08.05.10Jay Jacobson, President, Commercial Environmental Services

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Introduction: A Green Dream

Al is renting an apartment in Hopkins that has solar panels on the roof and a stand-by generator in the basement. Last summer during a heat wave there was a power outage because of a "brown out" -- when the grid was overwhelmed by air conditioning demand -- but Al's apartment didn't go dark during the entire episode.

Al is renting this apartment from Barb, who invested in the solar panels and a standby/peaking generator because she was able to install a new master meter and a sub-metering system, creating a "micro-grid." Although she could install the generator without a sub-metering system, the micro-grid made installing a generator cost-effective. Barb is able to use this micro-grid to buy energy at cheaper commercial rates, and sell the power to her tenants at a rate lower than regular residential rates but high enough to cover the costs of implementing her micro-grid. She estimates that her payback on this project will be less than 10 years. Additionally, she is able to market her apartment building to people interested in "going green" by using renewable energy. Finally, the building is protected from interruptions in energy supply, such as rolling blackouts, terrorist activities, and disruptive weather.

Because of Barb's micro-grid, the utility now has a single point of contact for the building, rather than hundreds. Going from many meters to one meter also decreases man-hour costs associated with reading and maintaining meters, decreases the legal fees from bad debt collection, and makes billing and collections easier. Since Barb's micro-grid is "smart", it can cycle energy more efficiently within the building, making the power requirements from the utility more predictable. The utility in turn can ration power to other areas, decreasing the need for infrastructure upgrades or new power plants.

Barb benefits from this arrangement because she has a more marketable building for renters and she can make a margin from the difference between commercial and residential energy rates -- thereby offsetting the extra effort required to manage the metering and billing. Al's apartment choice satisfies his desire to be more "green" in his energy consumption with the use of solar panels, and he doesn't have to worry about getting stuck in the elevator with the standby generator in place. Lastly, the utility benefits in terms of cost reduction and the flexibility of being able to adjust the strain on its infrastructure by including a self-regulating micro-grid in its own, larger grid.

Current Problem

In the current, real world, Barb would encounter serious roadblocks in the implementation of this dream. Yes, she could legally and logistically install a sub-metering system in her building. But in Minnesota, the largest Electric Utility Xcel Energy has changed the rules 3 years after losing its' PUC case challenging the legality of this process. Now only they can charge retail for the power. Even if she did try to install the system Barb has to wait for the utility company to come out to her building and switch the system from their metering to the sub-meter. Barb could set-up this appointment with the utility, but they can (and have been known to) delay or avoid these meetings without consequences or penalties. Knowing this, why would Barb invest in a micro-grid? The answer today: she wouldn't.

Lack of incentives

The utilities face a perceived lack of incentives to switch multi-housing buildings off their own meters. Their reasons include:

• Industry perception that success is measured by number of customers, so replacing many meters with one meter signifies loss of customers (i.e. income);
• Loss of profit because of per-meter charges
• Perceived loss of potential profit if proposed de-coupling is authorized
  • De-coupling is an extra per-meter charge intended to offset the costs of implementing conservation programs

The owner also has an incentive issue, as they will only have half of the rights of the utilities:

• Due to misinterpreted public utility commissions (PUC) ruling and an Xcel addition of a billing limitation, an owner has the right to turn on the power, but no enforcement options tenant stops paying their power bill and the owner can't charge the same as the utility can.
  • Whereas a utility is perfectly within their right to stop service for non-payment of the power bill.
  • They utility can bill the tenant the retail price but the owner can't and can only charge what they paid.

Thus, there are far too many roadblocks in place currently to persuade an owner like Barb to make any initial investments in sub-metering.

What Should be Done

To solve these incentive issues, we propose that the PUC should:

• Use its' authority to compel utilities to cooperate with owners who want to install a micro-grid/distributed generation plant.
• Clarify their ruling, saying that a multi-housing building owner has the same rights as a utility to charge the same amount (or less) for the power delivered and be able to perform the same billing options and collection procedures.

Essentially, putting these recommendations into effect causes a waterfall of benefits that stem from the flexibility and reliability of a micro-grid, increasing the implementation speed of "green" apartments.

Why the Solution can Work

Many Utilities already have programs for commercial customers for the installation of standby/dispersed generation that is controlled by the utility for peak shaving. The customer's incentive is reduced costs of power. The Utility's incentive is that this system creates more concentrated commercial loads not presently available for control by the utility for load shedding/peak control.

Most of the newly created loads would be in underserved residential zones. These areas are increasing their electrical consumption with more electronics and appliances, taxing the already overloaded old infrastructure. This system provides a self funding solution for these improvements with benefits for all.

