Efficiency Vermont surcharge, a tax that benefits the many or the few?

Many of the features and rides in the new Jay Peak water park are heated by capturing waste heat from an ice arena.

Many of the features and rides in the new Jay Peak water park are heated by capturing waste heat from an ice arena. Photo courtesy of Jay Peak Resort.

Since 2000, Efficiency Vermont, the statewide efficiency utility has worked to help Vermonters lower their electric bills through technical assistance and rebates.

Every year, the entity, which is funded through an energy efficiency charge that is added onto customers’ electric bills, produces a report highlighting the savings it produces for the state.

While many cheer Efficiency Vermont’s efforts to save people money, some businesses that bear a heavy burden of the cost are not convinced that a mandatory charge tacked onto everyone’s bill is the best way to go about funding efficiency.

VTDigger.org set out to determine just how much larger businesses pay for the efficiency charge and if it is worth it for the state’s big energy users.

The Vermont Energy Investment Corp., a nonprofit, operates Efficiency Vermont under an appointment issued by the Vermont Public Service Board. Formerly, the organization operated on a contract basis. In 2010, the board granted the organization an order of appointment to serve as a regulated efficiency utility — something business groups opposed.

So whether they like it or not, everyone pays the charge, and Efficiency Vermont will be offering its services through 2021 with its current appointment.

As for big energy users, Efficiency Vermont would not divulge usage data for the largest users. It claims it is not subject to the state’s public records law and that the information is confidential anyway.

Information provided by the efficiency utility shows that its 50 largest customers used 864,805 megawatt hours of electricity in 2010 — not including IBM, which operates its own efficiency program, and Omya, which was owned by Vermont Marble Power at the time (a utility itself that did not have to pay the charge). That is about 15 percent of the approximately 5.6 million megawatt hours used in 2010 statewide, according to the Department of Public Service. For 2011, the budgets for all energy efficiency utility programs totaled around $40 million. Efficiency Vermont estimates that those top 50 users contributed about $5.9 million through the energy efficiency charge. The organization claims members in that group that took advantage of Efficiency Vermont programs reaped $15.8 million in total resource benefits, which is the lifetime value of the savings that will result from energy efficiency measures installed by these customers in 2010.

Who actually pays what into the energy efficiency charge is a bit complex since residential, commercial and industrial payers each pay different rates. They each amount to a fraction of a cent per kilowatt hour, with industrial users paying the smallest amount per kilowatt hour. Some customers pay “demand” rates which makes for even less of an apples-to-apples comparison, and Burlington Electric Department customers pay a different rate that funds that utility’s own program.

The bottom line is that the increasing budgets for efficiency programs increases charge rates across the board generally. For 2012, 2013 and 2014, the budgets for efficiency programs will be $40.1 million, $42.8 million and $45.9 million respectively. That means an increase in the energy efficiency charge of 4.2 percent, 6.7 percent and 7.2 percent for each of those years.

In 2012, a change in the ownership of Omya’s Vermont Marble Power Division (a utility) created another wrinkle in the efficiency charge story. Previously, Omya had not been paying the charge on its power much like other utilities like Green Mountain Power do not pay the charge for the energy they use. In 2011, CVPS purchased Vermont Marble Power. This means the electricity used by Omya is now subject to the charge, offsetting what other ratepayers pay and decreasing the charge amount for industrial customers. Representatives from Omya were not available to comment on this issue.

Talking to businesses and industry representatives, the consensus seems to be that if ratepayers are going to pitch in millions of dollars every year for Efficiency Vermont, the way it operates needs to be, well, efficient.

Efficiency Vermont boasts $115.3 million in these total benefits to the state for the last year in its 2010 savings claim. Whether the operation is spending ratepayer dollars in the best manner is still up in the air, according to industry groups.

In comments to the Vermont Department of Public Service regarding the draft Comprehensive Energy Plan, the Associated Industries of Vermont took umbrage with the increase in Efficiency Vermont’s budgets approved by the Public Service Board.

Photo of IBM computer equipment.

IBM employs approximately 5,000 Vermonters at its Essex Junction plant, making it the state's largest employer.

William Driscoll is the vice president of Associated Industries of Vermont. He points out that the organization, which lobbies on behalf of Vermont manufacturing and other business sectors, is by no means against efficiency. He recognizes that efficiency programs are good for the environment and can save businesses big money on their electric bills. AIV’s beef is with the structure and method of going about promoting efficiency.

