Renewable power in Vermont hits a SPEED bump

Vermont's new clean energy bill could be superseded by federal law.

Is Vermont’s program designed to promote the development of renewable energy illegal under federal law? That would appear to be the opinion of the Federal Energy Regulatory Commission (FERC), based on a decision the agency made a few weeks ago.

The other New England states have opted for so-called renewable portfolio standards that require their utilities to purchase or generate a percentage of their power from renewable sources. Vermont took a different approach – its SPEED (Sustainably Priced Energy Development) program.

As enhanced by the Legislature in 2009 – over the veto of Governor Douglas –SPEED now includes a “Standard Offer” program for new generators of renewable power that are smaller than 2.2 megawatts. The program essentially requires Vermont utilities to buy renewable power at premium rates, the reasonable theory being that wind, solar and other renewables could not otherwise compete with conventional sources of electricity like nuclear and fossil fuels.

The program rolled out last October 19 and was wildly popular among potential developers of small renewable facilities, many of them municipalities and nonprofits. The program called for the development of 50 megawatts of capacity altogether. On the first day applications were accepted, more than 200 megawatts of potential projects sought to participate.

The lucky 50 megawatts of winning facilities, chosen by lottery, will get 20-year contracts with their local utilities. Or maybe not, as the result of the July 15 FERC order.

At issue was a similar program in California, involving rate subsidies to “combined heat and power” generation facilities. California utilities argued that such wholesale power transactions – i.e., purchases of power by utilities for resale to their customers – are regulated by the federal government rather than the states. The FERC agreed.

As every first-year law student knows, enshrined in the U.S. Constitution is the Supremacy Clause, which provides that the enactments of Congress are the “supreme law of the land.” In legal parlance, state law that conflicts with a congressional enactment is said to be preempted. The congressional statute at issue here is the Federal Power Act, which tasks the FERC with regulating wholesale power transactions.

The FERC left one door ajar. It concerns another federal enactment, the Public Utility Regulatory Policies Act (PURPA). First enacted during the Carter Administration to encourage the development of small, independent renewable power facilities, PURPA requires utilities to buy power from such producers at rates that are ultimately set by state utility commissions. But here’s the catch: By order of the FERC, the rates must be based on each utility’s “avoided cost” – i.e., what it would have cost them to generate the power themselves or buy it from conventional sources. The FERC said that a Standard Offer program that complies with PURPA would not suffer death by preemption.

Alas, the Standard Offer rates approved by the Vermont Public Service Board are well north of any Vermont utility’s avoided costs. Indeed, as the result of amendments to PURPA that were part of President Bush’s 2005 energy bill, it’s no longer clear what “avoided cost” really means in regions like New England that have functioning markets where wholesale power can be traded.

The Department of Public Service (DPS), which oversees the SPEED effort, formally alerted the Vermont Public Service Board of the FERC preemption decision this week. As the DPS pointed out, the federal regulators’ order is still subject to rehearing motions and, ultimately, to judicial review. Somewhat pointedly, the DPS told the state regulators that it does not intend to seek rehearing of the FERC order and doesn’t know what California officials will do. That, of course, is consistent with the governor’s veto of the Standard Offer bill.

Whatever ultimately emerges as a final order from the FERC, this one is going to court. Meantime, though, it would appear that Vermont’s signature plan to develop renewable power is in legal limbo.

Donald Kreis is associate director, and assistant professor of law, at Vermont Law School’s Institute for Energy and the Environment.

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  • Thank you for the very clear explanation of this ruling. I had read about the California ruling, but was not sure how it applied to Vermont.

    In discussing the 200 MW that were offered under the SPEED program, I would like to point out that most of that offered capacity consisted of proposals for solar PV, which was priced at 30c/kWh. The SPEED program for wind and cow power and so forth got fewer proposals. Of course, the Feed In Tariffs for those technologies much lower also (12 cents to 20 cents.) These lower prices were not as attractive to developers.

    And you are completely correct. The SPEED prices are way north of the grid prices. Vermont Yankee is currently selling to Vermont at 4.5 cents, with a 6.1 cent offer on the table going forward. HQ is somewhere in the 6 cent area also. The grid price fluctuates a lot, but last I looked it was around 6-7 cents, except on very hot days. Hmm. I just went to ISO -NE and it was at 7.9 cents. Anyhow, the Feed In Tariffs are much higher.

    Thank you for the excellent clarification!

  • VT-DPS and Governor Douglas are opposed to the renewables FITs to promote expensive renewables systems.

    According to a December 2009 VT-DPS white paper, about 35% of the $228 million to build 50 MW of expensive renewables that produce a little, but expensive power would be supplied by Vermont sources, the rest by non-Vermont sources. For example: PV panels from China and inverters from Germany are about 70% of a PV system’s materials cost. 

    According to the white paper, there would be spike of job creation during the 1-3 year construction stage (good for vendors) which would flatten to a permanent net gain of 13 full-time jobs (jobs are lost in other economic sectors) during the operation and maintenance stage. In essence jobs are created in one sector (renewables) of the Vermont economy at the expense other sectors.

    Using scarce ratepayer/taxpayer funds for renewables that are expensive and produce just a little, of variable, intermittent and expensive power, while good for vendors and developers, is NOT the jobs creation panacea so much talked about by proponents of renewables.   

    Vermont, a poor state struggling with multi-year projected budget deficits, would be wise to use the $228 million for energy efficiency projects that have 1-5 year payback periods which would create many more jobs than renewables, more tax revenues and much greater CO2 reductions.

    I wrote several articles on the subject which are available on our website.

  • Townsend Peters

    Wow. This article is filled with errors. FERC did not opine on VT’s standard offer program. The CA program is structured differently than VT. Unlike CA, VT’s facilities and delivery of power are all in-state, arguably depriving FERC of jurisdiction. As any first-year law student knows, federal legislation is limited to interstate commerce.

    State laws that conflict with federal enactments are preempted? Not necessarily. There is a presumption against preemption of state laws, and the analysis is far more complex and subtle than that, as a real lawyer would know.

    The Department of Public Service does not oversee the SPEED effort. It is an advocate on utility matters, and gets to make arguments about SPEED to the Public Service Board, but that’s about it.

    The governor’s veto of the standard offer bill? Guess what: The governor let it become law. He did not veto it.

    VT’s law is going to court – really? Who’s going to take it there? The Public Service Board has no power to rule on constitutional questions. The Department of Public Service would have to go to the Attorney General to represent it in court, and it is doubtful that the AG would sue to invalidate a law of his own state. The utilities don’t have the cojones.

    Really, Kreis, you blew it big.

  • Milton Newport

    FIT is a good example of legislative hubris. “We can make law” regardless of the fact that laws can be overturned and the good, old law of supply and demand will have its say, too. When the market refuses to clamor for 30-cent solar power, don’t be surprised when a little regulatory pushback a la California knocks it over. The Legislature may make indeed make law, but it is not omnipotent.

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