STATE OF MINNESOTA PUBLIC UTILITIES COMMISSION. Beverly Jones Heydinger

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1 STATE OF MINNESOTA PUBLIC UTILITIES COMMISSION Beverly Jones Heydinger Nancy Lange Dan Lipschultz Matt Schuerger John Tuma Chair Commissioner Commissioner Commissioner Commissioner May 25, 2016 RE: Compliance Filings Cogeneration and Small Power Production Docket No. E999/PR-16-9 FRESH ENERGY AND ENVIRONMENTAL LAW & POLICY CENTER ( ELPC ) OBJECTION TO COMMISSION APPROVAL OF NOBLES COOPERATIVE ELECTRIC S, SOUTH CENTRAL ELECTRIC ASSOCIATION S, LYON- LINCOLN ELECTRIC COOPERATIVE S, REDWOOD ELECTRIC COOPERATIVE S, STEARNS ELECTRIC ASSOCIATION S, MEEKER COOPERATIVE LIGHT AND POWER ASSOCIATION S NORTH STAR ELECTRIC COOPERATIVE S, BROWN COUNTY RURAL ELECTRICAL ASSOCATION S, ITASCA-MANTRAP COOPERATIVE ELECTRIC ASSOCIATION S, PEOPLE S ENERGY COOPERATIVE S, MCLEOD COOPERATIVE POWER S, BENCO ELECTRIC COOPERATIVE S STEELE-WASECA COOPERATIVE ELECTRIC S AND FREEBORN-MOWER COOPERATIVE SERVICES TARIFFS INCLUDING DISTRIBUTED GENERATION FEES Between April 11, 2016 and May 25, 2016, fourteen cooperative electric utilities Nobles Cooperative Electric, South Central Electric Association, Lyon-Lincoln Electric Cooperative, Redwood Electric Cooperative, Stearns Electric Association, Meeker Cooperative Light and Power Association, North Star Electric Cooperative, Brown County Rural Electrical Association, Itasca-Mantrap Cooperative Electric Association, People s Energy Cooperative, McLeod Cooperative Power, BENCO Electric Cooperative, Steele-Waseca Cooperative Electric and Freeborn-Mower Cooperative Services filed revised cogeneration and small power production tariffs with the Commission pursuant to Minn. R Each revised tariff contained a new Attachment to the Uniform Statewide Contract or other tariff amendment outlining a new monthly fee to be applied to only distributed generation ( DG ) customers interconnecting under the cogeneration and small power production tariff. 1 1 Based on information and belief there are other cooperative utilities implementing DG fees that have not filed in this docket. 1

2 Minn. R provides that each utility must file with the Commission, for its review and approval, a cogeneration and small power production tariff. 2 Fresh Energy objects to Commission approval of these updated tariffs and amendments to the Uniform Statewide Contract containing unlawful DG customer fees. The proposed DG fees, which the cooperative utilities refer to as DG Grid Access Charges, are as follows: Utility Filing Date Date DG fee takes effect DG fee cost range (10 kw to maximum charge) 3 Nobles Cooperative Electric April 11, 2016 March 1, 2016 $ $83.00 South Central Electric April 11, 2016 June 1, 2016 $ $61.00 Association Lyon-Lincoln Electric April 12, 2016 April 1, 2016 $ $49.00 Cooperative Redwood Electric Cooperative April 12, 2016 June 1, 2016 $ $37.00 Stearns Electric Association April 14, 2016 April 1, 2016 $ $31.00 Meeker Cooperative Light and April 20, 2016 February $ $55.00 Power Association North Star Electric April 25, 2016 Currently in effect 5 $ $24.00 Cooperative Brown County Rural Electrical April 29, 2016 June 1, 2016 $ $37.00 Association Itasca-Mantrap Cooperative Electric Association May 4, 2016 June 1, 2016 $ $23 (residential); $ $81 (commercial) People s Energy Cooperative May 9, 2016 May 1, 2016 $ $37.00 McLeod Cooperative Power May 10, 2016 March 1, 2016 $ $48.00 BENCO Electric Cooperative May 13, 2016 January 1, 2016 $ $35.00 Steele-Waseca Cooperative Electric Freeborn-Mower Cooperative Services May 13, 2016 January 1, 2016 $ $46.00 May 25, 2016 April 1, 2016 $ $30.00 The cooperative utilities filings state that the new DG fees in the revised tariffs are pursuant to 2015 amendments to Minnesota s cogeneration and small power production statute, 216B.164, subd. 3(a). The amendment language provides that: 2 Emphasis added. 3 The 10 kw estimate was provided by the cooperative utilities in their filings and is a reasonable example for an average customer. 4 Meeker Cooperative Light and Power Association s filing does not include the implementation date for its fee, but based on bills filed in the customer complaint in Docket No , the cooperative utility has been charging its fee to customers as early as February North Star Electric Cooperative s filing does not include the implementation date for its fee, but it appears that the fee is currently in effect. 2

