UCS first learned of CP/DEA interest in a wind project during a meeting sponsored by the Northwest Area Foundation in March 1996. Several key staff members from CP and DEA expressed an interest in acquiring some renewable power for their members. These individuals were quite senior in their organizations and had managerial responsibilities in regulatory affairs, environmental management, rates and contracts, and public relations. (These key individuals are referred to hereinafter as the project champions.) The champions at Dakota Electric felt that a renewables initiative would strengthen already strong relations with its members by giving them something they would value, would enhance its competitive position in the future, and would be consistent with political and regulatory trends in Minnesota.5
Co-op representatives were focused from the beginning on a "green pricing" program, in which co-op members would be given the opportunity to fund wind power projects on the CP system by paying modest premiums on their monthly bills. The champions felt that this type of initiative would be welcomed by many co-op members, would satisfy legislators and thereby perhaps avoid a legislative mandate, and would probably be acceptable to their own organizations.
There is no question that the critical event that initiated this project was the decision by the project champions at CP and DEA to tell interested members of the environmental and renewable advocacy community that they were considering providing wind energy to co-op members. The two groups -- utilities and advocates -- then began the careful process of developing confidence and trust in one another and crafting a plan to obtain approval for and implement a green pricing program.
All the project champions were involved in aspects of the co-ops' business that brought them into contact with legislators, regulators, and public advocates. They often explored larger issues such as utility restructuring, legislative initiatives, and the national and global environmental trends that shape the future of their industry. These responsibilities and this exposure put them in the natural position of being among the first in their organizations to see developing threats and opportunities.
Identifying these is one thing; shaping the actions of organizations to respond effectively is quite another. In trying to develop a co-op response to the popular political pressure to promote renewable energy in Minnesota, the project champions faced many of the same challenges as renewables advocates who try to influence the energy policy decisions of legislators and other policymakers. The champions felt sure that at least some Board members and managers would be cautious about the idea. They were also concerned that few of the distribution co-ops had polled their membership to determine constituency feeling about their organization in general or renewable energy in particular (although DEA did include questions about renewables in the annual poll of members conducted in fall 1996). Without feedback from supportive members, the champions expected managers and Board members to adopt a more circumspect attitude toward renewables, partly because their experience with wind technology was limited.
This situation created one of the cornerstones for collaboration between the co-op project champions and the MN SEED members -- the shared task of educating and convincing decisionmakers to take action on developing renewable energy resources.
Especially in the first six to eight months of the project, the co-op champions themselves had few resources -- personal time, staff time, or money -- to undertake this task or to update their own knowledge of green pricing programs and wind energy. This is where collaboration with the advocates proved invaluable.
Collaboration With Advocates
Until this project began, the dominant paradigm for advocacy of renewables in Minnesota involved marshaling popular support to influence legislators. With enough popular support, legislators would propose, promote, and ultimately pass legislation requiring utilities in the state to build renewable energy projects. These legislative initiatives were always conducted in the face of vigorous opposition from the utilities.
When the advocates realized champions within the co-ops might be interested in providing renewables to their customers, they were quick to see an opportunity for a new collaborative approach to support their mission. This realization led to some strategy meetings among advocates and to preliminary overtures from MN SEED leadership to the champions at the co-ops.
For MN SEED, the CP/DEA-sponsored effort represented an opportunity for the campaign and its supporters to act on their commitment to cleaner, renewable resources. Furthermore, they believed it would send a message to policymakers and utilities that their constituents, members, or customers believe that environmental protection is important and that renewable energy projects are a tangible and effective means to that end.
At the same time, many members of the advocacy community were themselves skeptical and wanted to proceed cautiously, for a variety of reasons. First, from their perspective, a green offering is not the most equitable or appropriate means of supporting renewable energy development. It relies on the willingness of a few committed individuals to pay for environmental and economic benefits that will be enjoyed by all, and it is unclear whether voluntary participation will be sufficient nationwide to let renewables overcome the variety of barriers they face and compete with conventional sources on an equal footing. Second, if the premium is too high it can create or perpetuate the perception that renewable energy is significantly costlier than other alternatives.
There was another, more subtle and complex consideration for the advocacy community. One was that advocates in Minnesota have actively promoted the renewables portfolio standard (RPS) as an effective means of overcoming some of the limitations of green marketing. They were concerned that utilities might use the CP and DEA projects to try to persuade the legislature that an RPS was not necessary.
