Interstate Power and Light Company (IPL)
Alternative Rate Design Discussion
Doug Kopp, President - IPL
Joel Schmidt, Vice President - Regulatory Affairs
March 15, 2016
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IPL’s Renewables Strategy
Rate Design Principles
Distributed Generation (DG) Customer Data
IPL’s Long-Term Plan for DG Customers
Today’s Roadmap
3
Renewable decisions are about pace and mix of adding to portfolio with a cost based
consideration
Wind
Current wind Purchased Power Agreements (PPA’s) are competitive and fit well
into our portfolio
Wind Request for Proposal (RFP)
Solar
Indian Creek Nature Center-Cedar Rapids, Iowa
10 Megawatt (MW) solar RFP-Iowa
Alliant Energy-Madison headquarters solar project
Exploring other utility-scale owned or purchased solar
IPL’s generation strategy has been focused on reducing emissions as well as growing
renewables while meeting customer energy, capacity and reliability needs
IPL remains short on energy
Renewables can economically fill gaps
Low gas prices and falling wind energy prices continue to reduce coal dispatch
Renewables, energy efficiency and demand response are priority to fill future
needs
IPL Renewable Strategy
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$53.83
$49.26
$46.00
$53.96
$130.00
$38.09
$30.72
$34.23
$30.00
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
2014 QF
payments
10 MW block 10 MW wind 1 MW solar Net metered
AEP
On-Peak Off-Peak Average ~100 MW
Wind PPA
2015 Energy Cost Comparison, $/MWH
Qualified Facility (QF)
payments based on
AEP filing less larger
renewable facilities
2014
QF
Oct 2014 Filed 10 Year
Avoided Energy
Industry 10 Year Market
Energy Estimates
(summer 2015 vintage)
Indicative
Wind
PPA’s
Average Net metered
Alternative Energy
Production (AEP)
Key Takeaway: Market based energy and renewable purchases are currently and projected to be available
at lower cost to all customers as compared with current net metering reimbursements.
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Rates should
Reflect costs to provide service
Be transparent
Follow Board rules and appropriate principles of ratemaking
Provide appropriate pricing signals to promote the appropriate
behavior by customers and energy providers
Be equitable across customers
Residential and General Service rates are currently designed to
cover most costs through the volumetric charge
DG customers still need to be connected to the Power System,
but net metering allows bypassing of system costs (e.g.
transmission and distribution, customer-related and energy
efficiency costs). Those system costs are shifted to non-DG
customers
Fundamental Rate Design Principles
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Example - Daily Residential Load System
Profile - IPL
• The graph represents an average residential customer and an average residential DG customer
electric usage for the peak day in 2013
• Peak demands are not going away, but are moving to later in the day—investment costs in the grid
are not diminished
• DG is different than energy efficiency since customer load is not diminished but just temporarily
displaced by generation
• Individual customer demand substantially unchanged, impact on system unknown
0
0.5
1
1.5
2
2.5
3
3.5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
K
W
Hour
DG (8/30/2013) Res System (08/30/2013)
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Residential and General Service Customer Cost Overview
Customer Service
Meter and Service
Line
Transformer &
Secondary Lines
Primary
Distribution &
Substations
Transmission
Generation—
Capacity and
Energy
Fixed Charge Subsidy
DG (Partial Requirements) Customer—Net Metering
Demand Rate – Three Part Rate Design
Fixed Charge
Demand Rate
Energy
Rate
Fixed Charge
Current Full Requirements Customer Rate Design
Energy Rate
Pricing Components of a Customer Bill
Energy
Cost
averted
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As of January 2016
Alternative Energy Production tariff (net metering)
~1,700 customer-owned projects (residential, certain farms,
school districts, small commercial, municipalities, etc.)
