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Public Power Communities Shine the Light on Innovation

Public power utilities, which are owned by the communities they serve, have an inherent interest in helping those communities to innovate and prosper.

Q1 2015
Most people take electric power for granted — with only rare exception, it’s always there when you flip the light switch, and it’s been that way as long as anyone alive today can remember.

Behind that dependable light switch, though, it’s a time of great change in the power industry, particularly with regard to how the power flowing to that switch is generated and distributed. America’s more than 2,000 community-owned power utilities are at the forefront of this change, one prominent example of the numerous ways public power is trying to meet the evolving needs of the customer base.

Generating Power On-location
Distributed generation is an ever-hotter topic across the country. It’s essentially the antithesis of the traditional way of doing things in the power business, which for many years has meant electricity being generated at a big power plant, then transmitted across the power grid to businesses, homes, and — ultimately — that light switch. With distributed generation, power is generated onsite, at a home or business, with the power grid serving more as a supplement or backup. Solar or photovoltaic power is driving an explosion of interest in distributed generation. There are other technologies in the mix, too, such as fuel cells, small wind turbines, and combined heat and power, but solar is the technology of choice at the moment in 95 percent of distributed generation, according to the American Public Power Association (APPA).

Consider the statistics: In 2011, distributed generation produced four gigawatts of power across the U.S. That’s expected to more than double by next year, and reach 20 gigawatts by 2020. That’s largely solar generation, driven by a 70 percent drop in the cost of photovoltaic installations since 2008, along with government incentives and support from forward-thinking utilities.

“We’ve seen explosive growth in photovoltaic, driven by what’s happening with the cost,” says Mark Rawson, senior project manager at the Sacramento Municipal Utility District (SMUD). The utility, he says, is interconnected with some 7,000 distributed generation systems. “We’ve been doing a lot of work with the expectation that this trend will continue.”

In Texas, solar installations are showing up all over Austin, according to Carlos Cordova, a spokesperson with public power provider Austin Energy. “The growing distributed solar footprint on thousands of Austin-area homes, public facilities, and commercial properties is clear evidence of the partnerships between Austin Energy and our customers.”

The trend, he says, has been positive not just for those distributed-generation users but also the local economy. “Incentive programs have helped our customers by sharing the cost of installing solar systems and spurred the development of the clean energy industry in our region,” Cordova observes. “Solar Austin, a local nonprofit group, estimates that Austin Energy’s solar programs have created more than 600 clean-energy jobs in our area. The solar program has helped spur the development of the solar and clean-tech industry by creating green-collar and professional jobs and attracting other related solar companies and investment.”
The folks who maintain the system live and work in the areas they serve. They know the areas they’re maintaining and that tends to enhance response time. Jeff Haas, Vice President of Membership, APPA
The utility’s focus on solar is likely to create a lot more business opportunities down the road if the area’s population grows as much as The Urban Institute predicts, adds Rodney Gonzales, deputy director in the City of Austin’s economic development department. “Supplying electricity to one million new residents brings about challenges,” he notes. “Embedded in these challenges are opportunities for supplying electricity to the end-user, such as solar installations at the home and business. The solar installations then lead to new jobs and businesses to support this industry.”

By the end of 2014, nearly 200 commercial projects had committed to install solar arrays in Austin, along with nearly 3,500 residential customers of Austin Energy. The developments were encouraged by rebates totaling $43 million since 2004 for the residential customers, plus $21 million in performance-based incentives for the commercial projects. “Combined, the residential and commercial installations — including some demonstration projects at schools and municipal buildings — total 23.1 megawatts of customer-sited, local-distributed solar,” Cordova says.

Benefits for Everyone
Why support and facilitate distributed generation in the first place? How could it possibly fit with the goals of a power utility to encourage customers to create their own power rather than buy it?

First of all, it’s essential to note that public power utilities have goals that are a good bit different from their for-profit counterparts. Their purpose in life is not returning a profit to investors, but rather serving the needs of the stakeholders in the community. “We are a community-owned utility, so our motivations are different,” says SMUD’s Rawson. “When we look at customer service, and we ask our customers what they want, they want choice.”
In 2011, distributed generation produced four gigawatts of power across the U.S. That’s expected to more than double by next year, and reach 20 gigawatts by 2020.
The needs that those stakeholders express are diverse, and include not just affordable power but economic development, environmental responsibility, and innovation. Distributed generation fits into those needs in a number of ways. “Our customers are asking for solar,” Rawson says. “They pursue solar for whatever their drivers are, whether they’re environmental concerns or they want to be independent and generate their own power.”

