Real cost of state’s renewable energy program unknown, economist says

The full economic impact of Vermont’s proposed renewable energy program is unknown, according to an economic adviser for the Legislature.

Tom Kavet
Tom Kavet, an economic adviser for the Vermont Legislature, testified before the House Ways and Means Committee on Tuesday on the cost impact of Vermont’s proposed renewable energy program. Photo by John Herrick/VTDigger

Tom Kavet, an economist with Kavet, Rockler and Associates, reviewed the cost to ratepayers of H.40, a proposed renewable energy program to require utilities to sell renewable electricity and reduce their customers’ fossil fuel consumption.

“Energy prices are notoriously difficult to forecast. They’re all over the map,” Kavet told the House Ways and Means Committee on Tuesday.

Under the proposed RESET program, utilities would be required to purchase renewable electricity or offsets to comply with state standards. They would also be required to reduce their customers’ fossil fuel consumption either through efficiency projects or new technologies like heat pumps or electric vehicle infrastructure investments.

The Department of Public Service, one of the architects of the bill, said the program would increase rates by half a percent in 2017, but reduce rates by half a percent in 2032. The only cost impact assessment of the program publicly available is a two-page document presented to the House Natural Resources and Energy Committee in January.

This analysis includes a host of assumptions, such as the price of fuel oil at $3.25 per gallon, electric rates of 15 cents per kilowatt-hour, and weatherization energy efficiency savings per house of 25 percent, for example.

“Is it flawed? No,” Kavet said. “But I think you want to run more expansive scenarios so you can understand the risks.”

Some lawmakers were not convinced the program would not drive up rates. Adam Greshin, I-Warren, said the entire thrust of the policy is to use more electricity: to use electricity to heat homes and drive cars.

“And here we don’t have a reasonable assumption of what the economic cost will be,” Greshin said.

In order to avoid any unintended rate impact, the bill requires annual reporting on the program that would be used to assist lawmakers in adjusting the program.

Utilities also have the option to put off their compliance obligation until later years, bank extra credits, or petition the Public Service Board to reduce or eliminate their obligation under the program.

“That type of flexibility is unprecedented,” said Darren Springer, deputy commissioner for the Department of Public Service.

Some utilities have had trouble selling credits for renewable electricity generated in Vermont to other power suppliers in New England. These credits, known as renewable energy credits, or RECs, make up $50 million in revenue for utilities. Without them, rates could increase 6 percent statewide.

Connecticut regulators will decide whether the state will continue to purchase credits generated from facilities in Vermont, a decision now about one week past due. But Kavet said the proposed program would allow utilities to continue selling RECs. He said he spoke with officials from Vermont and Connecticut on the issue.

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  • Here we go again. We obviously learned nothing from our experiences with SPEED. Again ready, shoot, aim, when it goes wrong we will scrap it and pass another bill. Here’s a suggestion- if you have to build so much flexibility into this RESET bill, exceptions and exemptions when things go wrong, because we truly don’t understand the consequences or out comes, let’s just get rid of SPEED and either rethink RESET through or scrap it. If we don’t know what we are doing, please do nothing….

  • I made my living as a banker.

    During a long career I witnessed what happened to businesses when the owners didn’t take the time or expend the energy to understand their costs. In all too many instances these businesses failed at high costs that extended well beyond the failed business to other entities and individuals.

    It is difficult to understand why our elected officials have been so willing to race ahead in the recent past and again now with H.40 without fully understanding what they are doing or what the cost consequences may be.

    Rushing ahead without understanding is a huge mistake likely to lead to unwanted and costly results. It is for this reason that I have raised the question of costs related to enacting H.40 over the past few days and have been critical of a “Ready, Fire, Aim” style of management, which seems to be emerging again.

    It is encouraging that the cost issue is now being discuss. Hopefully, those legislators raising cost concerns with H.40 will be heeded and the effort will be made to understand what H.40 is going to cost before plowing blindly ahead.

    • Kathy Nelson

      Understanding the rush on this is not difficult. It arises from an indoctrinated belief that industrial wind turbines and industrial solar arrays will “save the planet”, and, of course, maintain the profit margins of those abusive industries. Tony Klein will do his best for his friends and do his best to crush those nuisance neighbors who will be most affected by this absurd bill. Both SPEED and H40 need to be scrapped. Let the utilities find the best energy bargains for their customers, from whatever baseload generation is available.

