Discussion Forum 2004 APPA National Conference June 19 – 23, 2004 Seattle, Washington Issues for Green Power Programs Designing Marketing and Pricing

2004 APPA National Conference Overview Southern Minnesota Municipal Power Agency – SMMPA Joint Action Agency – 18 member municipal utilities. 530 MW summer peaking utility. Own 41% of Sherco 3.  Partner with Xcel Energy.  884 MW coal facility.  Newest and most environmentally sensitive plant in the MAPP Region. Distributed gas. gas/oil and steam units in member communities.

2004 APPA National Conference Overview Southern Minnesota Municipal Power Agency – SMMPA Green Pricing Resources Strategy of building interconnected to member systems where possible kW NEG Micon turbines 3 – 1.65MW NEG Micon/Vestas turbines to come online in – 1.65MW NEG Micon/Vestas turbine to come online in 2005.

2004 APPA National Conference Overview SMMPA Wind Power Program Program Launched December  Based on power purchase agreement (PPA).  Purchase total output of 1 NEG Micon 900 kW turbine.  Wholesale premium of 2.9¢ /kWh ($2.90/ 100kWh block).  2016 blocks available.  Sold out in approximately 6 weeks.

2004 APPA National Conference Overview SMMPA Wind Power - Today No PPA – We own our turbines. New build and own strategy coupled with State and Federal incentives provided new opportunities.  Tied with three other utilities for the lowest wind power premium in the country at 1¢ per kWh – among 500 utility programs.  As of 6/1/04, 6, kWh blocks of wind power subscribed. Fill in with “green tags” between projects. – ONLY USE OF TAGS.

2004 APPA National Conference Why Green Pricing? The Time is Right. Customer interest (Strong Cultural Shift?) By 1999 member utility customers asking for renewable energy. Energy legislation Minnesota (2001)  Renewable Energy Objective (REO) not a portfolio standard but at “Good Faith” target.  Required all retail utilities to offer customers a Green Pricing product annually. Federal  Continued pressure for Renewable Portfolio Standards. Decreasing cost of Renewables -particularly wind. Utilities see new potential to hedge natural gas prices and regulatory pressure on coal.

2004 APPA National Conference Program Design Design Conscious decision that green pricing program would contain only wind.  Biomass from waste will be used to meet Renewable Objective, but not seen by customer as “green enough”. Marketing Need a straight forward message. Need utility commitment. Need to focus on the customer and keep it simple. Pricing Highly elastic product – price is very important.

2004 APPA National Conference Program Design Marketing Green Power Products Marketing – Need straight forward message. Create an identifiable image. Clearly identify the renewable resource. Clearly state the value proposition.  Getting an environmental benefit, not delivered kWh.  Ramping down fossil fuel source on our system.  Message – Buying a 100kWh of wind power each month has the same environmental impact, of CO 2 reduction, as planting ½ acre of trees or not driving a car 2,400 miles.

2004 APPA National Conference Program Design Marketing Green Power Products Marketing – Need straight forward message (continued) Keep it simple.  We use 100 kWh blocks. Rejected fixed dollar amount and percent of use.  Allow customers to change amount monthly.  Some sign-up via web.

2004 APPA National Conference Program Design Marketing Green Power Products Marketing – Need straight forward message (continued) Commercial/Industrial Customers require different message.  Nationwide, more than 20% of the green power sales are to business customers. Value proposition is different and typically reflects:  Organizational values  Civic responsibility  Public image  Employee morale  Green marketing  Reduced regulatory exposure

2004 APPA National Conference Program Design Marketing Green Power Products Marketing – Need utility commitment Programs will only be successful when totally committed to the program and marketing.  Product is totally discretionary!!  Continual marketing presence is critical to momentum. SMMPA now continues marketing initiatives regardless of the timing of new turbines coming on – Fill in with Green Tags.  What’s the utility’s “OWN” commitment to wind power? CEO/Manager, employees, utility facilities purchasing wind power? SMMPA Corporate Environmental Challenge.

2004 APPA National Conference Program Design Pricing Green Power Products Green power products are highly elastic A primary reason for originally selecting 100kWh blocks was the an understanding that a $7/month incremental cost was a likely barrier. Our original PPA resulted in a $2.90/100 kWh block wholesale cost. With member costs, the price ranged to $3.50/100 kWh block. According to NREL, the green pricing customer purchased 2+ blocks. Source: National Renewable Energy Laboratory

2004 APPA National Conference Program Design Pricing Green Power Products Source: National Renewable Energy Laboratory Original SMMPA/Member Premium = 2.9¢ to 3.5¢/kWh Green power products are highly elastic. When the SMMPA premium was 2.9¢, the average blocks per customer was ~ 2.2. In the months since the 1¢ premium, the average blocks per customer is ~ 3.6. SMMPA Premium is cost based and ONLY reflects the incremental cost of acquiring the resource with any state and federal incentives applied. New SMMPA Premium = 1¢/kWh

2004 APPA National Conference Development Issues & Barriers Siting County land use ordinances – eliminating potential sites. Deliverability – transmission? Renewables typically distant from load centers. Interconnection studies required by the Midwest Independent Systems Operator (MISO) – costly and can add at least 6 months to development. Ambiguous nature of counties taxing renewable generation. Economic (Remember elasticity!) Ability to pass tradable tax credits as part of the “Energy Bill”?? Ambiguous nature of federal Renewable Energy Production Incentive (REPI). Achieving economies of scale in small projects – sometimes incentives work against. Philosophical How shall “green pricing” resources be used to meet utility renewable state obligations? How will “green tags” be treated?  Certification – Tracking – Acceptance of which program in which state?