Why one co-op says Minnesota’s renewable standard adds costs for ratepayers

Dairyland Power's service area covers parts of Wisconsin, Minnesota, Iowa and Illinois.

Minnesota utilities working towards meeting the state’s renewable energy targets filed reports last month that describe the costs they’ve incurred from complying with the law (which requires a quarter of the state’s electricity to be generated from renewable sources by 2025.)

The numbers were across the board. Just over half of the 14 utilities that were required to file said Minnesota’s renewable portfolio standard has had little or no impact on rates. Some said renewables are helping to keep rates down, and others said the policy has been a burden to ratepayers.

Among those utilities claiming added costs was Dairyland Power Cooperative of La Crosse, Wisc., whose members include three electric co-ops in southeastern Minnesota (Freeborn-Mower Cooperative Services in Albert Lea, People’s Cooperative Services in Rochester, and Tri-County Electric Cooperative in Rushford). Because Dairyland is a wholesaler, and not a retailer, its rate increases don’t necessarily translate to a similar increase for consumers.

Dairyland reported that Minnesota’s renewable policy caused an average increase in wholesale rates last year of 6.6 percent. Why would adding renewables be hurting Dairyland customers, while others, including other co-ops such as Basin Electric, were reporting “no impact” from the policy?

Katie Thomson, a Dairyland spokeswoman, said part of the explanation is a lack of consistency in reporting methods. The legislation that requires the rate-impact reporting doesn’t provide a specific template, says Thomson, so different utilities took different approaches to analyzing the costs.

Dairyland looked at how much the company spent purchasing electricity from renewable sources, and then compared that to how much they made selling that power onto the grid. The purchase price is usually locked in well in advance through long-term power purchase agreements with the generator. Sell prices, however, fluctuate constantly based on supply and demand.

With wind power, utilities don’t have control over when the electricity will be generated. If the wind is blowing at night when demand for electricity is low, the price the utility gets for that power from the grid operator will be low as well. “Whatever the price, is what you get,” says Thomson. “It really comes down to timing.”

Dairyland based its rate-impact report on the difference between the purchase and sell prices for its renewables. But that number will change every year, Thomson notes. So will how it compares to the cost of conventional energy sources such as coal and natural gas.

Thomson acknowledges one flaw with its analysis: it assumes that if it weren’t for Minnesota’s policy that the company wouldn’t have invested in any renewable energy, which isn’t the case. “We’ve long recognized the importance of having renewables in our portfolio,” she says.

Which gets back to a point we reported back in May: it’s not easy separating the costs of complying with a renewable portfolio standard from the costs of business as usual, which may help explain the wide range of reporting results.

“It is what it is,” says Thomson. “Sometimes it’ll work out for you and sometimes it won’t. We’ll just see how it turns out in next year’s report.”

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