Preliminary Scenario Analyses and Recommendations Regarding
Standby Rates of Upper Peninsula Power Company (UPPCO)
and Upper Michigan Energy Resources Corporation (UMERC)
Prepared by
Jamie Scripps, 5 Lakes Energy LLC
Karl Boothman, 5 Lakes Energy LLC
March 20, 2017
Background
Poorly designed standby rate provisions are a significant impediment to the development of otherwise economically viable cogeneration projects in Midwestern states. Minnesota and Michigan each have regulatory proceedings that are examining standby rate proposals from rate-regulated utilities. As part of those proceedings, 5 Lakes Energy LLC has employed a unique method of analysis that applies each proposed standby rate to a common set of outage scenarios to demonstrate how the standby rate proposals might compensate utilities and affect customer behavior.
The apples-to-apples comparison generated by this approach provides a window into the real-world effects of standby rate design, and serves as a valuable resource for utility representatives and regulators wishing to ensure standby rates are transparent, efficient, and appropriately correlated to cost of service.
Here, we have attempted to apply the 5 Lakes Energy apples-to-apples methodology to the standby rates of UPPCO and UMERC, the two major investor-owned utilities ofthe Upper Peninsula of Michigan.
The following analyses reflect what we believe to be a reasonable interpretation of the standby rates as presented in each company’s publicly available electric rate book. 5 Lakes Energy will be happy to receive and incorporate feedback and clarifications from utility representatives to improve the following calculations.[1]
For this analysis, we relied on the samehypothetical scenarios previously used to perform our apples-to-apples comparison in Minnesota and with regard to Consumers Energy and DTE in the Lower Peninsula of Michigan:
-No outage of CHP system
-16-hour scheduled outage of CHP system (off-peak)
-16-hour scheduled outage of CHP system (on-peak)
-8-hour on-peak, 8-hour off-peak scheduled outage of CHP system
-32-hour scheduled outage of CHP system (on-peak)
-8 hour on-peak, 8-hour off-peak unscheduled outage of CHP system
What follows is a narrative presentation of our assumptions and calculations for each utility and a summary of areas for improvement and recommended best practices.
Upper Michigan Energy Resources Corporation
Introduction
For the following calculations, we use Upper Michigan Energy Resources Corporation’s (UMERC) current rate book.[2] UMERC does not have a designated standby service rate schedule, rather it includes standby provisions for existing customer classes.
We assume the customer takes service under the Large Commercial & Industrial Service (Cp-1M) rate schedule and takes service at the Primary voltage level between 4,160 and 69,000 volts.[3] In all scenarios, we assume the customer has contracted for 3,000 of normal service and 2,000 kW of standby demand.
Under this rate schedule, UMERC allows customers contracting for standby service to schedule preapproved maintenance outages with as much advance notice as possible. Maintenance periods are referred to as “waiver days” and are granted on a conditional basis by UMERC.
UMERC’s peak periods vary by season. The outage scenarios in this analysis are assumed to occur in April. In winter (Oct-May), peak hours for demand are from 10:00am-8:00pm. For energy charges, winter peak hours are from 6:00am-10:00pm.
Summary
No outage: $0
Scheduled, 16 hours, off-peak: $2218
Scheduled, 16 hours, on-peak: $3098
Scheduled, 8 hours on-peak, 8 hours off-peak: $2658
Scheduled, 32 hours on-peak: $6196
Unscheduled, 8 hours on-peak, 8 hours off-peak: $30,536
No Outage
During the “No Outage” scenario, the customer would be responsible for charges related to normal demand. If the customer demand plus on-peak demand charges (for distribution and capacity) are greater than the standby minimum, then there are no additional standby charges.
In this case, the standby minimum is calculated as the maximum capacity needed when standby is included, so 3,000 kW plus 2,000 kW = 5,000 kW
This is multiplied by $2.75/kW
5000 * 2.75 = $13,750.
This number is compared to the total of:
Customer demand = 6660
On-peak demand (distribution) = 3420
On-peak demand (power supply) = 33,510
Total = 43,590
Because this total exceeds the standby minimum of $13,750, there are no additional charges to reserve standby in a “no outage” month.
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage 16 hours off-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a one-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, off-peak energy charged at the off-peak rate:
0.03237 * 32,000 kWh = $1036
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
(Total Normal On-Peak Demand Charge * 12 months / No. of annual peak days) * No. of outage days
The normal on-peak demand charges are as follows:
Distribution = 1.14
Power Supply = 11.17
Total Normal Demand Charge = 12.31
The number of annual peak days is estimated to be 250. The number of waiver/outage days under this scenario is 1.
12.31 * (12 / 250) * 1 * 2,000 = 1181.76
Therefore, the pro-rated demand charge is 1181.76.
