“If you have your glossary, bring it out,” chairman of the committee Rep. Tony Klein, D-East Montpelier, told his fellow legislators as they dove into the complicated renewable energy bill three weeks ago.
The cramming session was just the beginning of the rapid paced development of a complicated piece of legislation loaded with dense regulatory lingo that lawmakers don’t have much time to finalize. If they don’t replace the current system this legislative biennium, electric rates could jump 6 percent statewide, and as high as 20 percent for Burlington customers, according to state officials.
That’s because Vermont’s electric utilities are having trouble participating in a regional renewable energy credit program in which they earn, on average, $50 million per year. Utilities use the money from credits to hold down rates.
Because Vermont’s current renewable energy program is different from all the others in New England, utilities are not able to sell cash credits for their renewable power into a regional marketplace. Without this revenue, rates could jump 6 percent for most of Vermont ratepayers as soon as next year.
“We’re committed not to let that happen,” said Darren Springer, deputy secretary of the Department of Public Service. During the opening weeks of the legislative session, Springer presented an idea for a new renewable energy program to the committee.
RESET, as the bill is nicknamed, would for the first time require utilities to sell renewable electricity to customers. This will increase the cost of electricity.
Currently, utilities own renewable electricity in their portfolios, but they do not own credits that account for the environmental attributes of the power, known as renewable energy credits, or RECs. Utilities must accumulate a certain number of credits to meet the statutory obligations.
The proposed program is similar to those in the other New England states — and the majority of states across the nation. As a result, Vermont utilities will likely be able to sell — as well as purchase — renewable energy credits in the regional marketplace. Currently, utilities are having trouble selling credits because Vermont’s policy is different from other states.
Rep. Robin Chesnut-Tangerman, P-Middletown Springs, has been involved with local energy issues for more than a decade and has also installed solar panels on his home.
He said he understands the impact the bill will have on utilities, electric consumers and the environment, but the learning curve was steep during his first few weeks as a legislator.
“I have layman’s experience with renewable energy, which didn’t prepare me at all for policy,” Chesnut-Tangerman said.
The proposed program would be among the first in the nation to require utilities to attempt to change the vehicles customers drive and the way they heat their homes.
Under the RESET program, utilities would be responsible for reducing their customers’ total fossil fuel emissions by taking aim at Vermont’s dirtiest energy sectors: transportation and heating.
Utilities would have to match a certain percentage of their retail sales through reductions in their customers’ fossil fuel consumption. Regulators have broad discretion in how to implement the proposed program, but it would likely transform the traditional utility business model from an electricity provider to an all-energy manager, utilities say.
“It’s pushing us to do things we haven’t done before,” Vermont Electric Coop CEO David Hallquist said.
The concept underpins Vermont’s 2011 Comprehensive Energy Plan. The state cannot reach its greenhouse gas reduction goals without targeting fossil fuel emissions coming from vehicles and oil furnaces. According to the state, those two sectors produce more than three-quarters of Vermont’s carbon emissions.
Klein said the so-called “energy transformation tier” is the “cornerstone” of the bill. He said it removes a financial barrier preventing long overdue thermal efficiency improvements across the state.
“The biggest obstacle has always been ‘Where do we find the money?’” he said.
Electric customers would pay for thermal efficiency through new fees on their electric bills or through their electric rates. The program will likely increase electric bills in the short term, but save on total energy costs in the long run, state officials say.
“Their electric bill will go up, but their fuel oil or their propane bill will go down,” said Asa Hopkins, DPS director of energy policy. “Basically, they’re happy because they are saving money overall.”
The 15-year program is projected to cut Vermont’s greenhouse gas emissions by 15 million tons — nearly equal to taking all automobiles off the road in Vermont for four years, Hopkins said.
Utilities generally support the program, and have successfully lobbied for greater flexibility in compliance. Environmental advocates support the program, but prefer that the greenhouse gas reductions be more aggressive. Republican lawmakers and businesses say the program should do more to reduce electric rates, even if it means scaling back emission-reduction requirements.
