Clean Energy Resource Teams

A solar array in rural Minnesota.

Minnesota co-ops rolling out high fixed charge for solar customers

Last year Wayne Hesse began considering putting up a solar array on his farm in Tyler, a small town in western Minnesota.

His electric provider, Lyon Lincoln Electric Cooperative, informed Hesse he would be charged a fixed fee of $49.50 monthly for his solar array. He already pays $50 a month for a meter for his existing wind turbine along with a $35 monthly fee the utility charges every customer.

“I think the fixed fee for solar is excessive,” he said. “When I do the cash flow that amount takes 25 percent of my monthly profit. It would take an extra three to four years to get the project paid off.”

Hesse is among the handful of customers of electric cooperatives in Minnesota that have seen skyrocketing fixed charges for installing solar panels on their homes due to a new state law passed last year.

As co-ops continue to add the fees, solar observers believe the number of disgruntled customers will grow.

The fixed charges will only affect solar that has been installed after July 1, 2015 in co-op territory. A March newsletter from the Minnesota Rural Electric Association (MREA) reports that 10 cooperatives have applied the fee and 10 more will be adding the charge within the next two months.

Two rural co-op customers have filed cases with the Minnesota Public Utilities Commission regarding the high fees, and others considering solar have contacted installers with questions about the charges.

Co-ops operate differently than investor owned utilities. Every customer is a member of the co-ops, and their boards of directors, elected by members, make decisions on rate increases, infrastructure investments, and so forth.

They serve 1.8 million members and provide 18 percent of the power sold in the state. They maintain the largest distribution network in Minnesota,  121,000 miles, which is more than Xcel Energy and the other three private power companies combined. Co-ops cover a territory representing 85 percent of Minnesota.

The co-ops say this lack of density means the cost of delivering service to an individual customer is higher, necessitating the higher fixed charges.

Fees will ‘cripple solar’

David Shaffer, an attorney and development director of the Minnesota Solar Energy Industries Association, is assisting with the cases of Hesse and two other members challenging different co-ops.

A high fixed charge “decreases the cost-effectiveness of solar arrays and elongates the payback period,” he said. “Selling solar is based on the payback. If you get payback in under 10 years it’s a great deal, but if it’s beyond 10 years it gets more difficult. Fixed charges cut into the viability of selling solar in those (rural) areas because financially it doesn’t make sense.”

Shaffer said the rural cooperatives had much lower fixed charges prior to the legislation. “What has changed?” he asked. “The result of high fixed fees will be to cripple solar in these areas.”

“The rates we’re seeing charged by Minnesota co-ops are the highest in the country,” said Allen Gleckner, a senior policy associate at Fresh Energy, where Midwest Energy News is published. “In Arizona the charge is typically $15 a month, and they have a much greater penetration of net-metered systems than any Minnesota cooperative.”

As an example, Gleckner showed a January bill from a solar customer of Meeker Cooperative in Litchfield that shows a $55 net metering charge on a just under 40 kilowatt (kW) system. Over a year that would cost the customer more than $600, the equivalent of several months worth of electric bills.

In contrast, the state’s largest investor-owned utility, Xcel Energy, has a fixed fee for all customers of $10 a month, but nothing specifically for solar. Minnesota Power has a monthly “co-generation fee” of around $2.55 a month for a 20 kW system.

The MREA lobbied the state legislature for the change and established a common approach members can use to establish a fair fixed charge cost for solar customers.

Rather than use a flat fee, the association suggested scaling the costs to better reflect the impact of solar on their systems. The larger the output of a solar installation, the higher the fixed fee.

Connexus Energy, one of the larger cooperatives, will soon decide whether to charge around $23 per month for a 10 kW system, up from $5.90 a month now, a fee which goes to pay for a bidirectional meter required for solar production, according to Brian Burandt, vice president of power supply for Connexus.

The fee will cap at $26.22 for systems under 40 kW. The fixed charges pay for infrastructure which costs no less in sparsely populated rural areas than cities, Burandt argued.

