Light Bulb Finder was created by a Milwaukee, Wisc., app developer called Eco Hatchery. Co-founders Adam Borut and Andrea Nylund learned they won the challenge last week, and on Tuesday they’ll be in Washington, D.C., to accept the recognition.

Borut and Nylund started out in 2007 making home energy-saving kits that came with an online tool for tracking projects. As mobile phones grew in popularity, they realized that “mobile phones are really the perfect platform for people to do their own home lighting audits,” Borut said in an interview.

The app was released for iPhone and Android in late 2010. It lets people walk around their home and use icons to identify the type of bulb currently used in each light fixture. After entering a zip code and the estimated daily hours of use for each bulb, the app suggests more efficient replacement bulbs, as well as a detailed projection of savings, in dollars and carbon emissions.

“We want to provide people with meaningful, individualized feedback so that they can make the smartest decision based on their priorities,” Borut said.

Users can then email themselves a shopping list, or order the bulbs directly through the app. Eco Hatchery gets a small commission on each bulb shipped. It also earns revenue through partnering with utilities and municipalities to promote local energy-efficiency programs and rebates. Madison residents, for example, will receive additional information about financing for home energy retrofits through the Green Madison program.

The app has been downloaded more than 100,000 times and used to replace more than 41,000 bulbs. The savings from those bulbs is collectively worth nearly $500,000 a year and annually reducing carbon emissions by about 5,325,000 pounds. The average user replaces about six bulbs, although some people have used it to switch out several dozen bulbs. If a typical household replaced the most used incandescent bulbs, it could save around $120 on their electricity bills each year, Borut said.

The challenge called for developers to submit apps that pull in information from EPA databases. Light Bulb Finder uses EPA data on the carbon footprint of electricity by zip code to calculate the emissions savings from changing out older bulbs.

The free app is available in the Android Market and App Store.

Originally published November 7, 2011, on Midwest Energy News.

(Finance & Commerce, November 7, 2011)

Is this the future of dry cleaning?

Two local dry-cleaning chains this fall have unveiled the Twin Cities’ first-of-their-kind “dry cleaning ATM” kiosks. White Way Cleaners installed one at a Minneapolis skyway location in September. Last month, Mulberrys Garment Care installed one in the Ridgedale Byerly’s store.

Both companies view the kiosks as a way to extend service into hours and locations that wouldn’t be feasible for staffing with employees. If the machines prove successful, Mulberrys and White Way envision them springing up in skyways, condo and apartment buildings, office towers, gas stations and grocery stores all across town.

“We want to be one of the first to bring dry cleaning into the modern world,” said Dan Miller, Mulberrys’ founder and CEO. He compares the potential impact to what ATMs did for banking or Red Box did for DVD rentals — giving customers a quick, easy, always-open option for dropping off and picking up their dry cleaning.

The appeal was easy to see for Miller, a former management consultant who recalls the frustration of having to leave work early to pick up a dry cleaning order then head back into the office to finish up for the day. He founded Mulberrys in 2009 and built the business around a toxin-free cleaning process (using pressurized carbon dioxide instead of perchloroethylene) and a quality in-store experience (with wood hangers, complimentary coffee and pleasant design).

The success of those strategies has allowed Mulberrys to invest in new technology, Miller said. In addition to the dry-cleaning kiosk (“The Berry Box”), the company finished installing new automation equipment last month at its Roseville cleaning facility, where drivers drop off garments that have been left for cleaning at the kiosk and its four other store locations.

Dave Nemec, owner of White Way Cleaners and St. Croix Cleaners, learned about the kiosks at a Las Vegas trade show in June and decided to use one to replace a lower-performing store. The kiosk has been up and running since late September in the space formerly occupied by its Campbell Mithun Tower store in downtown Minneapolis. So far, Nemec has heard “mixed feedback, quite honestly,” he said.