The total of energy and pro-rated demand charges for the outage would be: $2217.76
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage 16 hours on-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a one-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, on-peak energy charged at the on-peak rate:
0.05987* 32,000 kWh = $1916
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
(Total Normal On-Peak Demand Charge * 12 months / No. of annual peak days) * No. of outage days
The normal on-peak demand charges are as follows:
Distribution = 1.14
Power Supply = 11.17
Total Normal Demand Charge = 12.31
The number of annual peak days is estimated to be 250. The number of waiver/outage days under this scenario is 1.
12.31 * (12 / 250) * 1 * 2,000 = 1181.76
Therefore, the pro-rated demand charge is 1181.76.
The total of energy and pro-rated demand charges for the outage would be: $3097.76.
Scheduled Outage 8 hours on-peak/8 hours off-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a one-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, 8 hours of on-peak energy charged at the on-peak rate, and 8 hours of off-peak energy charged at the off-peak rate :
0.03237 * 16,000 kWh = 518
0.05987 * 16,000 kWh = 958
Total energy charges = $1476
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
(Total Normal On-Peak Demand Charge * 12 months / No. of annual peak days) * No. of outage days
The normal on-peak demand charges are as follows:
Distribution = 1.14
Power Supply = 11.17
Total Normal Demand Charge = 12.31
The number of annual peak days is estimated to be 250. The number of waiver/outage days under this scenario is 1.
12.31 * (12 / 250) * 1 * 2,000 = 1181.76
Therefore, the pro-rated demand charge is 1181.76.
The total of energy and pro-rated demand charges for the outage would be: $2657.76
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage 32 hours on-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a two-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, on-peak energy charged at the on-peak rate:
0.05987 * 64,000 kWh = $3832
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
(Total Normal On-Peak Demand Charge * 12 months / No. of annual peak days) * No. of outage days
The normal on-peak demand charges are as follows:
Distribution = 1.14
Power Supply = 11.17
Total Normal Demand Charge = 12.31
The number of annual peak days is estimated to be 250. The number of waiver/outage days under this scenario is 2.
12.31 * (12 / 250) * 2 * 2,000 = 2363.52
Therefore, the pro-rated demand charge is 2363.52
The total of energy and pro-rated demand charges for the outage would be: $6195.52
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Unscheduled Outage 8 hours on-peak, 8 hours off-peak
If an outage is not scheduled ahead of time, the pro-rated demand formula does not apply.
Instead, the total of a customer’s “normal” customer demand is considered to be increased by the extra demand needed to cover the CHP outage. In this case, the normal demand would increase from 3,000 kW to 5,000 kW.
There would be extra energy charges associated with the outage (similar to the scheduled outage above):
0.03237 * 16,000 kWh = 518
0.05987 * 16,000 kWh = 958
Total energy charges = $1476
The real difference is in the demand charges, which are not pro-rated.
In order to calculate the increase attributable to the CHP system outage, I subtracted the normal demand charges (calculated using a normal customer demand of 3,000 kW) from the revised demand charges that are calculated using a customer demand of 5,000 kW.
Customer Demand
Normal Customer Demand Charge: 3,000 kW * 2.22 = 6660
Revised Customer Demand Charge with Standby = 5,000 kW * 2.22 = 11,100
Difference attributable to CHP outage = $4440
On-Peak Demand (Distribution)
Normal On-Peak Demand (Distribution) Charge: 3,000 kW * 1.14 = 3420
Revised On-Peak Demand (Distribution) Charge with Standby = 5,000 kW * 1.14 = 5700
Difference attributable to CHP outage = $2280
On-Peak Demand (Power Supply)
Normal On-Peak Demand (Power Supply) Charge: 3,000 kW * 11.17 = 33,510
Revised On-Peak Demand (Power Supply) Charge with Standby = 5,000 kW * 11.17 = 55,850
Difference attributable to CHP outage = $22,340
Total Difference in Demand Charges = $29,060
Therefore, the total of energy and demand charges for an unscheduled outage is: $30,536
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Upper Peninsula Power Company
Introduction
UPPCO provides standby service to customers per the applicable rate schedule for the customer’s full requirements service from the company. We assume a combined heat and power customer would take service under the Cp-U rate schedule for Large Commercial and Industrial customers[4] at a primary voltage distribution level.
Broadly speaking, standby service customers are charged the standard rate, with some modifications.
Under UPPCO’s application of standby provisions, in calculating demand charges, hourly outages are rounded up to the day – so all of the outages in this analysis would end up being interpreted as taking place during on-peak times (even the Scheduled 16-hour “off peak”outage). On-peak demand charges are prorated according to the number of days in which standby service is taken.
We assume the customer contracts for 3,000 in normal capacity, 2,000 kW of standby capacity and takes service at the Primary voltage level. Primary voltage is provided at between 6,000 and 15,000 volts. UPPCO’s on-peak period is from 7:00am-11:00pm, Monday through Friday. All outages are assumed to take place in April.