AIV criticized increasing the budget for the efficiency utility in its comments on the state’s draft Comprehensive Energy Plan and submitted testimony in a proceeding before the Public Service Board regarding the structure of the energy efficiency utility.

Driscoll said the core of the problem is that the energy efficiency charge adds quite a bit to the cost of electricity, and for businesses, that can mean lost opportunities along with the increased cost of doing business.

While businesses take advantage of the efficiency rebates and expertise Efficiency Vermont offers, Driscoll said his organization hears from a lot of companies that what they gain in efficiency measures is not enough to cover the cost of the charge.

“Some companies have to spend so much on the efficiency charge that they lose other opportunities,” Driscoll said.

He said tax incentives or a lending mechanism that would allow businesses to get funding for projects then pay it back themselves make more sense.

“At this point, it’s a tax that everyone pays but only a few benefit,” he said.

The issue with the utility structuring was whether to shift VEIC’s role from a contractual status with the Public Service Board to an order of appointment like any other utility. The Public Service Board issued the order of appointment in December 2010. It runs through 2021.

AIV and IBM supported keeping the competitive bidding process.

The Dudley H. Davis Center at the University of Vermont. VTD/Josh Larkin

The Dudley H. Davis Center at the University of Vermont. VTD/Josh Larkin

According to testimony before the board, IBM had paid $35 million for 446 million kilowatt hours of electricity in 2008. It paid $1.5 million for the efficiency charge. The company would later develop its own pilot efficiency program.

Driscoll said the problem with an order of appointment rather than competitive bidding every three years is it can lock in any bad habits or poor practices going on at the utility.

Without meaningful opportunities or incentives to compete, Driscoll says, the energy efficiency utility, like any business, will be less innovative or cost effective.

For many individual businesses, the efficiency charge is a mixed bag. It increases the cost of doing business but it can really pay off in the form of rebates on big investments.

Bill Stenger, president and co-owner of Jay Peak Resort, has been working with Efficiency Vermont since the beginning. The resort has upgraded facilities and retrofitted just about everything it can to be more efficient, Stenger says. Stenger said the resort pays about $1 million a year for electricity, and with a new indoor water park opening this winter, costs will likely be even higher.

In the past, because of credits and rebates, the resort was able to cut down on the investment costs for a lot of new machinery like chairlifts and snow guns and invest in efficiency measures. With any new project, he says, the resort tries to involve the energy efficiency utility.

“The resources are useful and helpful,” Stenger says.

But after doing about all it can on the efficiency front, the resort still pays a hefty price each year for the surcharge: $40,000 more or less.

“The bottom line question is: How much do we pay to fund those services, and is it equal to the benefit?” Stenger said.

He said he does not advocate eliminating the energy efficiency utility, but it needs to run a tight ship. There needs to be vigilant, aggressive oversight, if the program is going to work, Stenger said.

And there is oversight. The Public Service Board issued a request for proposal for an independent auditor to review and verify the savings Efficiency Vermont achieved and reported from 2008 to 2010. The audit is required every three years by statute. The last audit in 2008 found the program was in fact very effective and returned $1.61 for each dollar spent in the business sector.

Jim Merriam, director of Efficiency Vermont, says the majority of businesses appreciate the technical expertise the utility offers. It allows them to receive consultation on lighting one year and heating and cooling the next without having to hire experts in-house.

“Businesses clearly understand that to be able to get a benefit from Efficiency Vermont they need to participate and work with Efficiency Vermont,” he said. “Once they do that, they see that we can really create a return on investment.”

This December, Terry Kinter, director of operations at Fairbanks Scales in St. Johnsbury, offered a tour of the manufacturing facility’s new state-of-the-art lighting system.

The business is one of 60 that took Efficiency Vermont’s “Energy Leadership Challenge” to reduce their energy usage by 7.5 percent over two years.

Fairbanks Scales will be able to pay off the renovation in the company’s 250,000-square-foot facility in five years, Kinter said. With help from Efficiency Vermont, the company was able to meet its bottom line and potentially save about $37,000 annually.

The Fairbanks Scales project helped another local business, Sutton Valley Electrical, obtain a large contract to install the new lighting system.

