Commentary

Christine Hallquist: Pricing renewable energy right

Editor’s note: This commentary is by Christine Hallquist, who is CEO of Vermont Electric Cooperative.

Vermont Electric Cooperative (VEC) is a not-for-profit, member-owned cooperative. Starting in the 1930s, cooperatives brought electricity to areas that were not profitable to serve, and today they provide electricity to 75 percent of the U.S. land mass. As the second largest electric utility in Vermont and the largest locally owned electric utility, VEC strives to provide safe, reliable electric service in the most cost-effective way. Surveys routinely show that VEC members want more renewable energy and they want to keep rates as low as possible. These goals are not mutually exclusive, and as the state sets the new rates for net metering it is essential that both these goals are kept in mind.

We know that state, utility and personal budgets are tight. We should not pay more than we need to for infrastructure, including renewable energy through the net metering program. Every extra dollar spent on net metering is a dollar not spent on other electric infrastructure, service or safety. VEC estimates that at current net metering levels, we will pay $1.6 million more annually for net-metered renewable energy than the value that energy provides to the cooperative. To balance the needs of all our members, those that net meter and those that do not, we should pay only as much as we need to for net-metered renewable energy.

The Public Service Board is working on new net metering rules right now, and we urge them, along with lawmakers and the administration, to put us on a path to a sustainable program. Policy makers should incorporate these core principles in the future net metering program:

Everyone who uses the grid should pay for the grid.

The net metering system to date has not included a “grid service” fee and needs to. People who net meter are not “off the grid” but in fact use the grid 24 hours a day both to send and receive energy. Maintaining the grid for all co-op members requires significant cost and all users should contribute their fair share.

Current policy has led to more than half of our net metering capacity being taken up by developer-driven, large-scale projects rather than household rooftop net metering. We do not believe that was the intent of the program.

 

Pricing for net metering needs to reflect market realities.

The prices, once set by the state, are non-negotiable and non-responsive to competitive market conditions. We can buy electricity on the open market for under $.04/kWh, and we pay $.11/kWh for standard offer renewable energy, but we are currently required to pay $.19/kWh or $.20/kWh for net metered energy that may not even include the Renewable Energy Certificates (RECs). The current system is not in line with the market realities of the value of renewable energy or how much it costs to develop. We should not be forced to overpay for net metered renewable energy.

One size does not fit all.

Rural utilities provide great service and innovation, but the economics for delivering basic services are different than in larger or more densely populated areas. The cost of maintaining the electrical system in a rural utility is by definition more expensive, and those costs are shared amongst fewer people. Rural systems also have less expensive open land that may attract more large-scale renewable energy projects (net metered and other), especially if the required rates are above what is justified by the market. Future policy must accommodate these differences so that we do not drive projects to locations further from the load and where any subsidies in the form of artificially high rates are supported by a smaller population.

VEC was hopeful that we would no longer need to have a cap on the amount of net metered energy in our territory, but unless the policy considerations outlined above are adhered to, we will need a cap and will need to potentially reduce the maximum net metered project size, in order to minimize financial exposure to our members. Current policy has led to more than half of our net metering capacity being taken up by developer-driven, large-scale projects rather than household rooftop net metering. We do not believe that was the intent of the program.

With a thoughtful and sustainable approach that considers all interests, net metering can be a successful part of the state’s overall renewable energy strategy. In Vermont, we need to work together to create the renewable electric grid of the future, which will require innovation, investment and a tough look at the real-world challenges that stand in the way of reducing carbon-based power sources.


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  • Jim Christiansen

    Its clear the Co-op is no longer viable in the modern energy market. It is time to level the energy field for all Vermonters through further consolidation of this essential infrastructure. It is time for the stand alone Co-op model to go away.

    • Tom Grout

      So it is your belief Jim that the only home at the end of a 7 mile electric distribution line should be able to utilize the grid and not pay for any costs associated with the grid? If yes, do you also believe all tractor trailers outside of Vermont should be exempt from Vermont’s diesal fuel tax and the rest of us smaller vehicle users pay the difference?