3 A cooperative electric association or municipal utility may charge an additional fee to recover the fixed costs not already paid for by the customer through the customer's existing billing arrangement. Any additional charge by the utility must be reasonable and appropriate for that class of customer based on the most recent cost of service study. The cost of service study must be made available for review by a customer of the utility upon request. I. Tariff Approval Objection and Request for Commission Determination After Resolution of Docket No Fresh Energy and ELPC contend that DG fees included in the amended tariff filings are not lawful under 216B.164, subd. 3(a) and object to their approval as such. 6 Although cost of service studies and/or methodologies for the new DG fees were not provided in the filings, it appears that the fees seek to recover some or all lost sales revenue, rather than any incremental system costs actually caused by the utilities DG customers. 7 In other words, the proposed fees are based on lost revenue recovery as opposed to any actual cost causation. The DG Fees Filed in the Amended Tariff Filings are Unlawful A lost revenue fee is not contemplated nor allowed by the statute. The plain language of the statute allows utilities to propose a fee to recover the fixed costs not already paid for by the customer. It does not allow utilities to propose a fee to recover lost revenue resulting from self-generation. In order to calculate whether DG customers, as a class, are covering their fixed costs the utility would need to establish (1) the fixed costs the utility incurs to serve its DG customers, and (2) the amount that those DG customers, as a class, contribute to the utility s fixed costs of service, including through the system benefits provided by DG. That is why the statute requires such charges to be based on the most recent cost of service study. The utilities in this case have not established, nor have they apparently attempted to quantify, this cost of service data. In order to accurately quantify its net cost of service, the utility must consider both the costs and benefits of distributed generation. The fees in this case are not reasonable, inter alia, because they do not appear to consider or attempt to quantify any system benefits provided by distributed wind or solar 6 We have included all known cooperative utility tariffs filed in Docket No that contain DG fees. Our objection includes any subsequent utilities tariffs (amended or otherwise) including DG fees filed subsequent to this objection and we reserve the right to file updates to this objection to include any subsequently filed tariffs. 7 The cooperative utility filings state that the DG fees are calculated based on FERC Form 7, presumably calculating the amount of lost revenue that applies to different categories on the Form 7. 3

4 that would offset any additional service costs. Tellingly, the same DG fee applies whether a customer has a wind or solar system despite the fact that these resources have different generation profiles and provide different system benefits. Moreover, the fact that a DG customer (or any customer, for that matter) consumes less than the class average does not prove that the individual customer has failed to pay their fair share of fixed costs. Stated another way, two identically situated customers (same peak load, same distribution circuit, same service drops, etc.) that consume different amounts of electricity will contribute different amounts towards fixed costs under standard ratemaking approaches. Costs are apportioned and rates are designed across broad groups of customers, and no single customer has a rate that recovers precisely the proper cost of serving that customer. The cooperatives have not provided any data in the record to determine whether their DG customers, as a class, have usage patterns that differ from residential customers generally, or whether DG customers as a class impose costs that are out of sync with their average fixed cost recovery through existing rates. A 2014 decision by the Utah Public Service Commission in PacifiCorp s general rate case, where the Commission rejected PacifiCorp s proposed lost revenue-based net metering fee, provides helpful analysis of the cooperative utilities general approach. 8 In that proceeding the utility proposed a residential net metering facilities charge to recover from net metered customers an amount that will produce the same average monthly revenue per customer for distribution and customer costs that is recovered in energy charges from all residential customers based on the cost of service study. 9 PacifiCorp presented an exhibit indicating that residential net metering customers in its service territory purchase less energy on average, about 518 kilowatt hours ( kwh ) per month, than the residential class average of 698 kwh per month. 10 Like the cooperative utilities here, PacifiCorp collects some portion of fixed costs through its variable energy charge, and the Company argued that its net metered customers were not paying their fair share of utility fixed costs. PacifiCorp estimated that the cost shift from net metered customers to all customers is $4.65 per month per customer, or $116,794 per year, based on forecasted test period billing units for residential customers. 11 It further argued that it was important to create an appropriate price structure for residential net metered customers before the shifting of distribution and customer costs from net metered customers produces a much larger cost burden on non-participating customers In the Matter of the Application of Rocky Mountain Power for Authority to Increase its Retail Electric Utility Service Rates in Utah and for Approval of its Proposed Electric Service Schedules and Electric Service Regulations, Docket No , Report and Order of Aug. 29, Id. at Id. at Id. at Id. at 21. 4