To solve the electrical need problems we need innovation and many different approaches according to the DOE in their "Smart Grid: an introduction." This would be one small step of many we will see in the future.

Jay Jacobson presently has some 400 units in Minnesota which the utility has tried to shut down by claiming that this is not legal. We fought them at the PUC and they lost, but they still hold us captive to their whims of not showing up for the conversion and recently managed to get a rule passed to restrict the owner from charging the same as they do. We also have some 3600 in Pennsylvania that we are still gathering date on. We have also found that most electric utilities when caught in billing errors suddenly have no customer service. We just want to have the playing field leveled for fair competition.

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Reader's Comments

Date	Comment
Len Gould 8.5.10	Excellent article overall, though your polite requests of the regulators are far too conservative. Regulators, especially those who support utility actions such as you describe (among many others) should be solidly booted out. Speaking of conservative, however, I dispute your use of the "terrorist fear card" to support your arguments. Statistically and realistically its just silly fear-mongering used in this context.
Bob Amorosi 8.5.10	Tnis article is a great example of how existing regulatory frameworks in much of North America actually stifle innovative changes in our electric grids. Changing regulators or regulations to allow these innovations is probably a very daunting task. For example, here in Ontario if one directs any complaints to the Ontario government about our energy regulators or their regulations, the government simply rebuffs you by telling you to file a formal complaint with the regulatory agency itself. Here our regulator agency is called the "Ontario Energy Board" (OEB), where this formal complaint process was adopted because historically the OEB routinely gets complaints of all kinds from various industry stakeholders. You can be sure that any citizen or company filing complaints about energy regulators or regulations rarely if ever results in anything being changed. To get changes implemented, one approach is to get a petition signed by at least hundreds of thousands of voters and submit them to your politician sitting in provincial (or state) government before it will be listened to. The only alternative is running for political office and becoming elected, and then work as a politician from within the government to get the changes you desire passed, which can literally take years to accomplish.
Jack Ellis 8.7.10	If I might pile on here... Many lament the state of our 20th century grid and how inadequate it is for a 21st century economy. One important reason for that inadequacy might be the fact that the regulatory bureaucracy that surrounds electricity was shaped by social, technological and economic conditions that no longer exist. We can;t expect to be able to modernize the electric infrastructure based on laws and rules that were written for another time and vastly different circumstances than exist today.
Robert Bromm 8.11.10	Your arguments about saving the utility money might work for new construction where the utility would save the capital cost of installing all the meters and seting up the billing accounts. But for an existing apartment conversion, where's the savings. There will be capital costs for doing the conversion Ignoring the solar part for now, the total demand and consumption will be the same before and after the conversion, but the utility will have to charge less to the one big customer than it did to the many smaller customers. This is a net loss to the utility. Accounting for the solar, the demand for the utility will be the same so no capital cost savings but the consumption will be less meaning less revenue for the same investment. Woo hoo, just what every company wants. Would the apartment owner install solar panels if the federal and state governments didn't pay for 1/2 the capital cost? I doubt it. Solar electric is not economical, never has been, maybe never will be. What happens in 10 years when the system breaks down and has to be replaced? There will be no government subsidies. Will the owner pay for it themselves out of the goodness of their heart? Some might, I suspect that most won't. How does the economics of a multi-megawatt generator work. The capital and installation costs could easily be a half million dollars for a several hundred unt apartment building. And there is no financial payback for this investment other than charging more for rent to cover the "securty" of having a backup generator. Finally, what about the deadbeats that quit paying their electric bill? Will the apartment owner be allowed to cut the power for non payment? What about during the winter if they have electric heat? What about during the summer if there's an infant in the house? Would the apartment owner be liable for the death of the infant due to heat stroke? I'll bet the ACLU would think so. If not them, there would be hundreds of lawyers lining up to take 30% of this multi-million dollar lawsuit.
Dean Tibbs 8.13.10	Robert Bromm's questions about building owners can be put in proper context by asking all the same questions about the roof of the building. What if it wears out and the owner lets the rain indoors? What if tenants skip without paying their rent? All just part of the rental business. And the role of the ancient utility? Railroads once had a siding for each customer. Most customers now haul a container from their dock to a rail yard, or ship with a company that contracts line haul to the railroad. Far more efficient. Every industry but utilities is seeing such specialization. The question of who does what is best answered by letting a thousand ideas bloom and see which ones we like. Yes, we do need to get the fogy regulators out of the way.
Michael Keller 8.16.10	Seems to me that if someone wants to generate their own power then fine, knock yourself out. Foisting the power onto everybody else to pay back your investment is, however, a bit much. General electrical users need to be protected from the mischief created by random injections of power into the grid. While I am not particularly an advocate for utilities, "leveling-the-playing" sounds more like "tilt-the-field" to favor me making money.

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