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Power down
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Utilities seek balance between selling power and encouraging conservation
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By Sean Johnson, January, 2010
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Peggy Jesion wears two very different hats when she goes to work each day.
As a key accounts manager for WPPI, a regional power cooperative that includes many of the utilities in Northeast Wisconsin, she services major clients such as paper companies and printers in the region who purchase massive amounts of power to produce their product.
At the same time, Jesion also helps those same companies with efficiency projects that will increase power conservation and require them to buy less power.
She gets the dichotomy.
“The reason WPPI employs me is to help these large customers be as efficient as possible,” Jesion says. “It seems contrary, I know.”
But Jesion also knows the method to the madness behind that drive for efficiency.
“The bottom line is the customer will save money by using less power and it will take demand off the member utility system,” she says. “One of the principle reasons we talk about efficiency is to try and avoid the cost of building new power generation plants.”
For good reason. The most recent major power plant expansion in Wisconsin is the WE Energies Oak Creek expansion, which is reported to cost $2.3 billion. While renewable energy operation such as wind and solar are coming online, they are expensive to build and do not yet have the generation capacity of the large natural gas and coal fired power plants.
So as Jesion sees it, it is her job to create the proverbial win-win situation for major power users in the WPPI system.
For routine items such as lighting, WPPI pays a fee to Focus on Energy to help clients come up with energy efficient solutions. For major projects and upgrades, Jesion works with companies to design and install the most energy efficient equipment and processes available.
For example, RR Donnelley recently upgraded the compressed air system at its Menasha plant. The newer, more energy efficient equipment will save the company 400,000 kilowatt hours of power use and reduce demand on the Menasha utilities system by 14 kilowatts.
“It’s hard for the utility managers to understand sometimes, because it hits their revenue line,” Jesion says. “But then when they see their wholesale bill, and they are paying less, they understand.”
The work that Jesion and others are doing to increase efficiency and reduce power consumption is part of a statewide effort that she describes as running from “the governor’s desk to the shop floor.” In addition to conservation, the state has set standards for renewable power generation that require utilities to generate 10 percent of their power from renewable sources by 2015.
Some utilities, such as WPPI, have already met the standard. But President and CEO Roy Thilly says it has less to do with the state mandate and more to do with changing demands in the marketplace.
“Our customers are interested in having more renewable energy in their power supply,” Thilly says. “It’s not just to have it, but many are pursuing LEED certification and it is an important part of that process.”
Thilly is also a realist. He knows the Wisconsin Legislature will probably increase the requirements for renewable energy, and he anticipates that Congress will eventually pass some form of regulation under the banner of combating climate change.
“I would rather be ahead of it than behind it,” he says.
WPPI has met its renewable goals largely through investments in wind power. Thilly says costs are coming down, and by developing wind sites early, the cooperative was able to tap into sites that had more consistent and continual winds. From 2007 to 2009, WPPI brought four wind sites online in Wisconsin and Iowa, generating more than 370,000 megawatt hours of electricity. The company also has hydroelectric, solar and some small bio-gas projects.
The current recession has made the economics of investing in renewable less attractive, however. Thilly says the utility was closing the cost gap between renewable and traditional power generation, particularly with wind. As economic activity picks up, he expects the gap to once again close, especially if the government regulates carbon dioxide.
But economic realities can’t be ignored, says Todd Stuart, executive director of the Wisconsin Industrial Energy Group, a trade group of industrial power users. As an aid to State Sen. Rob Cowles, R-Green Bay, Stuart helped to write the current law that set the renewable portfolio at 10 percent for state utilities. Now he’s not so sure the state did the right thing.
“At the time, we thought the 10 percent goal for renewable was reasonable,” Stuart says. “The recession is part of it – who would have thought it would be so deep – but I also think there are some fundamental problems.”
Stuart groups those problems in three areas: cost, need and legal.
Costs are related to building the renewable sources of energy. Since utilities will need to recover those costs through higher rates, customers are going to see higher bills. Not a good idea during a recession, he says. Even though the state was already at 4 percent renewable when the standards were enacted, adding the additional 6 percent will cost billions.
Add that to the fact that Wisconsin has a 30 percent reserve margin for power, and there is just no need right now to build new generating plants, renewable or not. At the same time, state utilities have lost some of their major users such as the automakers in Janesville and paper makers in the Fox Valley.
Then there are the legal issues. Wisconsin law sets requirements that have to be met before a new generating plant can be built. But the demand to add renewable is causing the law to be circumvented to meet the deadline.
“Anytime you build something, customer costs go up,” Stuart says. That does not even factor in regulation related to greenhouse gases or the costs of rebuilding the transmission system in the state.
The apparent dichotomy of demands on the utilities in Wisconsin has not gone unnoticed. In recent years, some of the utilities have asked the state to consider adopting a model known as decoupling, where reductions in power consumption are not held against a utility when rates are set. The theory is that utilities will have a greater incentive to encourage conservation if it won’t hurt the bottom line.
The measure is controversial. Industry groups have generally opposed such measures, saying the utilities will be less responsive if there are not rate pressures. Stuart’s WIEG is no exception, and industrial companies have been exempted from such regulatory systems.
“Large customers need to know that if they invest millions in efficiency that their bills are going to go down,” he says. “Rate pressure is the best way to do that.”
State regulators have shown an interest in at least looking at the concept, approving a pilot project for WPS that just began in the Brillion area. Pat Schillinger, associate vice president for government relations with WPS, says the concept has been tried successfully in other states. He says it’s about allowing a utility to recover costs they will bear regardless of how much power a customer uses.
“We want our customers to be as energy efficient as possible,” Schillinger says. “If they can save on their energy costs, then they can be more competitive in the global marketplace. If we can keep their costs down, we can keep them around, and we want customers.”
But even if they can help customers reduce consumption, the utility will still have fixed costs that it must be able to recover regardless of usage. Current rate structure in Wisconsin is driven by variable costs such as usage, Schillinger says.
“All we have asked is to separate the variable costs from the fixed costs,” he says. “If a source of power like natural gas is expensive and our customers want to use less, then there is an incentive to do that.”
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