In the end, after a great deal of internal debate, the community decided to support the initiative because it was a way to get the word out about renewables, and to use utility resources to do so. They also considered that it would be useful experience for the utility and could serve as an example for similar projects elsewhere.
Having made that decision, however, they knew the project would only achieve these goals if it ultimately worked. Advocates are justifiably cautious when considering renewables initiatives promoted by utilities. Their concern is that most utilities have vigorously opposed environmentalists' efforts to get significant renewables development under way and have revealed a real flair for finding the negative in renewables projects. Under a "green pricing" initiative such as this, program success requires that utilities portray renewables to their customers in very positive terms. In the early history of green pricing efforts in the United States, utilities have shown time and again that they are unable to develop green programs that win customer trust and deliver renewables at low cost.
These concerns led the MN SEED campaign to focus its involvement on keeping wind project costs low and on increasing co-op member participation.
It was also important to provide technical input to project development. Early in the process, UCS convinced the other MN SEED members that it could play this technical role and act as the liaison between the two groups. UCS could offer the co-ops some valuable technical information and perspectives on their program while at the same time advancing MN SEED goals.
At this point, UCS solicited and received some financial support from the Renewable Energy Policy Project that enhanced its ability to participate in the project. As a result, UCS was able to conduct a series of meetings and communications with the champions. Its collaboration was designed primarily to provide the champions with the best available technical information from successful green pricing programs and wind procurements, and to offer feedback on co-op ideas that reflected the perspectives and sensibilities of the advocacy community. At the same time, UCS was keeping MN SEED members informed about project progress and explaining co-op positions and ideas.
The collaboration faced its first important test as it worked toward the initial meetings between the champions and their Boards. These were designed first to inform and ultimately to gain approval for the project. The project champions were keen to avoid publicity on the project before it received Board approval. Advocates thus worked diligently and effectively to keep work on the project quiet outside a relatively small circle of individuals. Ironically, the most valuable contribution from the renewable advocates in the early stages of the effort may therefore have been exercising restraint in informing and mobilizing their constituencies in support of the offering. Advocacy efforts to generate public support were held in reserve until after the offering had been made public by the co-ops. At that time, they worked actively to educate their own members and build participation in the offering.
Informing the Board
The process for winning approval of the green offering entailed making informational presentations to Board members at several monthly meetings, taking feedback from these meetings, polling individual member-system managers regarding their concerns and potential to participate, modifying the proposed program accordingly, and submitting the revised plan for a vote by the Board. The first Board meetings for the champions within Cooperative Power and Dakota Electric Association were held in April 1996.
The champions developed their informational presentations for their respective Boards with little input from the advocates. The idea put forward at these first meetings was to make a renewable energy offering available to the members of all the distribution co-ops on a green pricing basis. Cooperative Power expected the initial technology to be wind energy, although other technologies, including agricultural waste- fueled biomass projects, were not ruled out for the future.6 The G&T co-op, Cooperative Power, would arrange to acquire or contract for the renewable power and would pass any "above-market" costs directly through to the participating distribution co-ops in proportion to their customer subscriptions to the offering. The distribution co-ops would be responsible for "marketing" the offering to their members and maintaining billing and other records.
The presentations cautiously emphasized the likely positive impact on customers and legislators. They were intended to reassure Board members that the initiative would not have negative financial consequences for CP and its members. The champions informally polled managers before the presentation to assess the likely mood and receptivity of the group and found few strongly held opinions either for or against renewables. The key to initial acceptance of the idea would rest in the dynamics of the groups during the presentations.
At the CP Board meeting in April, the main concern for Board members was that CP should offer renewable energy "at cost" to consumers who chose it. This proposal was made in view of the fact that the electric industry was becoming more competitive and that studies by other utilities had indicated that only a small percentage of consumers might be willing to pay more for renewables.
Champions presented this project as offering several benefits to CP, including that:
* consumer choice would allow some to choose renewables and would foster loyalty and goodwill;
* the project would foster economic development in the CP service area;
* any extra costs would be paid for by the customers who incur them;
* the project would help meet the integrated resource planning goal of diversifying CP's generation mix; and
* the project would address legislative desires in a flexible manner that did not raise average rates.