    • Kim Fried

      Jim not everyone like you and Montpelier believes that bigger is better. Did you learn anything from the recent past “to big to fail” fiasco? Guess not.
      Thank you Christine for a very informative article and for the great service you provide your Co-op customers with.

      • Jim Christiansen

        Deep breaths people. Obviously, bigger isn’t always better, but burying your head in the sand to the political realities of today isn’t a plan.

        Legislative energy policy has rendered the small Co-op no longer viable in Vermont. The small Co-ops cannot afford to maintain and improve their infrastructure and provide access to benefits the Legislature has mandated at a competitive price to their members. The current electric distribution structure economically disenfranchises some Vermonters (usually those who are rural and often with less means) with higher energy rates.

        As for a base grid maintainance fee for everyone with a meter? Based on the laws in place today, yes.

        Like it or not, the rules of the energy game in Vermont have changed, permanently. It is no longer 1950. It is time to level the field, and if that means consolidation, than so be it.

  • Craig Kneeland

    Both large and small-scale renewable energy projects are needed if we are serious about reducing climate change. Vermont Electric Cooperative needs to consider joining with other co-ops and municipalities to achieve economy of scale generation and distribution resources. Every KWH produced locally not only saves us from sending money elsewhere for wholesale power but also paying considerable money for very inefficient transmission of power for hundreds of miles. Net Metering is only one resource for solving the transmission problem.

    • Willem post

      Craig,
      The PV solar energy may be locally produced, but if the facility is owned by out of state multi-millionaires, the money is sent out of state.

      Also these multi-millionaires get up to 27 c/kWh for that solar energy; wholesale electric prices have been about 4 – 5 c/kWh for the past 5 years.

      The PSB sets these coddling rates by some convoluted manner, that I am sure, Christine Halquist would judge to be grossly inappropriate and excessive, i.e., bending over backward to set high rates.

      Vermont, a poorer state, has among the highest feed in tariffs in the US!

      In Germany, a very rich state, solar feed in tariffs are about 13 eurocent/kWh, or less; Germany has worse solar conditions than Vermont.

      If on top of that, the RECs are sold to out of state entities by these multi-millionaires, and Vermonters get to pay through the nose, but do not even get to wear the feel-good, green HALO!

  • Bob Zeliff

    Well said.

    While it is true that we must migrate toward a more distributed renewable power sources, it is also clear that this migration will cost money. The use and nature of the Grid, especially the back bone will need to change.

    This investment for the future will largely be born by the rate payers. Investors in renewable energy must share in this cost. Net metering rates and other incentives (RECs, etc) should be moderated reflecting the increasing efficiency of renewable energy. Rural companies like the Co-op have far different maintenance and distribution cost than Burlington Electric.

    A fair middle ground needs to be found, and adjusted periodically.

    • Willem post

      Bob,
      In Germany, all PV solar systems have two smart meters, one records all solar production, and the utility credits the owner kWh x feed in tariff on the monthly bill.

      In this manner the utilities and the German government exactly know the produced energy at any time during the year. Sounds logical?

      The other meter measures the owner’s use, and the monthly bill shows all the normal electric rates, surcharges, taxes, fees, etc.

      In this manner the owner fully pays for grid upkeep.

      The owner ALSO uses the grid to feed in his production, but that EXTRA use of the grid is not charged to the owner!

      It defies logic as to how Vermont failed to be a leader by not having a rational system, similar to that of Germany.

      • Patrick Zachary

        That is the definition of VT politics – defies logic!

  • John Greenberg

    Christine Halquist:

    First, thanks for this piece: you raise issues that need answers.

    I’m perplexed about your first point. As a former VEC customer (CVPS bought our territory, and GMP bought CVPS) and a current GMP customer, my electric bill has a service or on the current GMP bill “customer” charge as well as a charge for the KWH used (plus others). My recollection is that VEC bills may have used different terms but had similarly broken down charges in recent years, but perhaps that’s not the case.

