The Community
Traverse City is located at the head of Grand Traverse Bay, a large inlet from Lake Michigan in the northwest corner of Michigan's lower peninsula. The city itself has a population of 16,000; with the surrounding area, the population is about 68,000. Many residents were attracted to the area because of the quality of the environment. The area also has a significant arts community.
Traverse City is a popular vacation destination for lower Michigan and portions of the upper Midwest. Because Traverse City is on the water and its downtown area attracts many tourists, most residents appreciate that the growth of the economy and tourism in particular are highly dependent on maintaining an attractive environment.
Traverse City Light and Power (TCL&P) is a small, municipally-owned utility of 8,000 customers (6,300 residential), a peak load of 49 MW, and 42 employees. It owns portions of two operating coal plants in Michigan (11 MW and 10 MW), and 3 MW of hydro. TCL&P also owns the Bayside coal plant, which has 35 MW of capacity but has not run since 1992 except for regular testing. Having this coal plant available to provide back-up power enables TCL&P to buy economy energy from the Michigan Public Power Authority (MPPA) power pool and avoid demand charges.6 Current plans call for the Bayside plant to be removed in 2009, when its newest boiler will be forty years old.7
TCL&P's average residential rate is 6.8 cents/kWh, which is low for the area-lower than Consumers Power, the investor-owned utility that serves the area, and lower than nearby Cherryland Electric Co-operative. Twenty percent of TCL&P's load is outside the boundaries of Traverse City. The utility board has seven members appointed by the City Commission. Five have staggered five-year terms; two are members of the City Commission who serve two-year terms.
In response to Steve Smiley's proposal for a wind plant, the utility board agreed to sponsor a wind resource assessment. The utility, however, was not adding capacity. Green pricing was seen as a way to develop a wind project without increasing costs to all ratepayers.
The TCL&P program offers a green rate, charging a premium of 1.58 cents/kWh to both residential and business customers. The standard residential rate averages 6.8 cents/kWh, so the premium adds 23 percent to their bills. However, their base rate is low enough that even with the premium, participating customers still pay less than Cherryland Electric Cooperative's regular rate.8 These participants pay about $7.58 more per month based on average residential monthly electricity use.9 Business rates are discussed below. Customers who buy their power from wind get another benefit: any upwards fuel cost adjustments made by the utility are not applied to customers who pay the green rate.10
The price premium was established by calculating the difference between costs and benefits as estimated by the utility:
The $650,000 project received a grant of $50,000 from the Michigan Public Service Commission, and has applied for the 1.5 cents/kWh federal production incentive for publicly owned wind projects. This indicates that the price premium would be even higher in the absence of subsidies. At the same time, utility avoided costs (project benefits) are limited to energy costs. Because they do not include any capacity credit for the wind project or an estimate of avoided environmental costs, it is possible that the price premium is actually greater than the cost premium. Further, the site selected is a moderate class 3 wind site. A better site would improve performance and lower costs.
TCL&P started by planning for a 500 kW wind turbine. Based on average customer electricity use and estimated turbine output, the utility anticipated that it needed about 200 customers to pay for the incremental cost of the wind energy. Because the wind blows intermittently, the utility cannot guarantee that customers will receive windpower simultaneous to their electricity use. It can, however, ensure that the forecasted output of the turbine matches the forecasted energy use of the customers over the course of a year. That is, the estimated annual energy production equals the participating customers' annual load.11
Marketing initially involved news releases, display advertisements and direct mail targeted to a local environmental group. Over three months, the utility achieved about half of the 200 customer goal. Next, all commercial and residential customers received a direct mailing which included an application. (Copies of some of these materials are included at the end of this paper.) Steve Smiley and some project supporters made personal visits to about ten business customers thought to be open to the idea. This resulted in 250 total applications-about three percent of all customers. Of these applicants, 145 residential and 20 business customers were sufficient to fully subscribe the wind turbine output. The extra customers were placed on a waiting list.
Once the required supporters signed up, site acquisition, permitting, site preparation and turbine selection could begin. Turbines were selected through competitive bidding. Because the costs came in lower than expected, a 600 kW turbine was selected. Site preparation was completed in the fall of 1995, and turbines were installed in May 1996. During this development and installation time, the utility covered the project costs. Participants did not begin paying the utility until the turbine was commissioned and began producing power.
To avoid transmission charges, the utility planned to locate the project close to town.12 As a result, the project is located about two miles from the center of Traverse City, on a hill in a farmer's field. (The farmer was paid for an easement to the site and receives a small annual payment for crop loss.) The windmill tower stands 160 feet high and the 144 feet diameter blades can be seen from many points in town, although it was not sited specifically to do so.
Residential customers who signed up were required to pay the green rate for three years; commercial customers agreed to pay for ten years. TCL&P requires a commitment to ensure some stability in payments; if a customer drops out at the end of the contract period, the utility must find a replacement. Also, the utility asks its commercial customers to commit to a longer contract because the loss of a commercial customer would have a bigger financial impact than the loss of a smaller residential consumer. Despite this long-term commitment, about 26 commercial customers signed up. Six of these are on the waiting list.13
Eight of the businesses who signed up for the green rate are retail stores. Twelve offer professional services, such as architectural design; real estate appraisal; or legal, medical or mortuary services. Two are non-profits (providing services for the mentally ill and a land trust), two are restaurants, one is a dance instruction studio, and one is a financial institution. None of the businesses would be characterized as large, which can be seen from their energy use. (See Table 1.)
Monthly energy use for the commercial participants is about 1265 kWh, equivalent to the average electricity use of two to three homes.14 The typical monthly bill for business customers is about $112; the premium they pay for windpower is about $20 per month, or about 17 percent. The largest business participant, however, uses nearly ten times the electricity of the typical commercial participant and pays an additional $188 per month. (This is a premium of about 24 percent because his average base price is lower than that of the other, smaller businesses).
The average business rate shown in Table 1 varies because small commercial customers face a flat rate of $.0864/kWh plus a $5.75 per meter monthly customer charge. Also, larger commercial customers pay a declining energy charge of $.052/kWh for the first 200 kWh of billing demand. They then pay $.0474/kWh plus $11.05 per monthly peak kW with no customer or meter service charge.
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