“Some people are excited about because it does give them those extended hours. Other people are more hesitant,” Nemec said. “But then I can remember 15 or 20 years ago when I used my first ATM, and I was a little hesitant about that, too.”

The dry cleaning industry, in general, has been slow to adopt new technologies, which is why Miller and others see the $9 billion industry as ripe for innovation. The automated kiosks have been around for about a decade. The ones purchased by both Mulberrys and White Way were made by an Arkansas company, HMC Solutions, which said it has sold fewer than 30 of the machines since 2003.

“Right away we sold just a handful of them,” said HMC Solutions CEO Tony Cassady. “They worked, but really we were ahead of our time a bit in ‘03 and ‘04. People in the dry cleaning industry just didn’t seem ready to accept this, plus the price tag that went with it.”

The kiosks start around $50,000 for a small system — no trivial expense in an industry dominated by mom-and-pop operators who average $250,000 in annual revenue. But a kiosk’s footprint is small – 130 square feet for one that handles up to 300 orders — compared with a typical store of at least 1,000 square feet in space. If the dry cleaning is done on site, the typical business needs at least twice that amount of space.

HMC has seen an uptick in interest the past couple of years as self-serve kiosks have become a more common sight in the retail landscape. Consumers now use them for renting DVDs, paying for groceries, even buying headphones at the airport. The leap to automated dry cleaning is smaller than it was five or 10 years ago. So is it the future?

“To be determined,” Nemec said. “There are places where it does make a lot of sense both for the consumer and for the business; places where it’s a nice, convenient location for people, but it’s not a high enough volume store to warrant having a person spend 40 plus hours a week there. I don’t think it’ll totally do away with the person at the counter at your local dry cleaner, in high-volume stores, but it is a nice supplement.”

Originally published November 7, 2011, in Finance & Commerce.

(Midwest Energy News, November 2, 2011)

For the most part, what we heard was that these utilities would be adding wind power capacity regardless of Minnesota’s renewable mandate because it’s economical and a good hedge against natural gas price volatility. There were outliers, though, namely Minnkota Power Cooperative, whose aggressive purchase of long-term wind contracts had resulted in a surcharge to customers.

At the time, the Minnesota Chamber of Commerce was lobbying for legislation that would require regular reporting from utilities on how much it was costing their customers to comply with Minnesota’s renewable standard, which calls for 25 percent of electricity to come from renewable sources by 2025. The bill was signed into law later in May with little opposition, because both critics and supporters of the state’s renewable standard believed the data would be in their favor.

We’ve just had a chance to review the first round of reporting generated by that legislation. The reports were due Friday and can be viewed in the Minnesota Public Utilities Commission’s edocket filing system (Search for docket #11-852).

Of the fourteen utilities that submitted reports, eight said that complying with the renewable standard has resulted in little or no additional costs, if not a slight savings for customers. Six utilities, including Minnkota and Great River Energy, reported that their efforts to comply with the policy are leading to increased costs for customers.

On one end of the spectrum, Minnkota reported that the cost of complying with the renewable standard resulted in a nearly 16 percent increase in its average wholesale power rate in 2010, which was $53.31 per megawatt hour instead of the $46.03 it said it would have been without the Minnesota law.

On the other end, Xcel Energy reported that its renewable investments have been cost-effective and actually kept prices in 2008-2009 about 0.7 percent lower than they would have been without renewables.

The impact doesn’t seem to split based on utility type or size. For example, the Central Minnesota Municipal Power Agency, a wholesale and transmission company, reports that between 2005 and 2011 it expects renewables to cost the same or carry just a slight premium — no more than 1 percent.

Meanwhile, the Southern Minnesota Municipal Power Agency reports “significant losses” related to renewables. It says it’s been spending between $10 million and $11 million more per year, which equals about 5 percent of the agency’s annual revenue, it reports.