      • Willem Post

        This is about schlepping as much federal RE subsidies into the state as quickly as possible before they expire.
        It does not matter haste makes waste and much environmental damage is done due to build outs of RE systems on ridge lines and meadows.
        Siting restriction? Oh Lord no. Vermont might fall behind “saving the planet”. And the moon is made of cheeses.

    • Coleman Dunnar

      Mr. Kavet is spot on regarding his concerns over the Public Services Department’s lack of rigor in it’s analysis of the impacts of H 40. As the leading policy advocate for the administration we should expect nothing less from the Department than presentation of the rosiest picture possible in support of H 40 reality be damned.
      A complicated piece of legislation is express mailed through the committee of jurisdiction. A committee made up of energy neophytes a vote based on analysis done by the proponents of the bill. Analysis limited to presenting only one case without any evidence as to what happens if some of the assumptions made about the future might be in error and what the impacts would be if the future might not turn out to be what the minds at the Department of Infallibility envision. Commenters with extensive backgrounds in economics and finance have already weighed in regarding the large red flags this should raise.
      My take away from reading the Department’s two page presentation is the double-counting permitted under the SPEED program did an excellent job of hiding the true cost to Vermonters. Time to roll back the rug and see what has really been swept under it. What’s the rush Vermonters deserve a rigorous unbiased analysis of proposed policies something which has be sorely lacking under the current administration.

  • Don Peterson

    It turns out creating a carbon free theme park is a heavy lift unless you also want to turn every ridge line in the state into an industrial brownfield.

    Time to call in the marketers. Also, suspending the laws of thermodynamics can be used in these situations.

    New Jersey opted for brownfields over hayfields. More money in it.

  • Townsend Peters

    I would not rely on Mr. Kavet, whose revenue forecasts have gotten the state into the current budget hole.

    I would rely on the Dept. of Public Service’s estimates. The Dept. knows rates and it knows energy. Mr. Kavet is far less expert in these areas than the Dept.

    • Annette Smith

      You might want to read Mr. Kavet’s memo before trashing him.

      Whether or not you’re a fan of his work, he is making valid points about a lack of information upon which assumptions are based.

      • As Chairman of the House Natural Resources and Energy Committee, Tony Klein knew or should have known that the Kavet report was coming. Instead of waiting for the report, he rushed a vote through his committee on H.40.

        After reading the Kavet report, it is now even more apparent that Tony Klein made a significant mistake by rushing the vote on H.40 without doing the level of due diligence that legislation of this complexity and economic magnitude warrants.

        The Kavet report shouts “uncertainty”. Uncertainty means risk. When risk is present the prudent thing to do is slow down. When he should have been slowing down, Tony Klein elected to raced ahead. This is wrong.

        Klein is not supposed to act like a venture capitalist out to make millions by taking high risks. Klein is not playing with his own money. He is a fiduciary with a responsibility to the people of Vermont. He has a duty to make sure things are done in a thorough and thoughtful manner. He did not do so in this case.

        The House Ways and Means Committee now has an opportunity to slow the movement of H.40 in order to do the proper due diligence. With so much at stake, let’s hope that the fog of uncertainty surrounding this bill is cleared before acting.

        At this point, a lot of hard work is still required and many questions need to be answered before this bill is anywhere near ready to be law.

        • John Greenberg


          Remember I tried to tell you 5 days ago that the numbers you’re asking for don’t exist?, February 20, 2015 at 12:24 am and February 20, 2015 at 2:51 pm. Well, now you have the state’s economist trying to tell you the same thing. You’re still not getting the message.

          Remember I also told you in the same set of comments that the bill would be going to HouseWays and Means, and possibly other committees and the floor before it passes even in the House? Do you think Tony Klein didn’t know that? Do you ever consider WHY the House has specialized committees? (Evidently, not). Here’s a quick course in legislation. THIS is why. Ways and Means is the money committee. That’s why they’re taking this testimony, rather than the Energy Committee. The folks on the Ways and Means Committee are far better positioned to assess the witnesses and ask the right questions when it comes to economic and financial matters than those on Energy: that’s the POINT of the specialized committee system.