Distributed generation offers benefits for utilities, too. For example, just as conservation measures can help put off the need to construct costly new power plants, so can distributed generation. It reduces the need for backup power, too. And because distributed generation nearly always involves solar power, it helps utilities meet goals for increasing the amount of renewable, clean energy in the mix.

That just adds to the eagerness that many public power utilities have for supporting distributed generation, through rebates, assistance programs, and the customer’s ability to sell excess power back to the utility. The concept of net metering charges customers for the power they draw from the grid when they’re using more energy than their solar installation can generate, but credits them when their distributed-generation system has excess power that it feeds back to the grid.

Such benefits help make solar more feasible and attractive, says Sean Hamilton, general manager of the Sterling Municipal Light Department in Massachusetts. “The state of Massachusetts offers a very good solar renewable energy certificate program; there are tax incentives, and we offer net metering credits to commercial customers who install solar.”

Rebates are important because they help defray the cost of installation, which is falling but still significant. Austin Energy recently decided to take the enticements a step further by offering incentives to customers that lease their solar installations. Leasing eliminates the upfront cost to the customer, so rebates aren’t appropriate, but the utility rewards these types of customers with a special “Value of Solar” rate.

Solar power purchasing agreements put the benefits of distributed generation and green power into reach for many customers, says Hamilton. “A project like this allows all the customers to benefit from low-cost power, and not just those with the means; the utility offers interconnection benefits providing further cost saving to the project, which is reflected in the low-cost power.”

As Hamilton suggests, distributed generation isn’t feasible for some customers. Some are turned away by the upfront costs, and some are deterred because their structure is shaded by trees, or because they live in a high-rise condo. In many public power areas, these customers still have options.

Austin Energy, for example, is developing a community solar project in the two- to four-megawatt range. “Customers who are not able to install solar panels at their homes will be able to subscribe to solar energy once the local community solar project is completed next year,” says Cordova.
By the end of 2014, nearly 200 commercial projects had committed to install solar arrays in Austin. The developments were encouraged by $21 million in performance-based incentives.
Customers of SMUD have the option of buying what the utility calls SolarShares, rather than installing their own generation equipment onsite. The program has a fixed monthly fee based on usage, and by paying into the program customers are then credited each month for the power produced at a large solar farm in the area.

It’s worth pointing out that the planet also benefits from the focus on distributed generation, and renewable energy in general. At Austin Energy, for example, there was a goal of generating 35 percent of power from renewable sources by 2020, but it turns out the utility is on track to achieve that four years ahead of schedule. The new goal is now 55 percent by 2025.

The generation mix recorded by Nebraska Public Power District (NPPD) was 43 percent carbon-free by 2013, according to Rick Nelsen, economic development manager for NPPD. In California, there’s a statewide target of getting greenhouse gas emissions to 1990 levels by 2020, and then 80 percent below those levels by 2050. Rawson says his utility aims to beat that goal, getting to 90 percent below 1990 levels.

Making Distributed Generation Work
It could be that someday distributed generation can be efficient enough, and battery storage effective and affordable enough, that users could exist completely off the power grid and soak up the sun for all their power needs. In most cases, that’s nowhere near feasible at this point. “They still need the utility to be there,” Rawson says. “Photovoltaic can’t do it on its own.”

But that creates some challenges for utilities and customers. For example, the traditional electric bill primarily covers the actual cost of the power itself, but built into the payment is also the cost to build and maintain the distribution system that gets the power where it’s going. Imagine that a customer with distributed generation is able to cover the vast majority of his or her power needs through solar panels on the roof, and on some occasions is generating excess power back onto the grid, earning credits. That customer may end up with an electric bill of nearly nothing — but if that’s the case, who pays to maintain the power lines that give that customer a backup supply as well as the means of selling excess power on the grid?
We are a community-owned utility, so our motivations are different… When we look at customer service, and we ask our customers what they want, they want choice. Mark Rawson, Senior Project Manager, Sacramento Municipal Utility District
Utilities and regulators continue to sort out that issue. In some cases, the credit for excess power sold back to the utility is lower than the retail rate to buy power. In other cases, there may be a separate fee assessed to all customers to cover the transmission and distribution system. “We’re working toward making sure we get the pricing right,” Rawson says. “We want to be sure it’s fair.”

