Feature

Pot power: How utilities and regulators are dealing with the budding marijuana industry

Growing marijuana requires so much power that electric utilities across the nation are taking notice

Marijuana growing is becoming so mainstream  and is consuming so much energy  that electric utilities and their regulators from coast to coast are sitting up and taking notice.

Earlier this month, Utility Dive reported that Pacific Power experienced 7 localized outages due to demand overloads attributed to marijuana grow operations. And this week, a Seattle utility warned of a potential 3% load growth in coming months  just from marijuana operations. Earlier this year, we reported that 45% of Denver, Colorado’s load growth was coming from cannabis growing operations. Many utilities, due either to ideological aversion to the industry or fear of running afoul of the federal government, have taken a “don’t ask, don’t tell” approach to handling marijuana-related load growth.

Those trends and others throughout the U.S. have reached the ears of the nation’s utility regulators. At their annual conference in Austin, regulators, utilities and efficiency experts discussed how the sector should respond to the explosive growth of what many are calling the most energy-intensive crop in the country.

“When I first heard about this panel, the first thought that popped into my head was ‘Why do I care?’” said Commissioner Willie Phillips of the District of Columbia. “Why do we care about marijuana more than any other plant, any other customer?”

“Are they different?” he asked. “I think they are.”

The District of Columbia and 24 other jurisdictions have legalized marijuana in some capacity, he said, and “if that legalization continues, we’re looking at a $35 billion dollar a year industry, and a third of that is related to energy consumption.”

Just growing four mature marijuana plants, he said, consumes about as much power as running 29 refrigerators around the clock. And marijuana cultivation is becoming increasingly commonplace. In D.C., Phillips said, some developers are offering marijuana grow closets as an option in new condominiums.

“We can debate the numbers,” he said, “but we know it’s high … We know the load growth is real.”

 

Marijuana's side effect: Load growth

Across the nation, different utilities have taken different approaches to dealing with marijuana cultivation.

Xcel Energy  with its service area in Colorado, where recreational use is legal  has seen significant load growth due to the cannabis industry, said Alice Jackson, vice president for rates and regulatory affairs.

“We now have, on an annual basis, over 300 GWh consumed from our customers that are doing growth of marijuana or cannabis in their areas,” she said. “There are increased revenues that come in from the industry growing, as it would be with any other industry.”

The energy consumption of even a single operation can be immense, said John Morris, director of policy and regulatory affairs at energy efficiency provider CLEAResult.

Morris described one of his clients who built a 90,000 square foot warehouse to provide growing space to 4-12 marijuana cultivation companies. The warehouse sported a $2 million solar array on the roof, all LED lights, and the latest and most efficient HVAC and insulation products. The owner also worked with an energy services company to ensure all the products worked in one seamless system.

“On top of all that,” he said, “he’s expected to be paying $1 million per month” just for electricity.

But not all grow operations behave the same way, Morris said. In his observations, medical grow operations tend to be more intensive than recreational ones.

"I went and visited a medical grow operation in Oregon that was going to convert to recreational grow as soon as it was passed in October,” he said “[The grower] could only acquire 6 medical cards and that gave him a total number of 32 plants. What’s not capped is how big he can actually grow those plants, so basically his strategy is to grow trees.”

Medical grow operations generally have a cap on how many plants they can grow, so they sometimes grow bigger plants to cultivate more marijuana under the cap. Those big plants use a lot more energy than a bunch of small ones lower to the ground, Morris said, because LED lights don’t filter down to the base of the plants. Instead of more efficient bulbs, his client was using 1000-watt halogen lights for every tree, with a fan below to ensure they did not catch on fire.

“He himself looked like he had been on a cruise line for about 6 months, literally tanning from the light, and was talking about going to 3000 watts per tree,” Morris said. “So energy efficiency, energy intensity  not exactly a top priority for growers today.”

Handling the load growth  or not

The lack of focus on energy efficiency from many smaller growers would logically open up opportunities for efficiency and demand response for the sector, but Xcel's Jackson said her utility has not moved to offer specific advice for marijuana cultivators specifically.

“It is an intensive operation; however, we do not have plans to put tips on how to or how to not grow marijuana,” she said.

In fact, Jackson questioned whether efficiency dollars collected from utility ratepayers should be used for the marijuana industry at all, even in places where growing is a legal industry under state law.

“Is it appropriate for us to take the dollars that are collected for EE as a whole and provide EE programs for this particular industry?”

After internal discussions, Jackson said Xcel decided that grow operations should be able to access efficiency funding as long as they pay into the program themselves.