Basin Electric, a Touchstone Energy Cooperative in Bismarck, N.D., with customers in Minnesota, says bluntly that the renewable standard has had “no impact” on rates. “Basin Electric has developed renewable resources which it believes are valuable and economical assets,” its report says. Meanwhile, Dairyland Power, a Touchstone co-op in La Crosse, Wisc., says renewable generation has driven up its wholesale rates an average of 6.6 percent.

Among larger, regional utilities, Great River Energy reported that, like Minnkota, it too is selling wind energy to the grid at a loss because of a long-term purchase agreement. It attributes those losses as a cost of complying with Minnesota’s law and says they contributed to a $22 million expense to members in 2010. Meanwhile, Minnesota Power says the state’s “exceptional access to high quality wind resources” means renewables are not inevitably more expensive.

“Minnesota Power firmly believes that renewable expansion plans prompted by the 2007 Act have had a positive impact on its retail energy supply portfolio,” the company writes. “[T]he implementation of the RES coupled with Minnesota Power’s renewable strategy is not expected to create any additional cost increase.”

Xcel Energy projects that complying with the renewable standard will lead to slightly higher rates in the long term. Its report says customers will pay approximately 1.4 percent more for energy over the next 15 years as a result of meeting the renewable goals. But that forecast is just that: a forecast. The actual cost of ramping up renewables — and how they compare to other power sources — will depend on a slew of variables, including energy demand, natural gas prices, federal subsidies and the terms and timing of utilities’ investments and contracts.

Originally published November 2, 2011, on Midwest Energy News.

(Finance & Commerce, October 24, 2011)

What’s more, the company only started supplying the solar industry four years ago. Despatch Industries now owns more than 60 percent of the global market for firing furnaces used in solar cell production, according to John Farrell, managing director of Despatch’s solar business group — its largest segment last year.

Despatch has shipped hundreds of solar cell furnaces to China, Taiwan and other Asian countries, where most solar cell manufacturing occurs. Yet its role in the solar industry is mostly unknown in Minnesota.

More than 100 years ago, the company began making heaters for Minneapolis streetcars. Today, Despatch is part of what Lynn Hinkle, policy development director for the Minnesota Solar Energy Industries Association, calls the state’s “invisible” solar supply chain, a cluster of companies quietly producing parts and equipment for the global solar industry.

A new push is under way to shine more light on these solar suppliers in hopes of further building up the industry in Minnesota.

State economic development officials and renewable energy supporters have partnered this fall to take an inventory of the state’s solar supply chain. They launched a new website at the State Fair called the Clean Energy Project Builder, an online directory where companies can post their wind and solar capabilities. About 800 manufacturers recently received letters inviting them to register.

“We’re finding that there’s a few different sectors who can supply to the solar industry if they’re not already,” says Kari Howe, an economic development specialist with the Minnesota Department of Employment and Economic Development.

The hope is that the website will help the state’s existing solar supply chain participants find and do business with one another, as well as become a selling point for out-of-state companies looking to locate new solar manufacturing facilities, says Howe.

Another solar supplier in Minnesota is Crenlo. The Rochester manufacturer makes heavy-duty racks, cabinets and electronics enclosures for use in data centers. A few years ago it found a new market: making cases to hold wires and inverters in solar-electric systems.

“It’s one that we’ve identified as a growth market,” says Steve Leidig, Crenlo’s engineering manager, “and it’s one that we think our capabilities fit well for.”

Northfield Automation Systems took its experience in flexible electronics and translated it into the thin-film solar market. (Thin-film solar cells are made by “printing” layers of photovoltaic material on rolls of foil or film.) Northfield makes the roll-to-roll equipment that’s used to manufacture the cells.

“We know how to cut cells. We know how to print cells. We know how to coat cells,” says Darin Stotz, Northfield’s sales and marketing director. “I can sell you essentially a turn-key factory, which is what we’ve done with a few customers.”

Other players include Cardinal Glass in Eden Prairie, which has a few customers in the solar industry and more products in the development pipeline, specifically transparent conductive oxides. “We believe that it’s a major growth area in the glass industry,” says Jeff Peterson, Cardinal’s chief financial officer. “We believe our expertise with glass will be a good fit for the solar market.”