          Now you declare: “Uncertainty means risk. When risk is present the prudent thing to do is slow down.” Not always, and in particular, not in this instance.

          Slowing down for risk makes good sense when the uncertainty can be resolved by further research. It would be foolish to proceed without easily obtainable knowledge that could inform a better choice.

          But that is simply not what’s happening here. There is NO knowledge which slowing down will allow anyone to obtain: if you put 10 experts in the room, you’re going to get 11 expert opinions (or if you prefer, commission 10 studies, — same thing); As Tom Kavet testified: “Energy prices are notoriously difficult to forecast. They’re all over the map.” Then what?

          There are many circumstances in life where one has to make decisions based on imperfect information and knowledge. A portion of these can be deferred until our knowledge is better, but only a portion. There are also times – and this is one of them – when the knowledge is NEVER likely to be better (barring a currently unforeseeable breakthrough in economic science).

          Moreover, doing nothing – slowing down, as you suggest – is not without its own risks. In this case, at least two of those risks ARE knowable. They are of two distinct types. One is economic: rates WILL go up without legislative action. The other is environmental: maintaining the status quo maintains pollution of a variety of kinds, including, but NOT limited to, addressing the issue of global warming. While we’re waiting, we ARE continuing to frack for oil and gas; we are continuing to burn fossil fuels; we are continuing to risk nuclear accidents. In short, by continuing the status quo, we continue to pollute our environment.

          Prudence is not always what it seems.

          • John:

            I’m for doing the homework to understand and lessen risk before acting and you’re not. This difference between us has been established for some time now.

            The SPEED portion of H.40 needed to be dealt with in an attempt to eliminate the REC problem Tony Klein had a significant role in creating in the first place. The rest of the bill could have been split off and dealt with separately and more deliberately. This is a position I have previously indicated and still hold.

            If this were done the economic and environmental risks you associate with slowing down would go out the window. There are no meaningful risks if the time is taken to do the modeling cited in the Kavet report plus any other prudent due diligence.

            As for your economic risk: Even if the REC problem is fixed, there are no assurances that rates will not go up if H.40 is passed. As a matter of fact they are expected to go up initially. The Department of Public Services long term projected $275 million in net energy bill savings should be heavily discounted based Gov. Shumlin past record with promised saving. You’ll remember the Hsiao $500 million savings Gov. Shumlin promised us to get his health care reform bill passed.

            As for your environmental risk: If Vermont did absolutely nothing with renewable energy it would make no measurable difference in reducing global warming. Vermont is simply too small to have any impact on climate change. This doesn’t mean we should act. It means we should act only after thoroughly doing our homework.

            Other than fixing the REC problem, there is no need to push H.40 forward without completing the due diligence. Legislation that will impact the state for decades to shouldn’t be rushed.

            We have observed too many times already that the “Ready, Fire, Aim” mode of doing business comes with a high cost. It’s time for a change.

          • John Greenberg


            I have repeatedly done you the kindness of reading and responding to what you actually write, rather than attributing to you the positions I find easiest to refute. I would appreciate your doing the same.

            1) “I’m for doing the homework to understand and lessen risk before acting and you’re not.” Horsefeathers.

            I’ve explained in a variety of ways that “homework” works only when there is a body of consensus knowledge to actually draw on. In this case, no such body exists. I won’t repeat my arguments. Tom Kavet is making precisely the same point, completely independently.

            2) “Even if the REC problem is fixed, there are no assurances that rates will not go up if H.40 is passed.” Of course there aren’t, because we don’t know and in the current state of human knowledge, we CAN’T know. No amount of “homework,” – of pausing, research, testimony, studies or whatever it is that you’re asking for — is going to allow us to know. If I’m wrong, tell me exactly who we should consult, what should be studied, and how the study should be conducted.

            I’ve explained to you in detail why this won’t work as has Tom Kavet, far more briefly and succinctly. Since you think we’re wrong, tell us why. It’s a straightforward and reasonable question, which deserves a straightforward and reasonable answer, not another tiresome rant about Peter Shumlin and his management skills.

