Vermont electricity costs likely will rise

By Guy Page

Several cost-of-power factors inside and outside of Vermont could raise the cost of Vermont’s electricity. These factors vary in impact. Some are related to Vermont Yankee, others are not. But taken together they strongly suggest upward pressure on the cost of Vermont electricity.

Every ratepayer in Vermont will be assessed a new, flat 55 cent per month fee to support the Vermont Clean Energy Development Fund (VCEDF), under a House bill expected to pass this session. To date VCEDF has been funded mostly by Vermont Yankee and a one-time infusion of federal stimulus funds. The Vermont Yankee share is scheduled to discontinue when the plant’s license expires in March 2012.

The cost of New England “grid” power is expected to increase. Demand for electricity is expected to increase from the actual 2009 peak of 960 megawatts by 23% to 1180 MW by 2018 [ISO-New England, http://www.iso-ne.com/pubs/pubcomm/pres_spchs/2010/vt_senate_finance_committee_ppt.pdf, pg. 23]. Even if Vermont Yankee’s license is extended and Vermont utilities agree to buy another 270 megawatts beyond March 2012, increased demand will create a large gap in the state’s power portfolio. Without Vermont Yankee, utilities must find at least 400 megawatts from sources as yet undetermined. The process to address this energy challenge (and others) in a revised state energy plan was outlined Tuesday, March 22 by Vermont Public Service Department Commissioner Elizabeth Miller. The final document will be ready in October, she said.

Most informed observers, including utility spokespersons and Vermont Public Service Board Chair James Volz, point to the likely source of replacement power as the ISO-New England grid, comprised mostly of natural gas, nuclear, and coal-fired independent power operators. Grid power prices are likely to rise, for at least three distinct possible reasons: replacing Vermont Yankee’s contribution with more expensive power, paying for regional transmission improvements, and the projected increase in the cost of natural gas.

Rate increases due to the higher cost of replacement power – Eric Wilkinson, external affairs representative for ISO – New England, told members of the Vermont Energy Partnership at a March 24 luncheon in Montpelier that neither he nor ISO-New England have a position for or against relicensing Vermont Yankee. Minutes later he said:

“If Vermont Yankee is out of commission, one potential issue is that more expensive generation might need to come on to take over the generation from Vermont Yankee. Ratepayers will have to pay the additional cost of that additional generation. We feel that if Vermont Yankee is out of service that might put an overall increase into general electric rates. They are a low-cost resource, so if they are gone other resources will have to come on….generally speaking their [Vermont Yankee’s] costs are much lower than the other takers….We can expect some rather heated discussions about whose ratepayers will have to pick up those costs in the future.”

Rate increases due to transmission reliability challenges – Vermont Yankee’s unique geographical location in the New England power grid will affect transmission reliability if the plant goes offline, because the plant controls voltage for much of New England, Wilkinson said. Considerable transmission changes would be required to maintain current levels of reliability. ISO-NE is studying the problem and expects to release data and conclusions in several stages, beginning in April and concluding in August, Wilkinson said. Some improvements will be necessary regardless of Vermont Yankee’s status, but problems will be more severe without the plant, he said.

ISO-NE regulations require that the cost for transmission improvements and, if needed, new construction be borne equally by all states according to their power usage. However, Wilkinson acknowledged that this practice may be questioned by other states: “We can easily foresee some of the other states not being particularly happy with that, and we can foresee some discussion of that.” Clearly that discussion would include financial consequences to Vermont for allowing Vermont Yankee to close.

Also of interest, but of less certain rate impact, are developments in fossil-fuel generation in New England. Wilkinson said several older oil-fired plants are scheduled for retirement. As a result the grid’s electricity surplus will be smaller in the future. Also, the U.S. Environmental Protection Agency announced March 16 that coal-fired plants must meet new emission guidelines. The fired power plants as the region’s highest single-point sources of smog and acid rain emissions.

Rate increases due to the projected increase in the cost of natural gas. In recent years, New England ratepayers have benefited from the sharp drop in the cost of natural gas. According to the U.S. Energy Information Administration, a measured, steady increase in natural gas prices is expected: see pg. 27 of “Annual Energy Outlook 2011”, Dec. 2010, (http://www.eia.gov/neic/speeches/newell_12162010.pdf. The buffering effects of the declining price of natural gas will be no longer be available to utilities that are also buying more costly forms of electricity.

What do these developments mean to Vermonters? Given the likely increase in the cost of electricity, Vermont policymakers must redouble their efforts to find low-cost power alternatives.

The Vermont Energy Partnership (www.vtep.org) is a diverse group of more than 90 business, labor, and community leaders committed to finding clean, affordable and reliable electricity solutions. Its mission is to educate policy makers, the media, businesses, and the general public about why electricity is imperative for prosperity, and about the optimal solutions to preserve and expand our electricity network. Entergy, owner of Vermont Yankee, is a member of the Vermont Energy Partnership.

 

Guy Page

Communications Director

Vermont Energy Partnership

802-505-0448