Jan Borchert, Current Hydro and Dana Hall, Esq.
CDG Key Requirements
New York’s CDG program is a framework that exists within NYPSC regulation, however much of the specific design of a potential CDG is up to the CDG host. Key requirements of the CDG program include:
- The CDG host may be any single non-residential entity that owns or operates electric generating equipment eligible for net metering pursuant to the utility Tariff. The CDG host is subject to Public Service Law Article 1 to the same extent as electric service companies (ESCOs) and other similar energy supply providers interacting with the utility.
- A CDG host and all subscribers must be located within the same utility service territory and NYISO zone overlay.
- A CDG host must serve a minimum of ten CDG subscribers (farms and coops exempted) . Each CDG subscriber must receive a minimum allocation of 1,000 kWh annually. This means that a CDG host needs to have a minimum of 10,000 kWh anticipated average annual generation to qualify to set up a CDG.
- No more than 40% of the generation output may serve CDG subscribers with 25 kW demand or greater, or put another way, 60% of the generation must serve mass market non-demand customers under 25 kW. No subscriber may receive more credit that it consumes in a year.
- The CDG host must execute the required contracts as set forth in the Standardized Interconnection Requirements (SIR) Addendum in their corresponding utility tariff and must operate in compliance with the standards and requirements set forth therein. The SIR are established by the NYPSC, and each utility provides their SIR Addendum in their tariffs.
- The CDG host must certify to the utility that it meets the creditworthiness standards established by the NYPSC and must agree that it will set processes and procedures in place related to cyber security and other requirements.
- The CDG host must comply with oversight rules which are in development in Case 15-M-0180. For example, CDG hosts are required, by June 1, 2018, to (a) file a registration form with the Department of Public Service and (b) provide all mass market customers with completed disclosure forms at or before contract signing.
- The CDG must submit the CDG Allocation Request Form at least sixty (60) calendar days before commencing the CDG program. This form must include each CDG subscriber’s utility account number, name, address, and the percentage of the CDG host’s net energy output to be allocated to each subscriber. The host must also certify that it has entered into written agreements with each of the CDG subscribers.
The NYPSC’s Standard Interconnection Requirements (SIR)
as of October 2018, on http://www.dps.ny.gov/, Case 15-E-0557.
CDG Host Business Structures
Developing your hydropower potential and operating it under the CDG program can happen in different ways and you can hire out different steps of the journey. In either way, you, as the owner of a site with hydro potential have to decide which business structure is appropriate for your project. In all structures, we recommend you meet with accountants and legal counsel to determine business strategy and the appropriate business structure to leverage tax credits and other governmental incentives.
Owner / Developer Structure
With the Owner/Developer structure, the you would hire a developer who takes on the responsibility of constructing and operating the plant and setting up the CDG. The agreement with the developer covers the construction, interconnection with the utility, and operation and maintenance of the system.
We’re basically adding one additional role to our host-utility-subscriber setup: the developer. In this setup, the role of the host is split up between the site owner and the developer:
In some cases, the developer might hire a subscription management organisation (SMO) which handles the organization and management of the CDG and markets and finds subscribers. Depending on the size of your hydro-project, you might not want to deal with the billing of hundreds of subscribers on a monthly basis.
Owner SPE Structure
You may also want to create a Special Purpose Entity (SPE), to turn your hydro-project into a business enterprise to design, construct, operate and own the generating facility. If you are prepared to take on the significant complexity of forming and running a business, this is the way to go. You create the SPE as a limited liability company which assumes responsibility for the legal, financial, and regulatory implications associated with the project. The SPE hires a construction firm to design and build the project (the developer), and either finds and manages subscribers itself or hires a service to do so (SMO).
In this setup, the role of the host is assumed by the SPE, with the developer as a subcontractor and the site owner as the (sole or partial) owner of the SPE. The subscribers would have an arrangement with the SPE directly:
The SPE can also be organized as a volunteer-led LLC by a group of individuals, one or more of whom have rights to the site, and others who are interested in building the CDG. It is less feasible to structure a CDG host as a cooperative (co-op), because co-ops are not exempt from complex securities issues. A share of the revenue from the electricity sales flow towards the site owner; other investors receive a share of the revenue, based on their investment.
If we add the subscription management organization (SMO) into the mix, the CDG organizational chart could look like this:
To summarize, the SPE structure allows the site owner to turn the microhydro project into a business, while potentially outsourcing the technical aspects of design and installation to the developer, and the administrative and marketing tasks of operating and setting up the CDG to a subscription management organization (SMO).
Next Steps
The next blog post will look into different CDG subscription models and will describe Monthly Billing Subscriptions, Subscribers as Shareowners (Investors), Community Supported Hydropower and the benefits of using Anchor Subscribers.
Or download our full Microhydro Community DG report.
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[…] and examples. They demonstrate a range of ways that a CDG can be configured, in accordance with the CDG Key Requirements and include a short calculation example to demonstrate the implications of the respective […]