    I thought the purpose of the service or customer charge was to bill ratepayers for the utility’s fixed costs, while the power charge covered the cost of providing electricity. I also thought that net metered customers can see their power charges reduced to zero, but not beyond and that if more electricity is produced in a given month than consumed, the customer pays zero for power for the month in question and then gets a credit of the excess amount in the ensuing month. In addition, it was my understanding that if, at the end of the year, a customer has a net credit balance (i.e. if the customer has produced more power than he or she has consumed) that the excess balance is forfeited to the utility. Finally, it is my understanding that net metered customers cannot apply power charge balances to service charges.

    If any or all of this is wrong, please clarify. If not, then why doesn’t the service charge (which is per day, and not related to usage) already cover the grid use of net metered customers? If my last statement about service charges is wrong (as your piece would appear to imply), wouldn’t that be a simple fix for the problem you’ve raised about grid charges?

    On a larger point, I’d be interested in knowing more about where the limitations on billing and rate structure are in this state. For example, various commenters here (Moshe Braner and I in particular) have suggested that electric rates should rise with consumption: i.e. 1st 500 KWH @ rate Y; next 1,000 at rate 1.5x rate Y, etc. CA has done this for years. I proposed it at a VEC annual meeting 40 years ago this summer. What prevents VEC (or any utility in VT) from doing this? Are there legislative enactments? Has the PSB refused such structures? Or has VEC not proposed them?

    Similarly, is there a reason why Vermont utilities do not adopt time of day rates more generally? I know that some utilities (or maybe all) offer off-peak rates for devices like hot water heaters, but now that we have smart meters, why not charge everybody more for power when it costs more than when wholesale rates are lower? Is this a utility decision? A PSB decision? Or a legislative decision?

    You mention rates that you are required to pay to net metered customers. My understanding is that these are set by the PSB following legislative mandates. But does that mean that VEC could not propose an alternative system, if it complied with legislative intent and better met your needs? Where is the constraint?

    Like you, I would like to see net metering continue in Vermont, but also like you, I want it to do so in a way that is fair and equitable for everyone. On this like many issues, the devil as they say is in the details. I’d be most grateful if you could provide more of the details.

    • Willem Post

      John Greenberg,

      The RATIONAL fix is for Vermont to do it the German* way, as I described in my above comment.

      *Most European countries also do it the German way.

      The German way ENSURES the PV solar system owner pays for grid usage for his OWN consumption, as he always did, before he installed his PV solar system.

      This whole bro-ha-ha could have been avoided.

      Why did Bray, Klein, et al., not do their jobs to get it right in the first place? They HAD Germany as an example!

      It defies logic as to how Vermont failed to be a leader by not having a rational system, similar to that of Germany.

    • Christine Hallquist

      John,
      The current net metering statute, along with the latest proposed rule from the Public Service Board allows net metering members to roll the entire bill to zero. When the bill goes to zero, users do not pay a service fee (or meter charge) for their use of the grid. As to the discussion about rates that rise with consumption, that is part of the overall public policy discussion of how we handle our electric rates and there are strong opinions on both sides. At the present time, VEC is limiting its immediate focus on getting a sustainable and equitable net metering policy.

      • Willem post

        Christine,
        Please be so kind to make a comment on the German method I described in my comments?

        It seems to be a rational approach to the present inequitable approach.

        • Willem,
          The German method is excellent. VEC would be happy to support this kind of a methodology.

      • John Greenberg

        Christine Hallquist:

        First, apologies for spelling your name wrong in my previous comment. Many thanks for your reply.

        If I can state my general point more succinctly, I am really asking how much of the details of these policies is determined by the legislature, how much by Board decisions, and how much by what the utilities bring to the Board for its rulings?

        For example, you write: “The current net metering statute, along with the latest proposed rule from the Public Service Board allows net metering members to roll the entire bill to zero.” Has any utility proposed to allow net metering customers to roll back only the usage portion of their bills? Has the proposal been made and declined or hasn’t it ever been made? If declined, what is the basis for declining it? If it hasn’t been proposed, wouldn’t it constitute a very simple solution to at least the grid-sharing aspect of the problem? (I understand that the question of retail vs. wholesale RATES for the power “exchanged” would remain as well as the question of whether any adder should be mandated or allowed).

