Vermonters will see power rate hikes as utilities pass along millions of dollars in transmission upgrade costs
Green Mountain Power announced last week that it has reached an agreement with the state that would allow the utility to raise electricity rates by up to 5 percent over the next two years. A 2.5 percent rate hike that would go into effect in October 2013 would pay for upgrades to the Vermont and New England power grid system.
Regional transmission utility officials expect utilities in New England to spend about $8 billion on upgrades over the next five years; those costs will be passed on to ratepayers.
Vermont’s appetite for power accounts for roughly 4 percent of New England’s power demand, so Vermont ratepayers are responsible for paying 4 percent of the overall cost for regional grid reliability projects. That means next year Vermonters would be on the hook for about $76 million in new circuit breakers, high-voltage lines and upgrades that are mostly being installed out of state.
New England transmission costs are projected to rise 38 percent from 2012 to 2016. According to a recent report from VELCO, Vermont’s power transmission utility, the cost of maintaining the grid would go up from $75 to $115 per kilowatt a year.
Christopher Dutton, the CEO of VELCO, said the New England grid will need $1.755 billion in 2013 upgrades. That number is expected to rise to $1.897 billion in 2014, to $2.082 billion in 2015 and to $2.227 billion in 2016.
“The rate of increase is substantial,” Dutton said. “It’s in the 7-10 percent annual range. These numbers are all driven by capital additions and the determination by ISO New England and the transmission companies that they are needed for reliability purposes.”
Ellen Foley, a spokesperson for ISO New England, the regional grid operator, says the costs are spread out among states.
“Vermont benefits from being part of a reliable system,” she said. “As a result, there’s a transmission cost sharing agreement that is socialized across the six New England states. It’s based on network load.”
The upgrades and the costs
Roughly 10 years ago, New England utilities began beefing up the grid in response to the 2003 Northeast blackout that affected states from Ohio to Massachusetts, as well as Ontario, Canada.
Tens of thousands of Americans went without power, several deaths were reported due to complications associated with the outage, and the event had a crippling effect on the economy.
“The transmission system here in New England had to play catch-up after little investment,” Foley said. “Roughly $5 billion worth of investments have been made in the past decade. And 4 percent of that is roughly $200 million Vermont has paid for. In the past decade, there have been numerous projects in the state of Vermont.”
Major transmission upgrades in the southern and northwest regions of Vermont have cost more than $500 million, she said, and 96 percent of that bill was carried by other states.
Dutton said a decade ago upgrade costs accounted for 5 percent to 7 percent of a ratepayer’s bill. At that time, Dutton was CEO of Green Mountain Power. He said those costs now account for about 12 percent to 15 percent of a Vermonter’s overall power bill.
Vermont rate hikes
On Thursday, Green Mountain Power submitted a new rate filing to the Vermont Public Service Board to raise rates by 2.46 percent on Oct. 1, 2013.
The state’s largest utility promised not to raise rates by more than 2.5 percent in 2014, and company representatives say they’ll try to keep rates level. The increases in 2013 would go toward GMP’s $24 million portion of upgrades for the Vermont and New England grid. Green Mountain Power originally asked for a 3.81 percent increase, and the utility and the Vermont Department of Public Service agreed in a memorandum of understanding to spread out those costs over two years.
GMP spokesperson Dottie Schnure said grid reliability upgrades associated with the Kingdom Community Wind project were not factored into these cost increases, and ratepayers from her utility will benefit from upgrades in other states.
“A reliability problem in one part of the region can affect the entire region,” she said. “We pay a portion of the reliability upgrades because it’s in all of our interest to make sure that the grid is reliable.”
David Hallquist, CEO of Vermont Electric Cooperative, said most Vermont ratepayers would see rate hikes, but some utilities have indicated they would be able to hold costs level.
“We’re all under the same transmission pressures, so our rate increases should generally be pretty close,” he said, adding that Vermont Electric wouldn’t set new rates until mid-November.
Tailoring the grid to renewable energy
Chris Recchia, commissioner of the Public Service Department, says as more on-site renewable energy generation pops up across the state and New England, in the future there won’t be a need for the same level of investment in transmission.
“You don’t need as robust a transmission system if you’re generating on-site and not moving power such long distances,” Recchia said.
What concerns Recchia and his deputy Darren Springer is that a growing number of these small generation projects – mainly solar and wind – are not factored into ISO’s planning.
“The costs of the grid are socialized to all ratepayers. But these so-called non-transmission deployments are not,” Springer said. “If you look at the more environmentally friendly and cost-efficient options those are not included in this equation.”
Gov. Peter Shumlin last week urged ISO to begin including small renewable energy projects in its planning.
Foley says that ISO is committed to better integrating renewable resources in the grid, and the grid operator would devote a major chunk of its annual public meeting to this issue.
“We’re at a time in history with the region’s power grid where state policy goals that have been enacted over the past several years for increased renewables will change the makeup of the system,” she said. “ISO recognizes that and will accommodate for that.”
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