“In a rural area it (the fixed charge) will be higher because you have less density,” he said.

Why rates are rising

A state law passed in 2015 that went into effect this year allows rural electric cooperatives to charge solar customers with less than a 40 kW installation a fixed fee.

“Any additional charge by the utility must be reasonable and appropriate for that class of customer based on the most recent cost of service study,” the statute reads. “The cost of service study must be made available for review by a customer of the utility upon request.”

The problem, said Gleckner, is that utilities are not providing cost of service studies, and when they are they don’t account for benefits derived from solar on the electric grid.

Those benefits include providing electricity near where it is consumed, insulation from fluctuating fuel costs, and allowing utilities to defer investment in additional power generation, he said.

“You only see one side the equation, the cost side,” Gleckner said. But the argument for solar energy’s contribution to the market, as described in research done for Minnesota’s Value of Solar principle, was not incorporated in the legislation.

The Value of Solar concept “has not gone through the same rigors as the cost of service,” argued Burandt. Rural utilities will “go bankrupt” if enough customers use solar energy to reduce or eliminate their need to buy power, he said.

Gleckner counters that the value of solar methodology “was developed over a four-month stakeholder process involving hundreds of participants and encompasses eight detailed variables ranging from operations and maintenance costs to avoided infrastructure and fuel costs.”

Outside of the debate over how the fixed charges should be configured is the question of why it is an issue now. Shaffer and other advocates question the dramatic cost increase from this year to last, especially since rural Minnesota isn’t considered a hotbed for rooftop solar, although many co-ops have community solar gardens in place or planned for the future.

MREA’s director of government affairs and counsel, Jim Horan, said the call for allowing higher fixed rates came from several co-ops that had growing numbers of solar customers, he said. Given the co-ops’ relatively small customer bases, even a handful of installations can significantly impact overall load.

More than 2 percent of Steele Waseca Electric Cooperative’s peak system load — dubbed “saturation” by Horan — is from solar energy. Renville Sibley Cooperative Power Association, with 1,900 customers, is somewhere over the 3 percent mark in saturation.

When investor-owned utilities hit 4 percent distributed generation they can ask for rate relief. At least eight or nine of MREA’s 44 members are beyond the 2 percent solar saturation threshold, Horan said.

“A good portion of our co-ops have seen a significantly high saturation rate and its affecting them,” he said. The result of more solar means greater issues with grid reliability that could require additional upgrades and improvements, Horan added.

That may be true of a handful of MREA members, but Fresh Energy’s research using PUC reports shows a different story. Ten co-ops which reported data showed a total of 99 installations in 2015, and more than half in Steele-Waseca’s territory.

Of the 304 net meter customers in these coops, nearly one third – 98 – are also Steele-Waseca customers. The total power generated was 4.28 megawatts.

Gleckner points out that while solar saturation may have grown, co-ops generally report less than one percent of their customers have solar.

‘The costs are spread out’

Horan described how the fees are figured. Co-ops decide on their own what they want to charge for cost recovery per kW of solar. (The association suggests exempting the first 3.5 kW of an array.) Those charges should be based on the true cost of service and nothing more, he said.

The argument that fixed charges lengthen the payback for installations may be true but solar developers MREA spoke to said the additional time would be nominal, he said. “If you’re talking about a 13- or 15-year payback you’re only adding a year or two,” Horan said.

The value of solar is lower than retail rates customers receive for power they generate, Horan said. Those rates will not change, he noted, and the legislation only allows for recovering fixed costs. Co-ops are nonprofits, so any excess revenue is held for upgrades and expansion or returned to members.

The issue comes down to the density of customers. Rural co-ops have six members per mile of electric line, compared to 48 customers per mile of line for investor owned utilities, he said.

“The costs are spread out over much fewer customers,” Horan said. “We need to continue to cover the cost of service, and do so in an equitable way.”

To Hesse, though, the fixed charges may force him to reconsider adding solar.

“Unless (the situation) changes they won’t be many solar arrays put on any rural electric association lines,” Hesse said. “It just doesn’t pay.”

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