At the same time, champions carefully addressed "hot button" issues within the two co-ops. Primary among these were that:
* in promoting the initiative, existing coal-fired resources could not be portrayed as bad;
* as a result of undertaking the initiative, use of the existing coal-fired resource could not decrease and these costs could not increase;
* the offering should not "hurt" any distribution co-op that chose not to participate;
* the offering should not be perceived as solely benefiting one member co-op -- that is, it should hold potential benefits for most, if not all, distribution co-ops in the system; and
* the initiative should not raise rates at DEA, so that their competitive position would be compromised.
Getting Board Approval
In response to feedback and suggestions from a member manager, the project champions revised their formulation for the project. Rather than seek approval of a program that included all the distribution co-ops right from the start, they proposed a pilot project between CP and DEA that would be offered to any other interested co-ops. This allowed member managers to decide for themselves whether the benefits outweighed the risks. In the meantime, the champions contacted many Board members and managers to provide individual briefings on the concept and to get a better understanding of their interests and concerns about the idea. These personal contacts helped answer many important questions. Another essential ingredient to obtaining final Board approval at both CP and DEA was having a reliable estimate of the premium that might be associated with a wind energy offering. It was also important to develop and provide a description of the mechanisms -- rate tariff, outreach, and so on -- that would be used to promote the offering to members. Ultimately, managers supported the project because they knew there would be customers who wanted it.
Developing Price Premium Estimates
One place where UCS participation added substantial value to this collaboration was in refining the process by which Cooperative Power developed estimates of the price premium necessary to bring the offer to DEA members. The premium was calculated by subtracting CP's avoided cost of power (the avoided cost of energy from the low-cost coal-fired power plants in North Dakota) from the local price of wind energy. The avoided cost of capacity was based on the "accredited capacity" that the wind project would earn and the price of peaking power plants in the Mid-Continent Area Power Pool (MAPP) in which CP operates.7 Together, these avoided costs were quite low, approximately 1.5-2.0˘ per kilowatt-hour (kWh).
To help develop credible estimates of wind project costs, UCS hired Steve Smiley of Bay Energy Services, the engineer and analyst behind the Traverse City Light and Power (TCL&P) Green Pricing project.8 Smiley's direct experience in TCL&P's project was valued highly by everyone in the coalition and he quickly and credibly addressed questions and concerns raised by the champions as planning for the project moved forward. Smiley advised CP to purchase or contract for power only from wind technologies that were mature and well proven. He provided CP with contacts for a number of qualified technology suppliers. He also encouraged CP to compare the value of owning the wind turbines with acquiring wind energy by contract.9 In addition to recommending equipment suppliers, Smiley provided CP with a draft request for proposals (RFP) that, with minor revisions, CP used to obtain quotes or bids from wind turbine vendors and project developers.
Even with Smiley's advice, this part of the project was quite difficult. The request for proposals was open to misunderstanding because it solicited information on two different options: quotations on "turn key" wind installations that would be owned and operated by CP, and estimates for power purchase contracts from wind projects owned by developers. Part of the difficulty stemmed from the RFP being sent to both wind turbine suppliers and wind project developers. Some turbine suppliers were not prepared to develop projects under contract, while some project developers were unable or unwilling to sell wind turbines to the utility. Altogether the co-op received responses from eight parties: two proposed project development only, two proposed project development or equipment supply, and four proposed equipment supply only.
UCS expected that the cost of wind power from a co-op-owned project would be lower than a power supply contract from a developer, and therefore supported that option. But taking full responsibility for ownership and operation of a wind project was too large a step for CP. The novelty of the technology, the relatively small size of the initial effort, and the high level of uncertainty regarding the success of a green offering among the distribution co-ops all combined to make the co-op ownership option unpalatable to CP management.10
One important lesson came out of the responses to the first RFP. CP had requested that project developers provide prices based on a 10-year contract term, with options for additional terms of 5 and 10 years.11 This term was shorter than wind developers and their lenders and investors were used to. As a result, initial bids were considerably higher than expected. Feedback from developers indicated that the original terms forced them to structure both the debt and the equity portions of the project over a 10-year period. This short time frame raised the cost per kilowatt-hour considerably. The options in the CP RFP to purchase power in years 11 through 15 and 16 through 20 apparently had little or no value to developers. Based on these responses, CP's preliminary estimate of the cost of wind power was 5.5-6.5˘/kWh, implying a green power premium of approximately 4-5˘/kWh.