Summary
No outage: $0
Scheduled, 16 hours, off-peak: $2911
Scheduled, 16 hours, on-peak: $3883
Scheduled, 8 hours on-peak, 8 hours off-peak: $3397
Scheduled, 32 hours on-peak: $7766
Unscheduled, 8 hours on-peak, 8 hours off-peak: $31,631
No Outage
During the “No Outage” scenario, the customer responsible for charges related to normal demand. If the customer demand plus on-peak demand charges (for distribution and capacity) are greater than the standby minimum, then there are no additional standby charges.
In this case, the standby minimum is calculated as the maximum capacity needed when standby is included, so 3,000 kW plus 2,000 kW = 5,000 kW
This is multiplied by $2.75/kW
5000 * 2.75 = $13,750.
This number is compared to the total of:
Customer demand = 5850
On-peak demand (distribution) = 6180
On-peak demand (power supply) = 31,980
Total = 44,010
Because this total exceeds the standby minimum of $13,750, there are no additional charges to reserve standby in a “no outage” month.
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage, 16 hours off-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a one-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, off-peak energy charged at the off-peak rate:
0.05642* 32,000 kWh = $1805
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
On Peak Demand Charge * (Number of Approved Nonholiday Weekdays in Billing Cycle/Number of Nonholiday Weekdays in Billing Cycle)
The normal on-peak demand charges are as follows:
Distribution = 2.06
Power Supply = 10.66
Total Normal Demand Charge = 12.72
The number of monthly peak days is estimated to be 23. The number of waiver/outage days under this scenario is 1.
12.72 * (1/23) = 0.553
This is then multiplied by the standby capacity used, or 2000 kW.
0.553 * 2000 = 1106.08
The pro-rated demand charge for this outage is 1106.08.
The total of energy and pro-rated demand charges for the outage would be: $2911.08.
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage, 16 hours on-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a one-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, on-peak energy charged at the on-peak rate:
0.08678 * 32,000 kWh = $2777
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
On Peak Demand Charge * (Number of Approved Nonholiday Weekdays in Billing Cycle/Number of Nonholiday Weekdays in Billing Cycle)
The normal on-peak demand charges are as follows:
Distribution = 2.06
Power Supply = 10.66
Total Normal Demand Charge = 12.72
The number of monthly peak days is estimated to be 23. The number of waiver/outage days under this scenario is 1.
12.72 * (1/23) = 0.553
This is then multiplied by the standby capacity used, or 2000 kW.
0.553 * 2000 = 1106.08
The pro-rated demand charge for this outage is 1106.08.
The total of energy and pro-rated demand charges for the outage would be: $3883.08.
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage 8 hours on-peak, 8 hours off-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a one-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, 8 hours of on-peak energy charged at the on-peak rate, and :8 hours of off-peak energy charged at the off-peak rate
0.08678 * 16,000 kWh = $1388
0.05642 * 16,000 kWh = $903
Total energy charges = $2291
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
On Peak Demand Charge * (Number of Approved Nonholiday Weekdays in Billing Cycle/Number of Nonholiday Weekdays in Billing Cycle)
The normal on-peak demand charges are as follows:
Distribution = 2.06
Power Supply = 10.66
Total Normal Demand Charge = 12.72
The number of monthly peak days is estimated to be 23. The number of waiver/outage days under this scenario is 1.
12.72 * (1/23) = 0.553
This is then multiplied by the standby capacity used, or 2000 kW.
0.553 * 2000 = 1106.08
The pro-rated demand charge for this outage is 1106.08.
The total of energy and pro-rated demand charges for the outage would be: $3397.08.
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Scheduled Outage, 32 hours on-peak
For calculation of demand charges, hourly outages are rounded up to the day. Therefore, this outage scenario would be interpreted as a two-day outage that happened during peak times. Energy charges are still calculated by the hour.
The customer would be responsible for the extra kWh needed due to the outage – in this case, on-peak energy charged at the on-peak rate:
0.08678 * 64,000 kWh = $5554
There is also a pro-rated demand charge for on-peak capacity used during the outage.
This is calculated using the following formula:
On Peak Demand Charge * (Number of Approved Nonholiday Weekdays in Billing Cycle/Number of Nonholiday Weekdays in Billing Cycle)
The normal on-peak demand charges are as follows:
Distribution = 2.06
Power Supply = 10.66
Total Normal Demand Charge = 12.72
The number of monthly peak days is estimated to be 23. The number of waiver/outage days under this scenario is 2.
12.72 * (2/23) = 1.106
This is then multiplied by the standby capacity used, or 2000 kW.
1.106 * 2000 = 2212.17
The pro-rated demand charge for this outage is 2212.17
The total of energy and pro-rated demand charges for the outage would be: $7766.17.
(Note that there is no additional service fee, distribution fee or reservation attributable to standby service.)
Unscheduled Outage, 8 hours on-peak, 8 hours off-peak
If an outage is not scheduled ahead of time, the pro-rated demand formula does not apply.
Instead, the total of a customer’s “normal” customer demand is considered to be increased by the extra demand needed to cover the CHP outage. In this case, the normal demand would increase from 3,000 kW to 5,000 kW.