            3) “As for your environmental risk: If Vermont did absolutely nothing with renewable energy it would make no measurable difference in reducing global warming.” I mentioned global warming in a LIST of environmental pollutants, precisely I didn’t (and still don’t) want to get sidetracked by this spurious debate yet again. So, for the sake of this discussion, let’s just pretend that I’ve conceded your point. You still haven’t addressed the issue of environmental risk from maintaining the status quo, which is the issue I actually raised.

            As long as we in New England depend on natural gas as we currently do, we DO depend on fracking, we do release SO2 and NOX into the atmosphere; we do pollute water, and people DO die from the adverse effects of those pollutants. The same is even truer for oil and coal, though our overall dependence on them in New England is in sharp decline. All these risks are measurable and have, in fact, been measured by EPA (and no doubt, others). They are, in fact, beyond rational dispute. (I’ve provided a very short list; the real list of pollutants and pollutions would be far longer)

            As long as we depend on nuclear power, and in New England we do, we risk catastrophic accident, and we also continue to underwrite the environmental degradation that indisputably results from mining, milling, and enriching uranium. In addition, we have no solution yet to the long-term disposal of spent fuel. (Again, I’ve kept the list short here; these are not the only issues).

            Please address the issues I raised, not the ones you wish I had raised.

          • John McClaughry

            Just to offer some perspective: John G. is deeply concerned about “nuclear accidents”. More Americans were killed skiing down Burke Mountain last week than in the entire 60 year history of the U.S. civilian nuclear electricity program. And that one unfortunate skiier didn’t produce any useful energy.

          • John Greenberg

            John McClaughry:

            “Just to offer some perspective: John G. is deeply concerned about “nuclear accidents”. More Americans were killed skiing down Burke Mountain last week than in the entire 60 year history of the U.S. civilian nuclear electricity program.”

            Even assuming his statement of the facts about the US program were undisputed – and it isn’t – John has carefully avoided mentioned Chernobyl and Fukushima, both of which were supposed to have been impossible until they actually happened. The POSSIBILITY of a nuclear accident is actually not disputed by anyone in the industry that I know, and I know a fair number of folks there.

            John can legitimately question the PROBABILITY of such an accident, and I’m enough of an optimist to hope that they will continue to be infrequent. That said, it’s far from irrational to want to take ANY POSSIBILITY of such a disaster off the table, especially when, in my view (not John’s of course) there are perfectly good alternatives involving far less catastrophic risks, or in the case of efficiency and conservation, none at all.

      • Townsend Peters

        Oh, I did, Ms. Smith.

        Mr. Kavet needs to get his own house in order and figure out why _his_ assumptions about state revenues are always wrong.

        Given his repeated failures, I have no faith in his observations about assumptions made by others who know far more about energy than he does.

        • Annette Smith

          I’m inclined to agree. Not impressed with the economists the state government routinely relies on.

          I wouldn’t bet on those assumptions by others involved in crafting the legislation, either. It is true there is a lack of information about how these programs are going to work.

          No question, though, the ratepayers will pay. New appliances, new cars, buttoning up homes, installing solar panels. Somehow that is going to save everyone money according to the proponents… Except renewable energy costs more, and all those new gizmos are not free.

          As someone who is following this closely I have not seen sufficient information to have any sense of how an electric company becomes a home efficiency expert responsible for billing for technologies installed and leased to customers. Sounds like increased administrative costs for utilities, and with the renewable energy build-out required by the legislation, there will likely also be state administrative staff increases needed to support the program’s goals.

          It seems reasonable to ask legislators to take the time to come to a more complete understanding of how this complex change in energy policy is going to work and how it will play out for ratepayers.

          The other thing about which there is no question is this bill is a gift to the utilities, helping increase consumption and hooking customers into leased equipment. Grid independence is coming and the utilities know it and are desperate to maintain and even increase market share.

          • John Greenberg


            “As someone who is following this closely I have not seen sufficient information to have any sense of how an electric company becomes a home efficiency expert responsible for billing for technologies installed and leased to customers. Sounds like increased administrative costs for utilities, and with the renewable energy build-out required by the legislation, there will likely also be state administrative staff increases needed to support the program’s goals.”

            From the mid to late 1980s to the early 2000s, Vermont utilities administered all of Vermont’s efficiency efforts: there was no EEV until the early 2000s. If I’m not mistaken, BED is still handling its own efficiency programs.

