Early in February, Eastern Michigan University canceled classes due to a sloppy snowstorm.
But it didn’t cancel a big event it had planned for a long time – the ceremonial flipping of the switch on its energy pride and joy: a brand new co-generation plant.
A co-generation plant is a more efficient and greener way to use natural gas. It burns natural gas to run a turbine that makes electricity, and then the hot exhaust is used to make steam heat.
The plant will supply EMU's campus with 93% of its electricity and 98% of its heat. It will reduce campus emissions significantly, and pay for itself in nine years.
That's even though EMU will need to pay DTE Energy $500,000 a year in standby rates.
What do standby rates do?
The standby payment will compensate DTE Energy for its power, if the plant breaks down or goes offline for maintenance. Such rates only apply to fairly large projects, 550 kw or larger.
DTE Energy CEO Gerry Anderson says many companies welcome standby rates because they're a form of insurance.
After all, who wants to send everyone home when the onsite power fails?
Companies think, “I need you to back me up. I need a standby rate, to make sure that when my own systems aren't working, you're there to cover me,” he says.
But are the rates fair?
Steve Stubleski is Consumers Energy’s Director of Rates and Tariffs. He says without standby rates, companies wouldn't contribute a fair share to fixed and necessary costs, things like the gas pipelines and the electric transformers.
“They have to pay a fair share of that,” Stubleski says, “because if they don't pay anything for it, then all the other customers do, and that's a subsidy.”
Standby rates are standing in the way of companies going green
But Douglas Jester of the research group 5LakesEnergy says the rates are too high; way too high.
“Standby customers are being overcharged on the order of twice as much as they should pay,” he says. “It’s a real barrier.”
Jester says he personally knows of at least four companies that would like to build co-generation plants, like EMU’s, but can’t, because the standby rates charged by utilities are prohibitive.
And he knows of nine companies that would like to install solar arrays on their properties or roofs – but gave up the idea in the face of the rates.
One of those companies is Bell’s Brewery.
If wishes were solar panels…
Bell’s Brewery got its start in the 1980s in Kalamazoo, and it now brews most of its beer in nearby Comstock.
Brewing the beer, running conveyer belts for bottling and packaging – it takes a lot of energy – two million kilowatts a year, just for electricity.
Walker Modic is the environmental and sustainability manager for the company. Modic says Bell’s Brewery has a deep commitment to sustainability. So he’s looked hard and deep at all the green energy possibilities, especially solar, because it's as clean as you can get.
“I would love to panel the entire warehouse,” he says, “But the tricky part there is, if we put in a large enough array to achieve an economy of scale on the price of a panel, we invite standby rates.”
And that makes the business case for solar fall apart.
Douglas Jester of 5LakesEnergy says utilities shouldn't even charge standby rates for solar. That's because a company with solar will still use some energy from a utility every day.
“Solar is more like an energy conservation measure,” says Jester. Plus, solar helps the grid by producing energy when it’s needed the most: during the day, in the summer.
Rate cases before the Michigan Public Service Commission could change things
There are cases pending before the Michigan Public Service Commission that could lower standby rates for customers of DTE Energy and Consumers Energy.
An administrative law judge has recommended to the MPSC that DTE Energy’s standby rates be reduced by about 40%, and that solar should be exempt from standby rates.
In the Consumers' case, an administrative law judge agreed that the utility is charging too much for standby rates, but recommended to the MPSC that there should be further study in a work group rather than a reduction in rates.
In good news for Bell's Brewery, Consumers Energy says it may not wait for the commission to make any decision when it comes to solar. The utility is now considering exempting solar from standby rates, if the Commission agrees.
Edit, 3/14/2018: This article was edited to remove an inaccurate statement about caps on green energy projects above 550 kw.
Editor's note: Consumers Energy is a financial supporter of Michigan Radio.