        On the broader issue, I’m aware of the differences of opinion that are out there, believe me. My questions really concern not so much the substance of the issues, e.g. of rate structure, but rather HOW issues like rate structures actually take material form in Vermont and how they can be changed.

        I suppose that ordinary citizens can always go to the legislature and demand that it enact laws requiring this rate structure or that one. But the obvious problem with that solution is that 180 citizen legislators with little knowledge or experience of any of the details of utility regulation would suddenly be writing detailed planning laws which would then require ongoing monitoring and vigilance thanks to technological, market, and other day-to-day changes. My guess is that legislators, quite correctly, would be loathe to write such laws.

        So what I’m effectively fishing for is a better understanding of how the practices in place actually work in terms of setting these policies, in particular for those of us who live in areas where IOUs rather than co-ops or municipals supply their power. But even in Co-op territory, I don’t recall getting a very serious answer to the question I raised from the floor at the annual meeting concerning rate structure, so these issues seem to be getting hashed out in forums where citizens have little input.

        Having articulated that, I’m not at all certain that it’s correct, and that’s really what I’m asking you. Anything you could offer here which better lays out how the process works, who does what and under what circumstances would be very helpful, I think, not just to me but to many others who bring passionate viewpoints to these issues. In my view, that would be a really helpful contribution to the public debate over electricity issues in Vermont.

        • John,

          There is no simple answer to your question regarding the PSB or the Legislature setting the terms. Both are processes of public policy. In 2014, the Legislature was considering setting prices and detailed policy. VEC strongly urged that this get done at the PSB. The final legislation stated that the PSB should determine a policy and submit it to the legislature in 2016. On February 19, the PSB put out a set of rules that were the results of a lot of hard mathematical work and the rules addressed the cost-shift problems. For some reason they put out a revised set of rules on March 7 where they completely reversed their decision and propose to allow the practice of overpaying (thus continuing the cost-shift). They also allowed for the continuation of subsidization of larger scale projects. Over 1/2 of VEC’s net metering cap is filled with bigger projects, which has squeezed out roof-top residential.

          The simple answer to your question “Has any utility proposed to allow net metering customers to roll back only the usage portion of their bills?” is a Yes. VEC has been aggressively arguing that position since 2011, and we will continue to do so. Economic justice is important to VEC as we serve the poorest regions of the state.

          • Moshe Braner

            Those net-metering customers who contribute enough energy to the grid to zero out their bills DO pay the usual amount for grid maintenance – they just pay in energy rather than money. That energy is sold to other customers, thus converted to cash that can then be used for grid maintenance.

            Whether the payment of 20+ cents per solar KWH makes sense is a whole ‘nuther issue, that applies to the first KWH as well as the last one. In my view it is a public subsidy for those who over-use air conditioning, thus creating the high demand during sunny summer afternoons. To stop this unfair cost shift the utilities need to start charging higher rates during those high-demand times. That’s what we spent the money on “smart meters” for.

          • Annette Smith

            The only clue I got about why things changed with the revised set of rules was when I heard PSB member Margaret Cheney describe the comments the Board got on the rules, and in one context she said “a lot of the comments…” and therefore they went with what appears to have been a popular vote. That was after the usual suspects — VPIRG, etc. — issued an alert telling people to flood the PSB with comments about some of those specific proposals. As far as I can tell, in the legislature, DPS, the PSB and the administration, VPIRG and their ilk are running the show. They don’t intervene in PSB cases, they don’t participate at all, yet they are the ones the legislators and the PSB seem to be listening to.

          • John Greenberg

            “As far as I can tell, in the legislature, DPS, the PSB and the administration, VPIRG and their ilk are running the show. They don’t intervene in PSB cases …”

            DPS is involved in most, if not all PSB cases and VPIRG has often intervened as well.

          • John Greenberg

            Thanks again Christine.