            Beginning even earlier than that, some (perhaps all?) Vermont utilities were in the appliance business. Certainly, I can recall home appliances being available from VEC when we first moved to Vermont in the mid-1970s, and I think CVPS had a main street store in Brattleboro, though I could be mistaken about the latter.

    • Willem Post

      It would be a mistake to rely on the DPS to provide an impartial renewable energy measure assessment.

      I have seen some of the DPS spreadsheets and they are full of rosy assumptions to make the end result look good.

      Most legislators have no idea these spreadsheets are flawed. They usually swallow them hook line and sinker.

      That is what happens when the state sticks its incompetent nose into energy.

  • Annette Smith

    You might want to read Mr. Kavet’s memo before trashing him.

    Whether or not you’re a fan of his work, he is making valid points about a lack of information upon which to base conclusions.

  • Cheryl Ganley

    Please stop. Vermont already has high costs in all areas including energy. Do not make it even more expensive. We do not have an employment base that pays high wages to justify making things even more expensive. If we more forward with making things more expensive you can be guaranteed companies will not move their business here. Nevertheless, this is going to also put added strain on programs for utility assistance, which they are cutting. Please just stop making laws or regulations without knowing the full financial impact on the citizenry.

  • John Greenberg

    Several people have cast aspersions on Tom Kavet’s predictions in these comments. Can any of you name an economist who has made accurate forecasts of ANY economy — state or national level — more than once?

    Many years ago, I subscribed to Business Week, which would regularly print forecasts by “top” economists for GDP growth. The best of them –at least for the several years I subscribed — were “only” off by 100%. I still read other business and finance publications, and the same rate of error still pertains. Geez, it took more than two years for the statisticians to get the magnitude of the “great recession” right and that was trying to write HISTORY correctly, rather than make a forecast.

    Economic forecasting is not a science, even if some pretend that it is. There’s a reason that the quarterly GDP number goes through 3 revisions (and those are retrospective, not prospective). Kavet is far from being alone in getting forecasts wrong. Before you prepare to fire him, you’d better find a better replacement. I’m not at all sure you can; in fact, I’m pretty sure you can’t.

    I don’t follow his forecasts and I don’t know him (FULL disclosure: we had a brief email correspondence and a conversation or 2 about 5 years ago), but everything I know suggests that he’s as good at what he does as anyone.

    In any case, in what pertains to THIS bill, what the article quotes him as saying is absolutely correct: ““Energy prices are notoriously difficult to forecast. They’re all over the map,” Kavet told the House Ways and Means Committee on Tuesday.” I made precisely that point to Peter Yankowski a couple of days ago when he criticized the Energy committee for not forecasting the costs and benefits. Since I spelled out the problem in some detail, I’ll refer readers there, rather than repeating myself:, February 20, 2015 at 12:24 am and February 20, 2015 at 2:51 pm.

  • Hilton Dier

    Might want to throw this into the cost mix: A peer reviewed study by EPA analysts on the health cost per kWh of power plant emissions.

    The general takeaway is that the health costs of power plant emissions exceed the retail cost of electricity. The national average is between 14 and 34 cents per kWh. That’s on top of the retail price. We pay that in taxes for Medicare and Medicaid, insurance premiums, and out of pocket costs.

    Makes renewables look cheap and efficiency look like a steal.

    • John Greenberg

      Hilton Dier:

      Great point. Thank you!

    • Willem Post


      Almost everything you see around you has been made with fossil fuel.

      Can you imagine making all that with sun and solar energy?

      After 12 years of investing about 2 trillion dollars, renewable energy, excluding hydro, was about 3.8% of the world’s total energy production in 2013!!!!!!!l c

  • Melanie Peyser

    Now, if only someone could get DPS to hire at least one qualified economist to look at the VGS pipeline while you’re at it. If legislators are worried that uncertainty in the energy markets could increase rates a few times more than the projected half percent they ought to be much more worried about Phase I of the VGS pipeline, which, with the latest cost increase, is going to increase customer rates by over 15% (and that’s the rosiest view). That’s not to mention the fact that with the drop in oil prices, the under 3,000 companies and residential customers, who were supposed to be clamoring for and meant to benefit from savings through fuel switching will likely pay MORE for VGS’ natural gas than for oil once conversion costs are taken into account.