~24MW of capacity, of which ~20 MW of solar
~0.6% of retail sales and ~0.4% of retail customers
Receiving ~30 interconnection applications per month
Current estimated annual subsidy that would be collected from other
customers at IPL’s next rate case ~$2 million
~$665 annual subsidy to an average DG residential customer
which equates to 6 months of an average non-DG customers bill
~$1785 annual subsidy to an average DG general service
customer
Distributed Generation Customers at IPL
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Gradualism approach—IPL will:
Propose a rate design pilot through the DG NOI process
Focus Energy Efficiency Plans on not only usage of kilowatt-hours (kWhs)
but also demand of kilowatts (kWs)
Educate residential and general service customers on demand (kW)
through behavior and other technology based tool pilots
File an alternative class cost of service study with a separate partial
requirements class in the next electric rate case (expected in April 2017)
Cost to serve supplemental service to DG customers
Costs based upon load research data reflecting unique usage
characteristics
Develop an advanced metering technology strategy to compliment
alternative rate designs
In the long-term – design “demand rates” for all customers
IPL’s Long-term Pricing Signals for DG
Customers
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Appendix
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Distorted pricing signals results in economic inefficiencies
Compensation at full retail is not sustainable
Utility Scale vs. Customer Owned (same environmental benefit)
Banking carryover provision does not promote right sizing
Commodity pricing vs. service/value pricing
Electric service is more than an kWh it is a kW as well
Distance (energy) vs. Speed (demand)
Balance the growth of renewables with the overall cost to
the customers and grid impacts
IPL has rich data for DG customers
IPL Net Metering Pricing Signals
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2015 Estimated Average Annual Impact of
Current Net Metering Subsidy
[1]
Based on an estimated kWh offset of 5,642 annually.
Residential
Net
Metered
Customer
General
Service-Net
Metered
Customer
Transmission Capacity Cost
$140
$435
Generation and Distribution Capacity Cost
$490
$1,215
Energy Efficiency Under Recovery
$35
$135
Annual Impact to Non-Net Metered
Residential Customers
$665
$1,785
Bill Breakdown
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Potential Growth of DG Impact
Graphs
based on
2015 data
For every 1% increase in penetration of net metering customers
(Residential and General Service), there is a ~$4M cost shift
At what point is the impact material?
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2014 IPL Customer Income Demographics
54% of our customers earn less than $50K per year
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Recent Rate Reform Activity
Source: Edison Electrical Institute-Feb 2016
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Utilities use several common pricing methods, including demand charges, fixed monthly charges
and energy charges. Demand charges provide more accurate pricing signals than simple
volumetric charges.
Utilities introduce demand charges ($/kW) for customer-generators to better collect the capacity
costs associated with providing them electric service. This is in addition to collecting a monthly
fixed charge ($/month) and a variable energy charge ($/kWh).
A demand charge is based on a customer’s maximum kW demand over a specified duration –
typically the monthly billing cycle. Often, it’s based on the customer’s maximum demand across all
hours of the month or on their maximum demand during peak hours of the month, or sometimes on
both.
Most capital system investments are driven by demand. A demand charge aligns the price of
service with the cost of service.
With this natural alignment, a formal demand charge helps customers make informed decisions
about how much power to consumer and at what time.
There is some evidence that residential customers do respond to the price signal given by demand
charges.
When faced with demand charges, residential customer-generators would have the incentive to
buy smart digital technologies such as thermostats, load controllers, home energy management
systems and smart appliances, along with batteries and other storage options. This will promote
economic efficiency in both a static and dynamic sense.
Background - Demand Charges
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Current Strategy focuses on Reliability
IPL has over 20,000 miles of line and 594 substations serving
approximately 490,000 customers over 37,000 square miles
Future Strategy focuses on Reliability plus Robust,
Resilient, Customer Options
Multi-directional, networked, transactional grid
Strategy will be implemented over a number of years
Flexible for future innovations
Fit into the culture and evolving customer expectations which it
serves
Transition risks and opportunities
State of the Power System
Factors Impacting Distribution Circuit DG
Hosting Capacity and Operating Issues
Size of DER
Location of DER
Feeder characteristics
Proximity to other DER
DER control (e.g, smart
inverters)
Production Uncertainty
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IPL Service Territory DG Installations
It’s important to note that DG is not spread evenly across
the system but is coming in high density pockets making
system average judgments and decisions difficult.
Yellow dots: DG installations
Red: New installations can not be added without
system changes.
Yellow: Cautionary, studies needed for
incremental additions
Green: Plenty of capacity left for incremental
additions
Pink: No studies completed to-date
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DG Penetration Example in SE Iowa
Keota, IA
Area
Riverside, IA
Area
Yellow dots: DG installations
Red: New installations can not be added without system changes.
Yellow: Cautionary, studies needed for incremental additions
Green: Plenty of capacity left for incremental additions
Pink: No studies completed to-date
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IPL currently has the following data for its DG customers:
kWh usage reduction by customer
15-minute interval data after DG Installation
Nameplate capacity of DG system
Location of DG system
Bill impact by DG customer
Cost of DG system
Statistically-based load comparisons between non-DG and DG
customers by customer class
DG technology (e.g. solar, wind, bio-digestor)
In-service date
DG Customer Data Collection