The advocates' had an immediate negative response to this level of premium. Expectations of a lower premium had been set in part by the experience at Traverse City Light and Power, where the premium on a single 600-kilowatt wind turbine was only 1.58˘/kWh in a less energetic wind regime than the one anticipated in Minnesota.12
After reviewing the bids, CP quickly reissued the RFP with a contract term of 15 years, giving developers the opportunity to lower project costs and therefore to charge a lower premium on the wind energy. Cooperative Power also considered some additional aspects of the wind project that added to its value, and accordingly increased the credit earned for avoided costs. Finally, the co-op defined the green premium as a pass-through cost that would be tied to the actual costs of the resources that were ultimately acquired, without adding any overhead or other markups. The final estimate for the premium used by DEA in its evaluation of their member offering was 3-4˘/kWh, although this premium was eventually lowered to 2˘/kWh.
With this information in hand, CP made a final presentation to its Board and in December 1996 obtained the approvals necessary to finalize the program with DEA. Once CP had its Board approvals, DEA sought and received the approval of its Board to develop a green pricing tariff for the program and to submit it to the MN PUC.
Developing a Green Pricing Offering
In this project, Dakota Electric Association, the distribution co-op, was responsible for "marketing" the green offering directly to retail consumers. In addition, as an electricity supplier that is rate-regulated by the Public Utilities Commission in Minnesota, DEA was responsible for obtaining approval for the program from the MN PUC. From the earliest stages of this project, DEA was confident that a large number of customers would respond favorably to a green initiative. The environmental advocates were able to confirm this expectation because they had a substantial number of active supporters in the DEA service area and had campaigned there extensively on environmental and nuclear safety issues. DEA also felt that it had a strong enough reputation for environmental responsibility within the community to be credible in delivering the offering to its members.
DEA champions did not rely solely on their untested expectations about DEA membership response, however. As noted earlier, they polled their members on their interest in receiving a renewable energy offering. The poll was done in the context of an annual DEA survey on a broad set of topics critical to its business and members. Member opinion was collected by conducting telephone interviews with several hundred individuals who represented a cross section of co-op membership. Inserting questions on a green offering was difficult because of the breadth of other topics DEA wanted information on and the need to keep the interview to 15-20 minutes. Adding consideration of the green offering delayed the poll by approximately one month.
At this stage, DEA also benefited from Steve Smiley's experience developing and marketing the green offering at TCL&P. He provided examples of the promotional materials and tariff sheets used by TCL&P, described TCL&P's successes and disappointments as they rolled out their offering, and shared information on the motivations of commercial and residential customers who participated in the TCL&P program.
Although DEA chose not to duplicate it, one feature of the TCL&P offering surprised and impressed all participants. All TCL&P program participants converted their entire electricity bills over to the green rate. They thus willingly accepted a price premium of 17-23%, depending on rate class, or $7.58 per month for the average residential customer. DEA opted instead for a green pricing program where members were able to purchase monthly load blocks of 100 kilowatt-hours at the green price. This more incremental approach allowed members to participate in the program over a wider range of monthly premiums.
Getting the Word Out -- Environmental Advocates and DEA
Perhaps the strongest reason for this collaboration was that both the environmental community and the co-ops wanted the program to succeed and be well subscribed. MN SEED wanted to see new renewable energy development in Minnesota because of the environmental and economic development benefits it can deliver. The organizations that belong to MN SEED also have many members that are likely to be participants in the plan. In the abstract, both MN SEED and the co-ops were very interested in working together to get the word out on the offering and to ensure its success.
As a practical matter, considerable work was required to craft the specific message that everyone could use, and to decide on the intensity of the outreach effort mounted by the environmental community. As mentioned earlier, the co-ops were concerned that their existing generating resource should not be portrayed as "dirty" in order to promote the "clean" wind energy offering. After some discussion, there was reasonable agreement on portraying the green option in positive terms -- as an indigenous renewable resource, with zero emissions, representing an exciting new technology. Ultimately, MN SEED and DEA agreed on a written statement that canvassers from Clean Water Action, a key member of the coalition, could leave with folks they contacted:
IF YOU ARE A DAKOTA ELECTRIC CUSTOMER, YOU MAY SOON HAVE THE OPPORTUNITY TO PURCHASE WIND ENERGY!
Dakota Electric has requested approval from the Minnesota Public Utilities Commission to begin selling renewable energy from wind generators. Renewable energy will likely be offered in units of 100 kilowatt-hours for a small premium -- just a few dollars extra each month. The average family uses about 600 kilowatt hours each month so you can decide how much renewable wind energy you want, and buy just that much. The first offering will be limited to the first interested families -- so indicate your interest now!
