SMUD management had responded to the threats of competition by proposing to cut back on investments on environmental programmes. As a result all but 5 MW of projects to have emerged from a 50 MW request for renewables proposals issued last year had been cancelled. Among the short listed projects are a 20 MW bid from FloWind for a new installation in the Altamont Pass area and a 18.5 MW wind project associated with 1.5 MW of PV in the Las Vegas area offered by Energy Unlimited (Windpower Monthly, January 1997).
A series of public hearings, however, persuaded members of the SMUD board that perhaps the proposed cuts in renewable energy development were too steep. SMUD general manager Jan Schori had proposed a reduction in spending on so-called "public goods" from 5.2% of SMUD's 1994 revenues to 3.7%. Only 0.06% of this pot of money was earmarked for new renewables.
But strong support for renewables has opened the door again. "SMUD has been a beacon light. All across the state, energy efficiency and renewable energy programs are in jeopardy. I believe that SMUD can be a bridge from the old monopoly model to the new competitive world," argues V. John White, executive director of the Sacramento-based Center for Energy Efficiency and Renewable Technologies (CEERT). He suggests the perceived threat from Pacific Gas & Electric's drop in rates due to deregulation is "not a real near term threat," whereas the next three to four years were critical "to maintaining the momentum in improving renewable energy pricing." PG&E surrounds SMUD's service territory.
Not happy yet
News of SMUD's change of heart is being greeted cautiously be the two wind project proposers. Rob Harmon, business development manager for San Rafael-based FloWind Corporation, notes he has not heard anything from the utility, adding that the FloWind bid was based on 80, 250 kW turbines on a virgin site the firm controlled in the Altamont Pass. Rick Koebbe, business manager at Energy Unlimited, argues that his firm's 18.5 MW bid has the advantage of being sited at the same Solano County site where SMUD installed an initial 5 MW of Kenetech wind turbines. "You would think that SMUD would want to take advantage of their existing permits," he remarks. Commenting on SMUD's 15 MW limit, he adds: "The smaller and smaller you make the project, the higher and higher the cost."
CEERT's White notes that Robert Michaels, an economics professor from California State University, recently told a California Municipal Utilities Association annual meeting that the one arena where municipal utilities have an advantage under restructuring is the ability to offer customers green products since they do not face the same degree of financial pressures as privately-owned utilities.
SMUD board member Ed Smeloff points out that SMUD's 1995 integrated resource plan includes 50 MW of wind power plus the 50 MW to be added through projects selected from the utility's renewables RFP. With the bankruptcy of Kenetech, SMUD only completed the first 5 MW phase of its wind project.
Finding the money
Attempting to influence SMUD's board back in the direction of these original plans, Smeloff initially proposed at the hearings a total of 25 MW of new renewables; 10 MW earmarked for PV and the other 15 MW to come from RFP projects. Many of the SMUD board members, however, became concerned when it was revealed that adding 25 MW instead of just 5 MW of renewable capacity would cost $35 to $40 million.
Jim Tracy, SMUD's treasury officer, reported that if ten year power purchase contracts were used with renewable energy developers, the 15 MW addition would cost $1.7 million a year to pay for an estimated $0.018/kWh green power premium. He offered three scenarios to pay for these investments: a 1.3% rate increase between the years 1998 and 2001; extending a proposed rate freeze now scheduled to end January 1, 2002 by four months; and lower average system rates to $0.0635/kWh instead of 0.063/kWh on January 1, 2002.
Smeloff noted that these numbers represented a worst case scenario and proposed establishing a "community advisory committee" to work out creative ways to lower direct utility costs through "environmental pricing," whereby customers could elect to send their dollars to a specific new renewable energy project.
So far, SMUD staff have focused on an 8 MW landfill gas/biomass project proposed by Sacramento County as the leading candidate for any initial green marketing effort. According to Bob Wichert, SMUD's manager of advanced and renewable resources, the project comes closest to conforming with SMUD board sentiments about offering the greatest amount of community benefits.
Beyond direct purchases from renewable energy projects, the SMUD board also adopted a policy whereby customers could voluntarily agree to dedicate money for unspecified green resources.