House Minority Leader Rep. Don Turner, R-Milton, said the proposal is a fix to a problem that was created in the Legislature when it created the SPEED program in 2005. He said Republicans want to move forward on renewables in a “more moderate manner.”
“I don’t know if it has to be as big as it is,” he said. “It seems like all of the big utilities are on board because they have this big bill hanging around their neck. The rope is around ratepayers’ neck.”
From SPEED to RESET
Vermont’s current program, Sustainably Priced Energy Development, or SPEED, was written with the goal of providing economic incentives for renewable energy development.
Under SPEED, Vermont utilities could sell credits representing the environmental attributes of their renewable power out of state, which allowed them to finance renewable energy projects and avoid some of the upfront cost impacts on rates.
Robert Dostis, director of government affairs at Green Mountain Power and chair of the House Natural Resources and Energy Committee when the SPEED program was drafted, said at the time that it was not politically possible to pass a program that was likely to increase electric rates. The state instead passed an “economic development tool” that he described as “very successful.”
“It accomplished what it was set out to accomplish,” Dostis said. “We have a lot more renewables in this state as a result.”
Over the course of the program, Vermont utilities sold the credits for power that was also used to count toward the state’s voluntary renewable energy goal. The credits were also legally sold elsewhere in a process described as “double counting.” Critics say it is deceptive to count credits twice. A law clinic at Vermont Law School alleged that the state’s largest electric utility, Green Mountain Power, misled customers by claiming its power as renewable when it sold the RECs out of state. Federal regulators decided not to investigate the allegations, but asked the utility to be more clear with customers in the future.
That concern has taken root in the region. Last year, Connecticut prohibited the purchase of credits that count toward Vermont’s SPEED program, and utilities have since stopped selling credits to Connecticut. In May, one electricity supplier said it would not purchase Vermont RECs. The market for Vermont RECs was drying up and some utilities had difficulty selling credits to other states.
“It has trickled over into the other markets subtly,” said Patty Richards, general manager of the Washington Electric Co-op. “If we get the RPS, we will be fine.”
In June, Klein met with the Shumlin administration to discuss changes to Vermont’s energy program, with input from utility companies.
Klein, the only representative who served on the committee when the SPEED program was written, said lawmakers knew the state would need to adopt a mandatory program eventually.
“We always knew that this was a potential issue and we just said it was worth going down this path until the day came that they said ‘no,’” Klein said. “Without the SPEED program, we would not have the amount, or maybe any, of the renewables that were built in Vermont.”
Environmental groups push for more in-state renewable generation
Environmental groups want the program to achieve greater greenhouse gas emission reductions in the region. Meanwhile, utilities want more flexibility to comply with the new regulations and industry wants less pressure on rates.
Electricity prices would rise in the short term under the proposed program because utilities would have to purchase renewable energy credits to account for a certain percentage of their power demand. Currently, utilities mostly sell credits generated by their renewable projects.
Under RESET, some of these credits must come from electricity generated in Vermont. The requirement increases 4 percent every three years from 55 percent in 2017 to 75 percent in 2032.
To meet the renewable electricity obligation, Green Mountain Power will continue to sell the high-value credits from its wind farm on Lowell Mountain, for example, and purchase less expensive credits from biomass and hydroelectric plants, Dostis said.
Credits from biomass and large hydro, such as Hydro-Quebec, can be purchased at a 10th of the cost of “class one” RECs, which come from wind and solar farms, among other resources.
No other state in New England counts large-scale, Canadian hydropower as renewable. New Hampshire lawmakers are considering changes to their Renewable Portfolio Standard to allow large-scale hydropower to count toward its goal, citing benefits for electric ratepayers.
Sandra Levine, a senior attorney with the Conservation Law Foundation, said Vermont should set a higher environmental standard for its program — making it similar to the other states in the region.