One of the reasons these companies’ solar work isn’t higher profile is that most are not exclusively in the solar industry. Instead, they’re diversified manufacturers that have incorporated solar as a growing piece of what they do. The Minnesota Solar Energy Industries Association estimates that solar manufacturing, both direct and indirect, accounts for about 3,000 jobs in the state of Minnesota. That number doesn’t count installers, contractors and other professional service jobs.

“The good news is that Minnesota manufacturers have penetrated the global market,” says Hinkle. The bad news, he says, is there’s still not enough local demand for solar-electric panels.

Besides working on documenting and promoting the state’s solar manufacturing supply chain, Hinkle’s association plans to lobby for state legislation aimed at growing the local market for solar products. One proposal would ask state utilities to generate 10 percent of electricity from solar by 2030. Another would seek funds for solar installations on government buildings.

A strong, well-marketed supply chain on its own probably won’t be enough to attract new solar manufacturing to the state, says Brett Prior, a senior analyst with GTM Research in San Francisco.

“I don’t think suppliers being nearby is a big consideration, unfortunately,” Prior says. Evergreen Solar in Massachusetts, for example, initially preferred to source locally if it could. It bought aluminum frames from a company in neighboring New Hampshire but eventually switched to a Chinese supplier because it was cheaper.

Instead, states and regions that have been most successful in attracting solar manufacturing jobs have been those that offer compelling incentives for companies to set up shop, says Prior. He points to Ontario as an example of a region that’s attracted jobs with a solar feed-in tariff coupled with a made-local incentive.

That doesn’t mean the supply chain isn’t worth paying attention to, Hinkle says.

“We have to be careful that we don’t make an assumption that because we have that solar supply chain capacity that it automatically attracts demand,” he said. “The point is you’ve got to have both.”

Originally published October 24, 2011, in Finance & Commerce.

(Finance & Commerce, October 24, 2011)

The companies are getting a boost from a made-in-Minnesota solar rebate program for Xcel Energy customers. And given the state of the industry, they’ll need all the help they can get.

“New startup companies are going to have a very, very difficult time competing with established companies,” said Junko Movellan, an analyst with Solarbuzz, a market research group in San Francisco. There’s a worldwide oversupply of solar modules now, and she predicts the industry faces a big shakeout in the months ahead.

On top of that, Minnesota isn’t the easiest place to sell solar-electric systems, but not for the reason you might think. Our weather is actually an asset; solar-electric systems perform better in the cold. Rather, it’s the state’s comparatively cheap electricity rates that make it harder for customers to recoup investment costs.

The industry has been called the “solar-coaster” because of all its ups and downs. How do these Minnesota startups plan to hang on?

TenKsolar

Website: Click Here

Location: Bloomington

Employees: 70

Size of facility: 26,000 square feet

Founded: 2008

Business: Most solar-electric panels are wired like Christmas lights used to be, where if one bulb goes bad, the whole string goes out.

With solar panels, if one cell is damaged or shaded, it limits the output of the entire module. TenKsolar founder Dallas Meyer figured out a new way to connect solar cells within a module that gets around this problem and boosts efficiency.

The change allows TenKsolar panels to take advantage of reflected light, which is too uneven for conventional panels to convert. The systems are set up in a tent-like pattern, with each solar panel facing a reflective surface that supplements direct sunlight.

Safety is a key feature, too. The electricity generated by TenKsolar systems stays at low-voltage until it’s transferred to the building’s circuits. “We think in five to 10 years, every solar panel will be made like we make our solar panel,” Meyer said.

Today, the company is trying to get a jump on the rest of the industry while they can.

Strategy: Solar and other renewable incentives are notoriously inconsistent. Congress and state legislatures often fail to renew various credits and rebates before old ones expire, leaving months-long gaps in between.