  • Mr. Kavet doesn’t own the budget, the politicians do. Anyone with a couple of hours could have easily shown why the revenue assumptions made by the Governor’s budget were wildly unrealistic – and the governor’s office and the state pay a sizable number of people to look at this data on a regular basis. If YOY revenues are rising at 2% and you budget for 4%, well, that’s on you, chief.

    Secondly, in the rush to save Gaia, by imposing costs on consumers of energy, we’re really left with one question:

    How’s that working out for Europe?

    We have existing models of failure. We don’t need to fall into the same bear trap because “the environment” gets people elected and re-elected. It’s not really hard to understand why the state is routinely rated as one of the worst business climates in the country, and why our college graduates vacate the state in record numbers.

    There’s a reason. It’s because Democrats.

    • John Greenberg

      Chris Campion:

      “How’s that working out for Europe?”
      Quite well, actually. European energy intensity has been substantially less than the US’s for decades, presumably due in large part to the higher costs of energy imposed by government policies. Thanks to considerable improvement in US performance in the last 30 years, the gap has narrowed over time from over 40% in the 1980s to just under 30% in 2011 (the latest year for which my source provides figures).,r3,groups,&syid=1980&eyid=2011&unit=BTUPUSDM

      • Mr. Greenberg condemns nuclear energy in one breath (Chernobyl and Fukushima) and in the next breath points to Europe as the shining example of having substantially less energy intensity – however he fails to mention that virtually all European countries have a higher reliance on Nuclear power than the US. (some in excess of 35%)

        You can’t accuse John McClaughry of hypocrisy and then turn around and commit the exact same offence.
        Statistics at:

        • John Greenberg

          H. Brooke Paige:

          Mr. Paige claims to find “hypocrisy” where there not even conflict.

          Nuclear power is one way to generate electricity. I happen to think there are better ways, but that’s neither here nor there.

          Energy intensity has NOTHING to do with how power is generated: it’s concerned with how power is CONSUMED, and in particular, with whether or not energy is being wasted. European countries achieve lower energy efficiency not because they favor any particular way of generating power, but because their public and tax policies encourage efficiency and conservation.

          So yes, I agree with SOME European energy policies and disagree with others.

          I’m struggling, unsuccessfully, to find what Mr. Paige believes is the conflict or contradiction between these concepts, let alone my “hypocrisy.”

        • Willem Post

          Europe has a lower energy use per dollar of gross economic product than the U.S., because Europe lacks energy and has to import it at high cost and is more densely populated.

          The U.S. imports very little of its energy, has much less population density, much lower transport distances.

          • Willem Post

            Whereas Europe uses less Btu/$ of gross economic product, those Btus have become very expensive due to heavily subsidized RE system build-outs that produce energy at 2-5 times wholesale prices.

            Germany, an RE leader, has household electric rates of about 30 eurocent/kWh, right behind Denmark, another RE leader.

            These household rates have increased about 100% over the past 12 years.

            For the DPS to claim impacts on electric rates would be minor due to H-40, is like claiming the earth is flat, the moon made of cheese.

            It is a completely ludicrous claim supported with spreadsheets based on dubious assumptions to make the numbers look good.

            DPS is cooking the books, as it did more than 5 years ago regarding the heavily subsidized, expensive SPEED program that produces mostly variable, intermittent, grid-disturbing, energy at 2-5 times wholesale prices, per DPS website data.

  • Willem Post

    One of the main reasons for the lack of recovery from the Great Recession in Europe is the excessive investments in RE systems.

    The investments are a diversion of funds from more profitable economic activities.

    These “investments” produce energy at 2-5 times wholesale price, which act as a major headwind against economic growth.

    Even though RE jobs were created, a much greater number of jobs were lost due to the increasing economic inefficiencies of producing and integrating the variable, intermittent energy.

    EU unemployment remains persistently above 10%-11%.

    In desperation, after lowering interest rates to near zero, the European Central Bank is aiming to get the EU economy moving by creating money out of thin air and using it to buy bonds, etc., that are a black mark on the balance sheets of banks. The hope is banks will make loans!!!

    • Willem Post


      Let us hope the loaned money will not be used to build more RE systems, as that would increase the strength of the RE-induced headwinds.