South Dakota cogeneration and small production tariff
Every day, Black Hills Energy provides essential energy that our customers rely on. We take our responsibility of providing safe, clean and reliable energy seriously, which is why we’ve filed with the South Dakota Public Utilities Commission to ensure that all customers pay equitable fixed costs associated with having 24/7 access to the energy grid.
On March 19, 2021, Black Hills Power, Inc. d/b/a Black Hills Energy requested approval to revise its Cogeneration and Small Power Production Service tariff. The revised tariff, referred to as the QF Service tariff, would establish a new rate for energy generated by behind-the-meter, private solar and small wind energy installations. We're taking this action to ensure fair energy pricing for all customers, so that customers pay all costs associated with the energy they consume, whether it be “self-generated,” or from the grid.
Under our current rate structure, customers who have elected to install behind the meter generation such as private rooftop solar or small wind energy systems on their homes are not paying their fair share of the fixed costs to use the energy grid. As a result, this small group of customers are having their fixed costs subsidized by all other customers. The proposed amendment would allow customers installing new generation going forward to be equitably paid for the energy they produce while covering their share of system costs, keeping energy rates low for all customers.
- Fixed costs include costs associated with building, maintaining, and operating the electrical grid. This includes the poles, wire, and equipment required to provide 24/7 safe, reliable service – even when intermittent customer generation sources are not producing, or their demand exceeds what they are producing.
As proposed, the QF Service tariff would be applicable for small renewable power production and co-generation facilities of less than 1 megawatt (MW) and sets forth avoided cost rates that would be paid by Black Hills Energy to customers for all energy produced by such systems.
Frequently asked questions
Why did Black Hills Energy make this proposal?
In a filing submitted to the South Dakota Public Utilities Commission on March 19, 2021, Black Hills Energy requested approval to amend its Cogeneration and Small Power Production Service tariff. The revised tariff would update the requirements for new behind-the-meter generation installations under 1 Megawatt. Black Hills Energy is taking this action to ensure fair energy pricing for all customers.
As a regulated utility provider Black Hills Energy has the responsibility to ensure our electric rates are just and reasonable across all customer groups. Our proposal was submitted to South Dakota Public Utilities Commission to ensure that all customers pay equitable fixed costs associated with having 24/7 access to the energy grid.
How are customers that install cogeneration being subsidized by other customers?
Under Black Hills Energy’s current rate structure, customers who have elected to install behind the meter generation such as private rooftop solar or small wind energy systems on their homes are not paying their fair share of the fixed costs to use the energy grid. Fixed costs include costs associated with building, maintaining, and operating the electrical grid. This includes the poles, wire, and equipment required to provide 24/7 safe, reliable service – even when intermittent customer generation sources are not producing, or their demand exceeds what they are producing.
Fixed costs are recovered through the base rate kwh energy charge. Fixed costs to provide service remain the same whether a customer has installed cogeneration or not due to intermittent nature of renewables. Without this amendment this small group of customers are having their fixed costs subsidized by other customers.
The proposed amendment would allow customers installing new generation going forward to be equitably paid for the energy they produce while covering their share of system costs, keeping energy rates low for all customers.
Fixed costs include
- Power plants, poles and wire
- Inspect and maintain poles and wire (line patrol, patrol inspections, vegetation management, repair outages)
Houses 1 and 2 have the exact same fixed costs to provide service. Fixed costs are recovered through the base rate kWh energy charge.
With current 'net billing' practice, House 2 gets all the benefits of fixed costs investments (Reliable service 24/7, 365 days a year), but does not pay their fair share of those expenses. Without the tariff change, over time, House 1 will subsidize House 2 and pay more of those fixed costs.
Black Hills Energy is committed to rates that are just and reasonable. We want to protect our customers and keep rates low.
How does it currently work if customers with cogeneration produce more energy than they need?
When customers have excess energy generated from their private systems, they return this energy to the grid and “bank” any excess generation as an offset to any of the customer’s electricity needs during the monthly billing period. As a result, these customers are receiving the benefit of 24/7 access to the grid because the sun doesn’t always shine and energy use is often more than the capacity of a private system but are not paying their true cost to receive that service.
How would the proposed amendment work?
Black Hills Energy would pay customers for all the energy they produce, not just what is put back on the grid.
The proposed amendment would require new cogeneration interconnections under 1megawatt to be separately metered with the energy generated paid at the avoided cost rate, and all energy consumed to be billed at the applicable tariff rate. There is also a monthly production meter service charge. Customers with existing generation facilities and those put into service before this amendment is approved would be grandfathered in and exempt from the terms until May 31, 2041.
The company is taking this action to ensure fair energy pricing for all customers, so that customers pay equitable costs associated with the energy they consume.
Does this tariff seek to charge customers with cogeneration for the energy they put back into the grid?
No, under the proposed amendment Black Hills Energy would pay customers for all the energy they generate.
Under the proposed amendment how would customers with new cogeneration be charged for their energy consumption?
Under the proposed amendment customers installing new cogeneration under 1 megawatt would be paid for all the energy they produce at the avoided cost rate. All energy consumed by the customer would be charged at the applicable tariff rate they are on. Customers with existing systems would be grandfathered in and not subject to the terms of this amendment until 2041.
Is installing cogeneration the same as energy efficiency measures to reduce energy use?
Under the proposed amendment, customers would pay the full costs associated with the service they receive.
This is not the same as energy conservation for several reasons. Every customer, including those with low or fixed incomes can take small and inexpensive actions to conserve and save on their energy bill. Black Hills Energy actively supports, educates, and encourages customers to save energy. Visit our Energy Savings page to learn more.
Not every customer can afford or is able to install behind the meter generation – due to costs, HOA covenants, rental agreements, apartment complexes, or a number of other reasons. Those that choose not to or are unable to install generation should not subsidize or unfairly pay for system costs that are incurred by other customers.
How many Black Hills Energy customers currently have cogeneration?
We have approximately 80 customers with behind-the-meter generation systems. The majority of these systems are private onsite solar installations.
Why address this issue now?
While the number of customers is relatively small at this time, it is creating a subsidy that if unaddressed will be more impactful over time. Black Hills Energy is requesting to address this issue now with new interconnections going forward because we believe costs should be recovered equitably by those customers that are incurring the costs on the system.
Does Black Hills Energy Support renewable generation development?
Yes, the proposed amendment is about establishing fairness in the way our electric rates are structured. Black Hills Energy is a strong proponent of renewable energy development and is committed to delivering innovative options that benefit all customers. We recognize the demand for renewable energy is growing and we are committed to providing our customers with clean energy options that support the expansion of affordable renewable energy in our region.