“This is why we think it’s so important to be geographically diverse, why we made such an emphasis on getting sales not only across the U.S. but outside of the U.S,” said TenKsolar CEO Joel Cannon. On a set of maps in a hallway off its lobby, clusters of pushpins mark the company’s sales so far, including New York, New Jersey and Oregon. The company made its first shipment to Italy late this summer and had a large project in Greece coming together last month. It has plenty of pins on its Minnesota map, but it sees better prospects in places where higher electricity rates make solar less dependent on incentives.

“The last thing we want to be is dependent on a local subsidy,” Cannon said. “That’s a recipe for business that can’t last.”

Latest news: South Korea-based Hanwha Chemical recently bought a 7 percent stake in TenKsolar. Hanwha also owns SolarOne, one of the world’s largest solar-electric companies. TenKsolar is on pace to bring in $12 million in revenue during its first full year of sales.

It plans to add a second production shift this fall, and next year it hopes to find a larger home. “I’d have to say given our limited resources and the very difficult market, we’re very pleased with our progress,” Cannon said.

Silicon Energy

Website: Click Here

Location: Mountain Iron (The company is based in Marysville, Wash., and owned by California investment firm Newport Partners.)

Employees: 15 (in Minnesota)

Size of factory: 26,000 square feet

Founded: 2007; Minnesota factory opened late summer 2011

Products: Silicon Energy’s Cascade PV module is intended to be a rugged, cold-climate product. “It’s designed to handle extreme weather conditions like in Minnesota,” President Gary Shaver said. The panels shed snow and can withstand ice and hail. All of the wiring is fully enclosed, as opposed to some modules that have wires or electronics hanging off the back, he said.

Its systems range in size from about 4 kilowatts for a typical residential system to around 40 kilowatts for a larger commercial installation. The panels can be assembled into awnings, patio covers or carports. They’re also more expensive than most solar-electric modules.

Strategy: “The module is really designed not to compete against basically 95 percent of the market,” Shaver said. “We’re a product that has a lot of strong attributes instead of just going after cheap.”

To make the product economical, the company successfully lobbied Iron Range legislators for a generous made-in-Minnesota solar rebate — something that Silicon Energy wouldn’t be in Minnesota without. Xcel Energy customers can now get rebates to cover up to 60 percent of the cost of a Silicon Energy or TenKsolar system.

Silicon Energy’s sales efforts are focused on states where its customers receive made-local rebates. “When you have state programs like Minnesota has, or Washington state, those are very good to allow for a company like ours to innovate and create a product that can compete outside of those typical markets,” Shaver said.

Latest news: Silicon Energy started shipping products to the Twin Cities in mid-September and held a grand opening for its Mountain Iron factory later that month. Within the next few months the company plans to hire 10 employees, bringing its Mountain Iron workforce to around 25. Shaver said the company is being cautious about not overproducing, but he said he thinks there are at least 2 megawatts of sales opportunity in Minnesota over the next year.

Originally published October 24, 2011, in Finance & Commerce.

(GOOD, October 13, 2011)

“We wanted to be our own bosses, together,” Van Slyke says. In 2006, Fall of the West Records was reincorporated as a worker-owned cooperative, giving each member an ownership stake and convincing Van Slyke to tailor his college education around cooperatives.

Last week, Van Slyke was at the National Cooperative Business Association’s annual conference in Minneapolis to show off the board game he created, Co-opoly, where everybody wins or loses together and learns how a cooperative works.

With rising discontent about the economic status quo (see: Occupy Wall Street) and a United Nations resolution declaring 2012 the “International Year of the Cooperative,” co-op advocates at last week’s conference were optimistic about what they see as a ripe opportunity to grow their movement—if only people knew about it. They need more public education, from board games to marketing.

“There is not the on-the-street knowledge of the cooperative and its success that there ought to be,” says Charles Gould, director-general of the International Cooperative Alliance and one of the conference’s opening speakers. “As a result, we have people who are very frustrated who simply don’t know there is a potential solution for many of them just around the corner.”