IBM, the largest private employer in the state and likely the largest energy user, has taken its own approach to efficiency. Currently, IBM is in the second-year of a three-year pilot program that requires the company to invest $1 million in efficiency measures. IBM is exempt from the charge because of this program, which started in 2009.

Janet Doyle, who works on energy and environmental programs at IBM in Vermont, said the idea of the self-managed program was to allow the company to retain capital it would have spent on the energy efficiency charge and put it to work on larger projects. Before, IBM would pay the energy efficiency charge, but it would be a year and a half to two years before it got the money back in the form of a rebate to invest in an efficiency project.

Unlike most companies, IBM had the technical expertise in house to go it alone. Highly-specialized technical staff allowed it to implement its own efficiency projects without the help of Efficiency Vermont.

Doyle said the company has reduced its electricity usage by 100 million kilowatt hours in the past 10 years.

“One of the results of our program is we’ve benchmarked it and found it’s very cost-effective,” Doyle said.

IBM recently added a new addition that replaces part of its cooling demand in the winter with cold air from outside. Even with a focus on efficiency, however, Doyle said it is difficult to keep up with rising energy costs.

Another large energy user, the University of Vermont, broke even last year with its efficiency measures that it pays for the Burlington Electric Department efficiency program.

According to Gioia Thompson, director of the university’s Office of Sustainability, the institution spent about $160,000 on the energy efficiency charge and got back about the same in $100,000 in rebates and about $60,000 in expertise — about one full-time-equivalent salary for a year.

UVM has been working on efficiency since the 1990s with the Burlington Electric Department, which also now has an order of appointment from the Public Service Board.

Thompson said the benefits of rebates for new technologies that would not otherwise be on the market along with the technical expertise offered by the city electric department have been a big benefit for the university.

While businesses individually bear a substantial burden for their energy usage, according to numbers from Efficiency Vermont, multi-family housing constituted another large electricity usage sector with 420,000 megawatt hours used in 2009. Universities and colleges used 140,000. Ski areas 125,000, followed by K-12 schools, hospitals and water and wastewater facilities. So while big business takes big hits on the charge, individually ratepayers pitch in a massive amount also just in smaller doses.

Richard Sedano, director of United States programs for the Regulatory Assistance Project, said Vermont’s focus on efficiency is a form of building business infrastructure. Having experts in the state to offer assistance as well as doing things like training contractors in the area of efficiency puts the state ahead of most others. Focusing on creating enough economies of scale to really tackle big projects and big programs is key, Sedano said.

One of the things that people forget, he said, is that not everything is directly cost-based. For example, while a business may not receive in benefits exactly what it pays for the energy efficiency charge, people in cities do the same thing. It costs more to serve people in rural areas than urban spots, but people in cities are OK with paying higher rates than it actually costs the utility to deliver power while rural residents actually pay less than the real cost for delivering electricity to them.

Looking at the big picture, the efficiency surcharge debate over who pays for it and how may be largely ideological. The bottom line, however, is that it is big money, and businesses (and ratepayers in the aggregate) shell out big dollars. The savings, according to Efficiency Vermont, are big too. The upcoming audit will have to verify just how big.

Alan Panebaker

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  • Townsend Peters

    The purpose of Efficiency Vermont (EVT) is to acquire demand-side resources for the state’s utilities that are cheaper than buying supply-side resources.

    In other words, EVT pays for more efficient use of electricity because it avoids the utility’s buying more expensive power – and the environmental impacts of that power generation.

    Mr. Panebaker’s article completely misses this central point. If businesses – and residents – weren’t paying for EVT’s actions, they’d be paying the utility’s costs in buying more expensive power.

    Demand-side reduction was a part of utility planning to serve customers before EVT was ever put into existence, and the costs for buying these resources were in utility rates, along with the costs of buying supply resources.

    Calling the efficiency charge a tax is biased and inaccurate. It raises money to purchase resources to address electric demand, in the same way that electric rates raise revenue that purchases _supply_ resources to meet that demand.

    I don’t directly benefit when my utility buys an additional block of power because some big business needs it. Am I being taxed, Mr. Panebaker?

  • Any cost reduction benefits from the money spent by Efficiency Vermont will be more than offset by the increased cost of energy households and businesses will have to pay as a result of the increasing high-cost wind and solar energy rolled into the rate-bases of utilities.