5 Notwithstanding the fact that PacifiCorp had done significantly more analysis to justify its proposed charges than the coops have done here, the Utah Commission still rejected the utility s proposal, finding that the testimony and exhibits in the case fall well short of providing the Commission the substantial evidence necessary to make a determination. 13 First, as here, the Commission found that PacifiCorp s testimony and exhibits contain no discussion at all of net metering program benefits. 14 It also found the Company failed to provide adequate evidence to support its argument that net metering customers, as a class, are any different than any other class of customers on a cost of service basis. Specifically, it held that the utility failed to present evidence showing that the level of usage or the load characteristics of net metered customers are materially different from the typical residential customer. 15 The Commission found the absence of load characteristic data for residential net metered customers to be a significant gap in the record: 16 We cannot determine from the record in this proceeding that this group of [net metering] customers is distinguishable on a cost of service basis from the general body of residential customers. Simply using less energy than average, but about the same amount as the most typical of PacifiCorp s residential customers, is not sufficient justification for imposing a charge, as there will always be customers who are below and above average in any class. Such is the nature of an average. In this instance, if we are to implement a facilities charge or a new rate design, we must understand the usage characteristics, e.g., the load profile, load factor, and contribution to relevant peak demand, of the net metered subgroup of residential customers. We must have evidence showing the impact this demand profile has on the cost to serve them, in order to understand the system costs caused by these customers. 17 Based on its review of the record, the Commission concluded that the evidence was inconclusive, insufficient, and inadequate to support PacifiCorps proposed rate design changes and that more thorough analysis such as a load research study and a measurement of net metered customer usage at the time of system coincident peaks would be necessary to justify any potential future proposals Id. at Such a standard is similar to the burden the utilities face here in demonstrating that the DG fees comply with Minn. Stat. 216B.164, subd. 3(a). 14 Id. at Id. at Id. 17 Id. at Id. at 63, 66. 5

6 In addition to unlawful DG customer fees, we object to the tariffs filed by the above listed cooperative utilities because they do not comply with state law and rules in other ways. All of the listed cooperative utilities tariffs, other than Nobles Cooperative Electric, South Central Electric Association, BENCO Electric Cooperative and Steele-Waseca Cooperative Electric, include an outdated and non-conforming uniform statewide contract 19 in violation of Minn. R At least one of the tariffs also include pre-selected options in the uniform statewide contract, including preventing a customer from selecting to be paid for net credit by check rather than account credit. 20 Meeker Cooperative Light and Power Association s ( Meeker ) tariff appears to discount its average retail cooperative energy rate calculation with unauthorized variables. 21 Timing of Commission Review in light of Similar Customer Complaints Meeker s DG customer fees are currently being challenged in a customer complaint in Docket Number As the Meeker fee appears to be based on the same approach as the other DG fees filed in this docket and includes additional tariff issues relevant to other cooperatives tariffs here, we respectfully request that the Commission wait to review these revised tariffs until it rules on the DG fee and other claims in the Meeker customer complaint. Doing so would avoid the Commission considering identical or nearly identical issues at the same time in two different proceedings and will allow any decisions from the Meeker complaint to be applied to the review of other cooperative utility tariffs as appropriate. II. The Cooperative Utilities Have Already, or Plan to, Implement New Tariffs Before Commission Review and Approval The cooperative s revised tariffs state that the new DG fees have already either been implemented, or will be implemented within weeks. Applying the DG fees before Commission approval of the tariffs violates Minn. R , Commission precedent and general practice that tariffs may not be implemented until approved or noticed without objection. 23 In its September 21, 2015 Order Finding Jurisdiction and Resolving Dispute in Favor of Complainant, the Commission found People s Energy Cooperative 19 As found in Minn. R See Minn. R , term 7. See North Star Electric Cooperative s tariff include this pre-selection. This pre-selection issue is a claim in the customer complaint in Docket No This is also a claim in the customer complaint in Docket No We note that the resolution of the customer complaint in Docket No may also include issues relevant to Commission review of these tariffs. 23 See e.g., Minn. Rs

7 ( People s ) in violation of Minn. R and because People s failed to file its tariff including a new DG customer fee for Commission review and approval. 24 The order stated that in addition to failing to meet Minn. R s filing requirement generally, People s failure to file was [m]ost concerning because People s failed to file a revised tariff in 2014 when it imposed the new fee on its distributed generation customers. 25 Therefore, the Commission was unable to review and approve the revised tariff pursuant Minn. R before People s imposed a fee on its DG customers. Based on its filings in this docket, People s has once again implemented a DG fee prior to both filing an updated tariff and receiving Commission approval. Therefore, based on Minnesota rules and Commission precedent, including the People s order, the above listed utilities cannot lawfully implement their revise tariffs, including amendments to the Uniform Statewide Contract with new DG fees, until the revised tariffs have been approved by the Commission. III. Conclusion In summary, Fresh Energy and ELPC object to the approval of the cooperative utility tariffs with unlawful DG grid access charges and other aspect inconsistent with state law listed herein and filed in this docket. 26 We respectfully request that the Commission review these revised tariffs after it rules on the DG fee in the Meeker customer complaint in Docket No Respectfully, /s/ Allen Gleckner Allen Gleckner Senior Policy Associate Fresh Energy 408 St. Peter Street, Suite 220 St. Paul, MN (651) gleckner@fresh-energy.org /s/ Bradley Klein Bradley Klein Senior Attorney Environmental Law & Policy Center 35 E Wacker Drive, suite 1600 Chicago, IL (312) bklein@elpc.org 24 Order Finding Jurisdiction and Resolving Dispute in Favor of Complainant, Docket No , September 21, 2015 at 7, Order Point Id. at We reserve the right to file periodic updates to this objection including any cooperative utility tariffs with unlawful DG fees filed subsequent to this objection. 7

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