A co-op is a business that’s owned and governed by its customers or employees, as opposed to outside investors. Member-owners have a democratic say in how the company is run, either by direct vote or through elected representatives. Any surplus revenue comes back to them in the form of dividends. The model is associated with the food and agriculture sectors, but the 230 attendees at last week’s conference included representatives from housing, health care, marketing, manufacturing, electric utilities, and financial services.

The United States is home to nearly 30,000 cooperative businesses, which generate more than $500 billion in annual revenue, according to a 2009 study by the University of Wisconsin Center for Cooperatives. Americans hold 350 million memberships in co-ops, which provide more than 2 million jobs and pay out around $79 million annually in refunds and dividends.

The modern co-op movement began in the 1840s outside Manchester, England, in response to the excesses of the Industrial Revolution, Gould says. Consumers and workers felt marginalized by corporations, which had accumulated significant wealth and power. A group called the Rochdale Pioneers opened a store that let members pool their buying power to make bulk purchases, helping them avoid the higher-cost, lower-quality goods for sale elsewhere. Worldwide, the number of co-ops steadily multiplied into the early 1900s.

“There was a recognition that it was time for people to stand up for themselves and not let these systems disrupt what they valued in life, and we’re seeing a similar phenomenon today,” says Gould, noting not just the current Wall Street protests but also recent unrest in Europe. “We are back now at a time when there is a reaction against the excesses of capitalism. [It's] an environment that’s similar in so many ways to what we saw in the late 1800s and early 1900s, when co-ops had tremendous growth around the world.”

While co-ops clearly did not win out in the battle with corporations and industrialization, the model addresses many of the frustrations in our current economic system by giving workers and consumers a voice and sharing wealth more equitably. If the co-op movement can get its message in front of the right people, Gould believes that within a decade it could be the fastest-growing type of enterprise.

A recent wave of worker-owned cooperatives is emerging in the service and manufacturing industries. One of the highest profile projects is theEvergreen Cooperatives, a set of worker-owned co-ops in Cleveland that run a laundry service, a solar installation business and an urban farming operation. The United Steelworkers union has announced plans to partner with Spanish industrial co-op Mondragon on setting up worker-owned manufacturing co-ops around the United States and Canada. And workers in 10 cities have organized green cleaning cooperatives, some inspired by Wages, a nonprofit that’s helped set up half a dozen green cleaning co-ops in San Francisco.

Equal Exchange, a co-op coffee, tea and chocolate distributor in Massachusetts, is attempting to encourage co-ops with a new marketing campaign meant to promote local, co-op, and small farmer-produced products on the shelves of food co-ops. “We’re trying to highlight the best of the best products that exist in natural food co-ops,” says project coordinator Scott Patterson.

Products that meet the criteria will be labeled and promoted as “P6″ products, short for Principle Six, a reference to the International Cooperative Alliance’s list of seven co-op principles. (Principle six is “cooperation among cooperatives.”)

The natural and organic food trends have helped the nation’s 330-plus grocery co-ops grow despite the recession. (Last year, the National Cooperative Grocers Association’s members reported $1.3 billion in combined sales.)

“I’ve seen green cleaning co-ops just popping up around the country,” says Melissa Hoover, executive director of the U.S. Federation of Worker Cooperatives.

Growing the co-op economy is the objective of Van Slyke’s Co-Opoly board game. After college, he helped create a new cooperative called the Toolbox for Education and Social Action, which produces custom education materials. It recently raised more than $9,000 in a Kickstarter campaign to mass-produce the “game of skill and solidarity.”

Van Slyke has been on the road with a handmade version of game for a few weeks, promoting it at conferences and workshops. The next stop on his agenda: his local Occupy Wall Street protest, natch.

Originally published October 13, 2011, on GOOD.

