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SD Legislation Lays Out How to Calculate ‘Avoided Cost of Generation’

February 29, 2016 By Cheryl Kaften

The South Dakota House Commerce and Energy Committee is considering a measure – House Bill No. 1216 –sponsored by Representative Paula Hawks (D-9th District) that would regulate how utilities statewide determine their avoided cost of generation – the price at which an electric utility purchases the output of a rooftop solar system or other qualifying facility.

To date, South Dakota has been among just a smattering of U.S. states – also including Alabama, Mississippi and Tennessee – that pay solar customer-generators based only on the avoided cost of generation. However, the rates have been anything but easy for the system owners to understand, because each utility has been free to sum up those costs using its own methodology.

Indeed, according to Midwest Energy News, such avoided costs can range from 2.78 cents/kilowatt hour (kWh) to 4.33 cents/kWh during peak hours, depending on the utility.

This problem now is being addressed by HB 1216, which requires that, ”For the purpose of establishing the avoided cost rate for electricity produced by any small renewable power production facility, the public utility shall account for and file the value of the energy and the energy’s delivery, the value of the generation capacity, the value of transmission capacity and avoided transmission line loss, and the value of any system installed at a high-value location on the distribution grid.” Further, the language of the bills statesthe public utility may include other factors that it determines are relevant.

In addition, the measure mandates, “If the values and methodology used for determining those values are deemed confidential by the South Dakota Public Utilities Commission, the commission shall make the values and methodology available to any customer of that public utility upon the request of the customer.”

Rep. Hawks told the news organization that the main goal of the bill is to obtain a consistent rate and policy “so people know they’re getting the same rate whether they’re in the Black Hills or in eastern South Dakota.”

Further consideration of the bill has been deferred to the 41st legislative day by the committee.

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