    Rep. Klein, House Committee on Natural Resources and Energy, plans to
    introduce legislation that would roll the state’s Sustainably Priced
    Energy Enterprise Development (SPEED) program into a Mandatory
    Renewable Portfolio Standard, MRPS, and lift the 50 MW cap on
    the SPEED program.

    Utilities would be required to buy any and all renewable energy at
    whatever price/kWh, or at some pre-determined, above-market price, whenever offered, whether a utility would need the energy or not. The extra costs would be rolled into the rate schedules. Note; the annual average New England grid price has been steady at 5.5 c/kWh for the past few years.

    These measures would be the ultimate benefit for renewables vendors, project
    developers and LLC-tax-shelter promotors, and the ultimate kick in the
    teeth for household and business rate payers, and the ultimate state
    interference in the operations of utilities. Free enterprise? Democracy? Fair play?

    The current SPEED program promotes renewable energy development by ENCOURAGING long-term contracts for electricity from renewable sources. Currently, the program is NOT mandatory; under Klein’s bill it would be mandatory.

    Klein’s bill would also expand the different types of energy utilities
    would be requirement to have in their portfolios.

    Self-management of energy efficiency measures by households and businesses is a much more effective and a less costly way to reduce energy consumption and CO2 emissions.

    About 67% of EV’s budget is for salaries, benefits, office expenses, travel, etc.

    It is amazing EV, previously operating on a contract basis, is now operating on an appointment basis, and that this just now is becoming more publicly known.
    One wonders what is next.

  • Lance Hagen

    Simply put, the people or organizations receiving the benefits of EV efforts are the ones that should be paying for EV services. Efficiency Vermont should be self sufficient with funding from the ones seeing the saving and not from rate payers.

    Divorcing the funding mechanism from the benefactors provides no driving force for customer satisfaction or necessity for an effective and efficient organization. The end result is that you will end up with a bureaucratic organization which spends significant amount of manpower generating presentations to justify their existence.

    • Doug Hoffer

      I guess you didn’t read Townsend Peters’ excellent post above.

      • Lance Hagen

        Actually Doug, I did read Mr. Peters post and I don’t buy his premise that the next unit of power purchased will cost more than the prior unit in some type of continuous fashion. And that premise has to be true in order to make the claim that all rate payers benefit. There may be at some point (when demand is high), that the price would jump or increase, but there no indication that such a ‘jump’ or step point is reached with or without EV saving in power usage.

        So I still contend that there are a large numbers of rate payers that receive no value from EV.

        • Doug Hoffer

          I’m afraid you may have misunderstood. Buying efficiency (if done well) is cheaper than buying power. The whole point is to buy “negawatts” at a price lower than purchased electricity.

          It’s a fact. The PSB would shut it down in a heartbeat if it wasn’t. I really hope you will read the available materials. This is an excellent investment.

          • Lance Hagen

            You seem to be missing my point. I am not against efficiency efforts. I question the funding methodology. It can be an ‘excellent investments’ to the people receiving the savings when there is someone else, who not seeing any benefit of these saving, paying for it.

            EV should operate as a business and if they do as good as they claim, they should have no problem operating without rate payer funding.

  • Scott Mackey

    It would be interesting if you researched and reported on the Burlington program. Do they pay less (or more) than the rest of us? Why are they excluded from an otherwise statewide program?

  • Lance,
    Efficiency Vermont should be dismantled; it is a political way, not an efficient way, to reduce energy costs and CO2. The 5% surcharge on electric bills should be eliminated. In this poor, no-growth economy, Vermont’s households and businesses are already burdened enough with the steadily increasing cost of government.
    EVs activities can be entirely replaced by already existing engineering firms.
    Instead of EV, all that is needed is an strict, ENFORCED, energy efficiency code for new houses and other new buildings and a cash subsidy program to upgrade existing buildings that can be upgraded at minimal cost and with paybacks of less than 5 years.
    Quickly do the low-hanging fruits first, create savings, then do the rest of the energy efficiency; this is NOT rocket science.

  • Tom Sabatini

    As a commercial user of electricity
    why do we have to pay sales tax on
    the involutary contribution to Energy

  • Peter J Chilos

    Can Oil Companies charge a 1% Surcharge to its customers?

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