YES! I WANT TO KNOW MORE ABOUT THIS GREAT NEW PROGRAM!
Signing up here does not commit you to the program, but insures that you will get priority access to sign up information in this limited program. Thank you from Clean Water Action, working with Dakota Electric.
Dakota Electric provided UCS with a draft of a Question and Answer brochure that it planned to make available to its members. Dubbed the "wind power program" in the brochure, CP eventually changed the name to the "Renewable Energy Option Program." Co-op members were asked to make a one-year commitment and were told to expect electricity bills to increase $3-4 per 100-kWh block purchased. In 1997, CP successfully lobbied the Minnesota legislature to allow the project to qualify for a 1.5˘/kWh production incentive. This allowed CP to lower the price to $2 per block and raised the advocates' level of comfort with the project. Participants who had already signed up for the program at $4 per block simply doubled their subscriptions rather than reduce their monetary commitment. Participants will begin to be charged only when the wind project is delivering power to the grid.
CP's goal is to obtain 3,750 subscriptions of 100-kWh blocks per month, which will allow them to install 1.5 MW of wind power by November 1998.13 By the end of November 1997, CP's participating distribution co-ops had already obtained 3,250 subscriptions and a business had expressed interest in purchasing an additional 400 blocks, bringing CP to within 100 blocks of its goal.
Synergy and Surprises
Although the project champions initially positioned this effort as a "pilot" program between CP and DEA, 11 more of CP's 17 distribution co-ops eventually decided to offer the program to their customers. As a result, the program eventually became a full-fledged program on the Cooperative Power system, available to all the distribution co-ops at their request. In a creative arrangement, half of the cost of developing the educational and program materials will be paid for by Cooperative Power and half by DEA. Thus the other, smaller co-ops on the CP system can take advantage of DEA's ground-breaking work.
Half to two-thirds of the total subscriptions to date have come from DEA members, even though DEA represents only 40 percent of CP's total sales. This can be traced to the fact that DEA began offering the program to its members much earlier, to the advocacy organizations' help in marketing the program to DEA members, and to the demographics of DEA members, many of whom live in suburban communities south of Minneapolis and Saint Paul.
A negative and complicating factor was that another utility made a fundamentally different type of green offering at about the same time. The DEA offering was based on the development of new renewables capacity. The other offering was made by United Power Association (UPA) on the basis of Northern States Power's existing legislative mandate, raising serious concerns among the advocates that customers were being misled and that the company was benefiting twice.
This raised difficult issues for the advocates. First, given the public's lack of detailed knowledge, the subtlety of the issue, and the limited educational resources at their disposal, it was difficult for the advocates to explain to the public why they supported the DEA offering but not the one from UPA. They were concerned that the apparently contradictory stance might lead to public cynicism and undermine their credibility. The advocates were also uncomfortable that the public's inability to distinguish between "good" and "bad" wind development might lead people to remember only that environmental advocates had opposed wind development in general. Finally, there was concern among the advocates that DEA might decide that advocate opposition to the UPA/NSP offering was responsible for delays in getting the co-op project off the ground.
The advocates in this situation and others have not fully resolved how to inform the public about "good" and "bad" environmental projects, while maintaining credibility for themselves and "good" renewable energy projects in general. Furthermore, they must maintain cordial relations with the project sponsors. These challenges will persist as green power offerings take root and become increasingly widespread next to offerings based on previous regulatory or legislative requirements. Nevertheless, despite the potential complications, the advocates in this case did manage to maintain support for the burgeoning CP/DEA project and to inform customers about how it differed from UPA's offering.
As of the end of November 1997, the program was close to meeting its goal for obtaining subscriptions. The following activities remained:
* obtain other program subscriptions;
* complete the procurement of renewable resources;
* install wind project and begin operation by November 1998; and
* evaluate the effectiveness of the program.
Since CP was close to meeting its subscription goal, the collaboration between the co-ops and the advocates appears to have achieved some success in reaching out effectively to co-op members. Of course, it is too early to determine the ultimate success of the program. Any evaluation should identify the characteristics, motivations, and perceptions of the residential, commercial, and industrial customers that chose the green offering. It should also explore the opportunities for expanding the program to additional distribution co-op members. Furthermore, it should examine more fully the degree to which the utility co-op and the MN SEED efforts complemented one another, as well as the difficulties that were experienced. This information should be helpful to utilities, advocacy organizations, policymakers, and power marketers interested in the opportunities for green products in both regulated and competitive markets.