For Frustrated UPPCO Customers, Questions About the Future of Distributed Generation
Perhaps nowhere in Michigan are electric utility customers more frustrated than in UPPCO’s service territory, where residential ratepayers are saddled with some of the highest electricity bills in the continental United States.
Which might explain why three Michigan Tech researchers, who also live in the Upper Peninsula, were inspired to author a paper that concluded Michigan’s electric utility companies are using their influence with legislators and regulators to stifle the adoption of distributed generation.
Distributed generation is an approach to energy that involves small-scale production, often with rooftop solar panels or energy that is generated by wind or biofuels. As these technologies become cheaper, and battery storage technologies improve, many industry watchers consider distributed generation to be the future of how energy is produced and consumed in the United States.
Published last month, the Michigan Tech study calculated that if utility companies embraced distributed renewables, UP electric utility customers would save an average of $42 per bill.
(You can check out the publication for yourself or read Andy Balaskovitz’s excellent reporting on the paper’s principle conclusions in Midwest Energy News.)
The paper is the latest contribution to a discussion that is heating up between state officials, utility providers, and consumer advocates who are frustrated by the lack of choices currently afforded to Michigan residents as well as electricity rates that are increasing at a brisk pace relative to the rest of the country.
Questions about the future of distributed generation feel particularly urgent for UPPCO customers who would like to generate electricity themselves, but who since 2016 have been barred from participating in a program that could help finance the purchase and installation of renewable technology.
Michigan Utilities and a Difficult Path to Renewable Transition
Under Michigan law, investor-owned electric utilities are allowed up to a 10 percent return on equity for investments in generation. Traditionally, that meant utilities were rewarded for making investments in large coal, gas, or nuclear plants.
Recently, investor-owned utilities have begun to warm to renewable generation as the cost of building and operating large wind farms and solar arrays has decreased — but they don’t make money unless they own it themselves. Hence, the utilities’ continued reluctance to adopt distributed renewables, which are purchased and installed by home and landowners.
Michigan’s 2008 energy law allowed customers to sell any electricity they produced but did not use back to the grid at retail rates, a program known as net metering. The goal of that legislation was to encourage customers to invest in renewable generation and begin Michigan’s transition to a more distributed system.
But an update to energy legislation in 2016 scaled back net metering and limited how much utility companies must pay customers who put electricity back onto the grid. Proponents of distributed generation opposed the legislation, seeing it as a win for utility companies at the expense of consumers and the environment.
Theoretically, incentivizing the widespread use of distributed generation in the UP could reduce costs associated with transmission and utility-scale generation projects, which are then passed on to customers. Electricity is expensive in the UP in part because the region is so sparsely populated. UPPCO’s website notes that it serves an average of 10 customers per square mile throughout its service territory across portions of 10 Upper Peninsula counties.
But as reported by the Daily Mining Gazette, UPPCO stopped allowing customers to sign up for its net metering program in July, 2016. Michigan law allows investor-owned utilities to cap customer participation once net metering accounts for 1 percent of a company’s total utility sales. UPPCO is currently the only utility in Michigan that has reached 1 percent threshold.
In Federal Law, An Alternate Path to Incentivizing Distributed
In February, I spoke with utility regulation expert Douglas Jester with Citizens Against Rate Excess (CARE), an organization that represents UPPCO’s residential customers in rate cases before the Michigan Public Service Commission (MPSC).
Jester argues that despite the distributed generation cap in Michigan law, customers in UPPCO’s service territory should be allowed to sell energy back to the utility company under a federal law known as the Public Utility Regulatory Policy Act of 1978, or PURPA.
“Under PURPA, any utility is obligated to purchase power from what’s called a ‘qualifying facility’, which is pretty much any renewable source that is not real large, less than 20 megawatts,” said Jester. “Rooftop solar, in-the-yard solar, whatever it is, is a qualifying facility under PURPA.”
“I would argue that anybody that wants to do rooftop in UPPCO territory, they absolutely have the right to ask UPPCO to pay them.”
Under the federal law, PURPA generators are paid for the power they supply to the electric utility at a rate determined by the Public Service Commission that is commonly referred to as the ‘avoided cost’. Essentially, it is what it would it cost the utility to supply that power itself.
“So buying that power, that PURPA power, at the avoided cost should not raise the rates for any of the other customers,” said Jester. “You’re avoiding the cost. That’s sort of the core idea.”
The difference between PURPA and the distributed generation program currently provided for by Michigan law is that under PURPA, qualifying facilities would be paid cash for their output. Under Michigan’s distributed generation program, customers get a bill credit for the power they supply to the grid.
“So, it is true that state law required UPPCO and the other utilities to do net metering or distributed generation on a first-come-first-serve basis up to these caps. But once you get to the cap, the PURPA obligation remains,” Jester argued. “And so my testimony in this case is UPPCO should voluntarily provide bill credits, ignoring the cap, and the Public Service Commission should approve that.”
But Jester made it clear that customers who want to start selling electricity back to the grid should have a right to do so today, regardless of what the MPSC decides about billing.
“I would argue that anybody that wants to do rooftop in UPPCO territory, they absolutely have the right to ask UPPCO to pay them,” said Jester. “So that’s not even in question in my mind. It’s only the bill credit piece that is in question.”
Avoiding a Utility Death Spiral in the Upper Peninsula
Regardless of whether customers are legally able to generate their own electricity and sell it back to their utility company, the utility industry frequently argues that customers who do so benefit at the expense of those who cannot afford to install small-scale renewables on their homes or properties.
This argument has become central to the discussion recently, as DTE Energy, one of Michigan’s largest electric utilities, has begun a sophisticated public relations campaign to convince consumers that distributed generation shortchanges those who don’t participate.
For perspective on this I checked in with Michigan Tech Sociologist Richelle Winkler. In 2016, Dr. Winkler was part of a research team that concluded that by 2020, it would be cheaper for a majority of Upper Peninsula households to go off the grid completely by generating their own power than it would to continue to be utility customer.
Winker conceded that people with the means to bear the upfront costs of installing home generation projects do disproportionately benefit by being able to sell electricity back to their electricity company.
But she also stressed that community energy projects that allow utility customers to collectively buy into renewable generation at a low upfront costs make the benefits of distributed generation more accessible for low-to-moderate income families.
Ultimately, however, the 2016 research concludes that if UPPCO and its nonprofit neighbor, Ontonagon Rural Electric Cooperative, do not act decisively to lower utility costs, customers will defect. The outcome would be a “utility death spiral,” a scenario where customers who can afford to invest in renewable technology get off the grid completely, causing skyrocketing costs for those who cannot afford to leave.
“[Net metering] may not benefit a utility’s bottom line in a profit-centered way, but ultimately it might if you’re keeping people on the grid.”
“[Net metering] may not benefit a utility’s bottom line in a profit-centered way, but ultimately it might if you’re keeping people on the grid. That was one of the findings from our paper.”
“We wanted to pay attention to the biggest concern: if people just decide to leave the grid completely,” Winkler explained.
“Most of the people net meter with rooftop solar or something like that, they’re still paying fees, they’re still contributing to the collective. But if you get off the grid completely, you don’t have to pay those fees, and you’re no longer contributing to the collective at all.”
“As new technologies come on board that make that increasingly possible, and increasingly affordable, I think that’s a greater challenge to the lower income customer who can’t afford high rates than net metering.”
