of Farms with 500+ cows Units of Sale (kW) Rate Increase – Lower ($/kW) Rate Increase – Upper ($/kW) ATC 11210,014,0000.0150.040 UtilityNumber of Farms with 500+ cows Peak Demand (kW)Annual Expense Increase – Lower Bound Annual Expense Increase – Upper Bound MG&E1957,000$91,000$242,000 WEPCO349,395,000$891,000$2,375,000 WPL204,264,000$404,000$1,078,000 WPSC574,045,000$383,000$1,022,000 UPPCON/A323,000$31,000$82,000 18

19. Proportional Cost Sharing: Utility v. Transmission Options UtilityShare of Costs under Utility Option Share of Costs under Transmission Option Madison Gas & Electric 0.7%4% Northern States Power 19% Wisconsin Electric Power Company 24%40% Wisconsin Power & Light 14%18% Wisconsin Public Service Corporation 41%17% Upper Peninsula Power Company --1% 19

20. 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

21. Recommendation Operating leases – Generator does not need to secure capital financing upfront – Easiest to implement; no new legislation required – Minimal impact to ratepayers 21

22. Thank You! Questions?