Make no mistake: Best Buy likes to see customers lining up for that next new, must-have gadget. The consumer electronics retailer is in the business of helping people upgrade their technology, whether it’s a mobile phone or a big-screen television.

For every new product, though, there’s often an old one made obsolete: last year’s iPhone, or a clunky analog TV set, or that computer your media collection outgrew. All of this stuff eventually starts to pile up in closets, landfills or incinerators.

It’s an environmental hazard, and it’s a customer hassle. That’s why Best Buy is seeking to help close the loop on the millions of pounds of electronic waste its stores and customers generate each year.

Best Buy has rapidly become a national leader in e-waste recycling since launching an in-store drop-off program in February 2009. Customers at its U.S. stores can bring in just about any old electronics, regardless of where or when they were purchased, and Best Buy will make sure they get recycled responsibly. Last year, the company collected more than 75 million pounds of unwanted electronics. (Continue reading…)

(Midwest Energy News, July 26, 2011)—

So how about when your electric utility gives you a free compact fluorescent light bulb? Or your gas company offers to help pay for new windows or a more efficient furnace?

Gas and electric utilities have unique relationships with their customers in that they actually spend money on programs to reduce demand for the products they sell.

Why is this? Most states require utilities to invest in conservation programs as part of the regulation they accept for being able to operate as regional monopolies. In other words, they’re doing it because they have to.

A growing list of states, however, are experimenting with a new approach. Instead of mandating a minimum investment in energy-efficiency programs, policymakers are designing incentives that reward utilities with new revenue for meeting or exceeding conservation goals.

The hope is that giving utilities a path to earning a profit from encouraging efficiency will inspire more companies to proactively ramp up their conservation programs beyond what might have been achieved through mandates only.

In Minnesota, early evidence suggests the state’s recently revamped incentives are working. Xcel Energy helped its customers conserve about 416 gigawatt hours of electricity last year — more than any other year in the company’s history. Under the new incentive structure, the utility will be rewarded about 14 percent of the net benefit of those energy savings, which totaled approximately $291 million. That’s about $40 million in new revenue for the company’s shareholders.

“It really did bring about a shift in the way our management thought about about energy efficiency,” says Carolyn Brouillard, a senior regulatory analyst for Xcel. “All of a sudden we have this lever, so to speak, where we have the opportunity to improve our earnings by being more aggressive about these programs.”

A historical disincentive

Without these bonuses, investor-owned utilities have little motivation to promote energy-efficiency besides complying with regulations and promoting a responsible image. That’s because the way they’ve historically grown profits is by building more power plants and transmission lines and selling more power.

The specifics vary by state, but generally regulators set rates based on a utility’s forecast of how much energy it will sell during a given period, along with a projection of how much it will cost to supply that power. A standard rate of return, or profit, is typically added to those costs, which means the more stuff there is to build, operate and maintain, the more costs there are on which to collect that rate of return. Meanwhile, if actual energy sales end up being higher or lower than forecasted, the company keeps or absorbs the difference.

These conditions create a disincentive for utilities to conserve energy, says Marty Kushler, a senior fellow who follows utility policy and regulation for the Americans Council for an Energy-Efficient Economy. It’s why utilities have fought tougher efficiency standards for decades.

In recent years, however, significant progress has been made in advancing energy-efficiency policies, Kushler says. He credits a couple of factors. One is that energy-efficiency proponents changed their approach, recognizing they would need to address utilities’ economic concerns to overcome their opposition. And secondly, the recession and resulting decline in energy use made the prospect of continually growing sales and beating forecasts seem like a less sustainable strategy to many utilities.

The Midwest has traditionally lagged other parts of the country when it comes to energy-efficiency policies, but the region saw a wave of activity between 2007 and 2010, during which Indiana, Minnesota, Michigan, Ohio, South Dakota and Wisconsin established new incentives.

“All of a sudden Midwest states have jumped into the game in a big way,” Kushler says.