Levine said there should be a limit on the amount of credits utilities can count from power sources like Hydro-Quebec. She said new large-scale hydro can cause methane emissions and displace indigenous populations, though it is a valuable existing baseload energy source.
“To meet our climate change goals, we need to limit our reliance on large-scale hydroelectric power and, in particular, not rely on having to develop new hydropower facilities,” she said. “We can do that by using the existing hydropower wisely and using in concert with renewable power in the New England region.”
Green Mountain Power will retire the credits from large hydropower to meet its policy obligation at a minimal cost. But Levine said the there is a chance other states in the region may question whether this should be allowed.
Environment groups say the bill also includes an “inadvertent penalty” for customers who generate their own electricity through the state’s net-metering program. Proposed changes to the net-metering law will require customers to purchase RECs from their utility. Currently, the customer owns the credit.
The intent is to help the utilities use net-metered projects to meet their regulatory obligations under the program. Policy experts and renewable energy attempted to safeguard changes to the program, but remain unsatisfied. Changes will be finalized when regulators make planned adjustments to the net-metering law in 2016.
Smaller utilities uneasy with business model overhaul
The administration’s proposal would require utilities to change the way they do business. Rather than just supplying electricity, they would also be required to reduce fossil fuel consumption in the state’s heating and transportation sectors.
“It’s a huge challenge and there are a lot of assumptions, and I think there is a lot that can go wrong,” Hallquist of VEC said.
By generating revenue through additional electricity sales, utilities could offset most of the rate impacts associated with renewable energy procurement, the Department of Public Service says. Take this part of the program out entirely, and rates will continue to climb by up to 4 percent by 2032, officials say.
This part of the program has caused the most angst among utilities. Many asked lawmakers for more flexibility — and many got it.
Springer, of the department, said there are several “escape valves” if a utility has trouble meeting its compliance obligations: It can petition regulators to reduce the requirement; purchase additional small-scale power generation; bank excess credits and use them later; or make up a shortfall in another year.
The purpose of the requirement is to reduce carbon emissions from the heating and transportation energy sectors. Utilities would achieve this by providing financial incentives for wood heating or electric air source heat pumps, coupled with thermal efficiency or weatherization projects. Utilities may also invest in electric vehicle infrastructure.
Much of these so-called “energy innovation projects” would be paid for through new fees on electric bills, investments recovered through electric rates, leasing programs and partnerships, according to the department.
In concept, utilities would act as “general contractors” for all their customers’ energy needs. In 2017, all Vermont’s utilities together would have to install the equivalent of 2,000 heat pumps to comply. By 2032, that climbs to 12,000 heat pumps, for example.
Green Mountain Power, the state’s only investor-owned utility, is already making investments that would qualify under the program.
“We are confident we can make this happen. Frankly, we have to,” said Dostis, of Green Mountain Power.
Hallquist said VEC’s territory is relatively poor and rural — the utility’s territory has 15 customers per mile of line, as compared with GMP’s approximate 20 customers per mile. The low customer density makes it difficult to sell new products, he said. VEC wants to partner with Efficiency Vermont, the state’s efficiency utility to achieve the desired results.
The bill explicitly allows for partnerships, including with other utilities, and gives the Public Service Board broad discretion when assigning credit among the partners.
Committee has all but passed H.40
The potential rate impact remains to be seen because Connecticut regulators have not issued a decision whether Vermont’s RECs under the current program are worthless.
It was not until the opening days of the legislative session that state officials had publicly quantified the potential rate impact resulting from the Connecticut prohibition on the purchase of Vermont RECs.
But the day the bill was introduced to the House Natural Resources and Energy Committee, the members were told there is a looming 6 percent rate shock if they did nothing. Since then, members have heard from experts, advocates and the regulated community pushing the policy in different directions. Everyone supported the concept and goals of the proposed program.
After three weeks of careful consideration, the House Natural Resources and Energy Committee on Friday opened a vote on the bill, currently 6-1-3. The vote will close on Tuesday.