Other jurisdictions have opted for some surcharges for marijuana usage or fees on growers, but in Washington, D.C., legalization is still too young for utilities to have thought much about it, Phillips said. He told the audience he had reached out to his local utility  Pepco  to see how they were preparing for new load growth. 

“Not surprisingly, really not much has been done,” he said. “They’re just viewing this like any other customer."

Some utilities in states where legalized growing has been around longer have established new rates for marijuana growers.

Morris gave the example of one small utility, Mason County PUD #3 in Shelton, Washington:

“They have established a TOU rate for their indoor growers, and they’re not getting any pushback. They’re doing good outreach to these communities and that’s serving them well.”

Other companies have moved to make growers take more of a financial stake in their grid demands upfront, Morris said.

“Other utilities in Washington are establishing that these growers pay upfront for transformer upgrades if they need so they kind of protect themselves,” he said. “One grower came in, said I need this size transformer, and a week later he blew through it — so the question was, who pays for that?”

The key to that strategy is balance, according to Morris. If the upfront cost for grid upgrades is too high, he said, growers may start small and then scale up quickly, creating reliability problems on their local circuits.

There’s a danger in putting too many fees and regulatory restrictions on cannabis growing operations, Commissioner Phillips said. “Because you have this new industry that is already coming out of the shadows, there’s a concern that if you regulate too much you could force it to go back down.”

Legal and ideological concerns hamper utility involvement

Today, marijuana is still considered a Schedule 1 controlled substance by the federal government, making utilities across the nation a bit apprehensive  if not outright afraid — to take a proactive role in making the industry more efficient.

CLEAResult's Morris told the audience that he works with the Bonneville Power Administration (BPA), a federally-owned transmission and generation utility, and the Northwest Energy Efficiency Alliance (NEEA) to give guidance to industries on energy efficiency out West. Typically, both BPA and NEEA would be the platform by which the utilities would run efficiency and market transformation programs for cannabis production, but federal law gets in the way.

“BPA, because this is still federally illegal, they can’t touch this with a ten foot pole,” he said. “So, they have issued some guidelines that state that the utilities themselves can provide the power to this market, but they cannot provide BPA dollar incentives to make them more energy efficient.”

Morris said his company continues to do education and outreach on efficiency for the marijuana sector, but its legal status makes it more difficult.

“Traditionally, CLEAResult would do a regional program with 50 to 60 utilities at a time, but now, because BPA is constrained, you have to do one-off programs,” he said.

Legal issues are even more pronounced in Washington, D.C., Phillips said. While District voters passed the legalization referendum in 2014 with more than 70% of the vote, Congress has acted to block any implementation of the law. So while consumers in the District can grow up to three plants, possess up to two ounces of weed for personal use, or even give one ounce away as a gift  the so-called 3-2-1 rule  there is “no situation in place where you can sell, tax and distribute marijuana commercially,” Phillips said.

Not having any large, commercial grow houses to target for efficiency programs makes the situation difficult enough for Pepco, the District’s utility, but that’s not the worst of their worries. Because Congress still gets to approve all expenditures of tax dollars in the District, Republicans have threatened legal action against those in public positions that try to make legalization work better for the city.

“Congress, when they acted to block the D.C. law, they actually said that D.C. could not take any steps or use any funds to implement the law that was unanimously passed by our D.C. Council,” Phillips said. “They actually threatened to arrest our mayor and our council if they took any steps to actually implement the law.”

“So in terms of ideology, it’s all around,” he said. “Congress’ action did not stop the growing of marijuana in D.C., so I think that utilities are really stuck in place. We don’t know what to expect because it’s still in the shadows.”

With a Republican majority in at least one house of Congress likely to persist after the 2016 election, the chances to alter the federal law on marijuana appear slim. But as legislators and the Justice Department figure out how to handle the growing wave of state decriminalization and legalization initiatives, Phillips said utilities need to be proactive, not reactive.  

“”I think this is an opportunity. That’s the way I view it and that’s the way other states and jurisdictions should view it,” he said. “You have a clean slate. For one of the first times, you have a new product coming online, we know that it’s very energy intensive, and we can either sit back on our hands and be reactionary or we can look outside the box and say, what can we do that’s fair? What can we do that will both help the growers and achieve our goals?”

“It’s not ‘Why do we care, why are we here?’” he concluded. “It’s ‘Why not think critically about how we do this?’”

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Filed Under: Efficiency & Demand Response Regulation & Policy
Top image credit: Flickr user eggrole