Enhanced incentives

Conservation incentives aren’t new in Minnesota, but up until last year they were usually too small to make up for the sales revenue utilities lost due to increased efficiency, says Brouillard.

When the Minnesota Legislature, with the support of then Gov. Tim Pawlenty, started work in 2007 on an ambitious set of renewable energy and energy-efficiency policies, utilities and efficiency proponents took it as an opportunity to revisit the incentives. Lawmakers passed a requirement for all utilities in the state to achieve between 1 percent and 1.5 percent energy savings per year through their conservation programs. The legislation included instructions for the state’s utility commission to design a set of more favorable incentives for utilities.

“If you can come close to and then surpass the reasonable state goals, you should be rewarded based on your better performance,” says former State Rep. Jeremy Kalin, one of the main architects of the efficiency legislation.

The state’s utility commission completed the new, enhanced conservation incentives in late 2009. The changes prompted a shift in thinking among Xcel management, and that’s led to a shift in strategy and resources as well, Brouillard says.

“What this incentive mechanism has done is turned conservation from a loss-leader to a potential profit center,” she says.

Conservation used to be viewed internally as a matter of corporate social responsibility, separate from the core business mission. Today, there’s more talk at Xcel of running its conservation programs like a business. The utility is adding staff and dedicating more resources to its customer energy-efficiency programs.

The result: a record-setting year for energy savings and support for a slew of new programs that it is leading or participating in, from the Kilowatt Crackdown to the St. Paul Port Authority’s Trillion BTU program.

“They really did raise the bar for us in terms of the level of savings we need to achieve,” Brouillard says, “but as we showed last year we were successful in ramping up our programs and surpassing that level.”

Aligning utility, ratepayer interests

In addition to the half dozen Midwest states with conservation performance incentives, four states have created policies aimed at eliminating the disincentives for utilities to promote energy efficiency.

Wisconsin and Michigan have something called a “revenue decoupling mechanism.” If a utility’s actual sales fall short of its forecast a given period, it is allowed to collect that revenue from ratepayers anyway. If sales exceed the forecast, it must rebate ratepayers for the excess.

Ohio and Indiana have each have a “lost revenue adjustment mechanism.” Utilities in those states are allowed to collect revenue equivalent to the total energy saved through their conservation programs.

With all of these examples — decoupling, lost revenue adjustment, and performance incentives such as Minnesota’s — the utilities’ bonuses ultimately come from ratepayers, either factored into future rates or added to bills via line items. That can make them politically unpopular.

“There’s kind of a surface level reaction to the notion that you’re going to automatically make utilities whole if they’re suffering shorter revenues,” says Kushler.

However, he says, ratepayers need to understand just how lucrative the status quo has been for utilities. Conserving energy is far less expensive than building new power plants or infrastructure, yet the latter has always been far more profitable for utilities. That means utilities are economically motivated to keep building more stuff, regardless whether it is necessary, and then pass the bill to their customers.

It’s an outdated system that needs to be updated, says Kalin. He envisions a model in which we might pay a flat rate for electricity similar to the way we pay for cell phone plans today. Carriers don’t have an incentive to get us to talk more, and they don’t have an incentive to build new towers where they aren’t needed to improve service.

Kalin hopes Minnesota’s new incentives put the state on a path towards a new model, one that will benefit the environment, utility shareholders, and their customers. “What we need to do is find a new, sustainable business model that’s a sustainable energy system, too.”

Originally published July 26, 2011, by Midwest Energy News.

I spent a few months this spring looking into the potential risks and opportunities for Minnesota companies as development, pollution, population growth and climate conspire to strain our planet’s fresh water supply. The risk may seem distant here in the land of 10,000 lakes, but in an age when global supply chains span the globe, few industries will be unaffected. Some are already feeling the effects. Meanwhile, the Twin Cities is home to a promising cluster of companies and technologies that could play a role in addressing the coming global crisis. Read more in the July issue of Twin Cities Business magazine.