Utilities also must ensure that their systems can handle the intermittency and fluctuation that can come with distributed generation. If it’s a hot but very cloudy afternoon (not to mention a hot night after sunset), distributed-generation customers will draw a much greater load of power from the system. That creates challenges that researchers must address. “Given the intermittent nature of photovoltaic, what does it do to the system and how do we ensure reliability?” Rawson asks.

All systems are different, he notes, but he’s confident SMUD is ready to face the ongoing wave of solar installation that most people believe is in the not-too-distant future. “Our system design is robust enough that we can accommodate a lot more solar before intermittency of photovoltaic can cause reliability problems,” he says. And that’s good, because the utility prides itself on its support of distributed generation and solar power. “We view our role as being a trusted adviser to customers. We’re not a utility that’s putting up barriers to customers wanting solar.”

Local Control, Focus
A commitment to meeting such customer demands as distributed generation is just one of the ways public power utilities work on behalf of their communities. It’s really an overall attitude, those in the business say, a reflection of the fact that the actual customers are the only stakeholders — there are no owners or stockholders to please or reward. “Public power systems are a little more responsive to customer needs, because at the end of the day it’s not about making a dollar for your shareholder, it’s what your customer needs,” says Paul Zummo, manager of Policy Research and Analysis for APPA.

“One of the main benefits of public power is the notion of local control,” observes Jeff Haas, APPA’s vice president of membership. “It allows our business customers and the local public power utility to collaborate and work together to achieve common interests. In a nutshell, generally the community interests are aligned with the business that wants to locate there.” The public power utility, he says, is “working for the betterment of the community.”

“It ties to the idea of representative and local control — in government, and in this case, in the utility. Our customers are our stakeholders,” agrees NPPD’s Nelsen, who has served as chair of the APPA Economic Development Committee. “It’s very much a partnership relationship with our customers. It allows us to reinvest revenues back into the system, as opposed to paying dividends.”

Public power was formally established in Nebraska back in the 1930s, and it’s the only state where all areas are served by public power. The lack of profit motive and the proximity of leadership offer distinct pluses, Nelsen says. “It gives us somewhat of an advantage in terms of lower rates and high system reliability.”

Reliability is, first and foremost, a preventive concept — building and maintaining systems that can keep the lights on through all but the worst situations. It’s also about having repair crews nearby so that when something does go wrong, it can be fixed quickly. That’s a public power advantage tied to its very local nature. “The folks who maintain the system live and work in the areas they serve. They know the areas they’re maintaining and that tends to enhance response time,” Haas says.

Because public power utilities are owned by the communities they serve, they have an inherent interest in the well-being and prosperity of those communities. That makes them logical partners in economic development and support of local businesses. For example, Nelsen says NPPD’s economic development staff of 10 is heavily involved in helping businesses find ideal locations in the state, and helping existing companies grow and prosper. “We will do everything from helping screen communities to allowing you to maintain confidentiality and providing you information to make a decision,” he says.

Public power utilities, he adds, also do their best to help business customers keep costs in line. He cites one example from NPPD: “We have an economic development incentive rate on the energy cost that can be passed along to businesses.”

There’s also a strong connection to the needs of local schools and governmental agencies. In the Massachusetts community of Sterling, for example, the utility created a win-win situation with a local vocational technical school, rehabbing a very old building into an energy-efficient facility, providing training opportunities along the way, and saving money, too. Hamilton says the 1885 building “was cleared to the outside walls and has new counters, insulation, walls, LED lighting, a new HVAC system, as well as a vestibule in our entryway. This project is being done at a tremendous savings because of the work by the Montachusett Regional Vocational School,” he explains. “We also received a grant to perform energy-efficiency improvements in seven of our municipal buildings as part of a pilot to look at commercial programs.”

“Public power is committed to being responsive to community needs,” Haas confirms. “Our willingness to work with businesses to achieve a common objective and provide a return on investment all comes down to providing a benefit to the community. That’s something you’ll find is a common thread throughout public power.”

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