Special Report: Vermont smack in the middle of crucial electricity supply and demand

VELCO says projects grossly underestimated

Developers are pitching plans, and are now offering states handsome “benefits packages” in seeking their support. In addition, states could earn millions from new property or infrastructure taxes, the leasing of existing right-of-ways and financial returns on public investment in the lines.

But these assurances aren’t enough, according to Kerrick Johnson, vice president of Vermont Electric Power Co., or VELCO.

VELCO, the state’s transmission utility, is looking for any way the state can take advantage of the new proposals. But so far, he says, the plans offer no certain benefit to the state or the region.

“Unfortunately, we don’t think the analyses conducted to date justify the speed at which this is being pursued,” Johnson said of the six-state initiative. He said more time is needed to better understand the multibillion-dollar proposals despite political pressures to move them forward as soon as possible.

“Spend the time in advance,” Johnson said. “Measure twice. Get this right. If you’re talking about speed, that’s the best way to ensure an expeditious energizing of a line.”

Johnson says developers have underestimated the costs for the projects by 80 percent, and as a result, the region’s electric ratepayers could pay hundreds of millions more for the projects. (VELCO uses the same cost assessment method as the region’s grid operator, ISO New England.)

VELCO, however, does not oppose the development of new transmission lines in the region, Johnson said. The utility will work with states, project developers and utilities, he said, but VELCO wants more questions answered before it lends support to projects.

Johnson did not rule out public investment in the lines should the plans prove to be economically viable.

Powerful demand

Electricity prices reached record highs last winter due to the region’s inability to supply enough natural gas to power generators, driving the price of natural gas above the cost of burning coal. Natural gas accounts for more than half of the region’s total electricity generation, according to ISO New England.

“The region spent an extra $3 billion – with a B – on power costs,” Recchia said of last winter’s price spikes. “As bad as it was this year, it’s projected to get worse next year. And there is no end in sight to change what’s going on.”

In order to keep the lights on, the region needs to find power quickly. The scheduled closure of several aging power plants in the region is making matters more urgent.

The Massachusetts coal-powered Salem Harbor plant and the Vermont Yankee nuclear power will close this year. And the Massachusetts fossil fuel-fired power plant Brayton Point is scheduled to close in 2017. ISO New England estimates about 8,300 megawatts of generation to go offline by 2020, about a quarter of the region’s total energy needs.

Northern Pass is one of the projects seeking to deliver hydropower to the metropolitan south. The $1.4 billion privately funded plan would run mostly through New Hampshire (see sidebar).

Northern Pass spokeswoman Lauren Collins says no one transmission line will be able to fill this void.

“Northern Pass is part of the solution, but it’s not the only solution. The fact is we are going to need a bunch of them,” Collins said. “We have to start filling this pool of power up somehow and these things take years to get built.”

Renewable power, especially electricity from massive hydropower plants in Canada, is the solution most energy experts and government officials are choosing.

The lynchpin is a legislative proposal in Massachusetts that would require state utilities to purchase hydropower. The Bay State is drafting legislation backed by Democratic Gov. Deval Patrick to rapidly advance the state’s renewable energy goals. The law would require the state’s utilities to lock in 20-plus year contracts to purchase about 2,400 megawatts of renewable energy – enough to power more than one million homes.

“Without these transmission lines, it would be very difficult to meet our global warming solutions goals,” said Barbara Kates-Garnick, Massachusetts’ undersecretary of energy and environmental affairs.

Transmission developers have been eager to help the region import abundant supplies of Canadian hydropower into the region for years. And now, the region’s grid operator and elected officials agree that the power is urgently needed.

“It’s rare. It’s very, very encouraging from a developers’ perspective to see the marketplace speaking so strongly in one voice,” transmission line developer Don Jessome said.

Jessome, president and CEO of TDI New England, is leading one of the most advanced proposals on the table. He wants to bury a 150-mile transmission line under Lake Champlain. TDI, a subsidiary of Blackstone Group, a financial services firm, has lined up private capital for the estimated $1.2 billion project.

Jessome says the merchant transmission project could cut the region’s electricity rates by $200 million a year for 10 years (and up to $10 million for Vermont utility customers); raise tens of millions in property tax benefits on the transmission line and a $200 million converter station in Ludlow; and create hundreds of jobs to build the project and new hires through company savings on electricity.

TDI says it would also donate tens of millions of dollars to the state for costly Lake Champlain cleanup – or whatever the state decides is best.

“We can offer something very competitive not only to Vermont but the broader New England market,” Jessome said.

Northeast Utilities, the developer of the Hydro-Quebec funded Northern Pass proposal in New Hampshire, is offering a similar benefits package to buy the state’s support, including a $7.5 million trust fund to support jobs in the Granite State’s north country. Though the overhead transmission line known as the Northern Pass, which would cut through national forests, has been controversial, it has advanced further than other projects in the region.

State buy-in

Rep. Tony Klein, D-East Montpelier, who chairs the House Natural Resources and Energy Committee, wants to see the state reap rewards for becoming a pass-through for power.

“If Vermont is going to be a highway for power to the south from the north, then Vermont needs to benefit from it handsomely,” said Klein.

He said the state could make tens of millions of dollars if VELCO invested in the lines.

“If you invest in it, your return on your investment could be almost endless,” Klein said.

Through the initiative, Vermont would also be on the hook to pay for at least some of the costs.

TDI New England is meeting with potential state partners about purchasing a share in the line. The most likely investor would be VELCO. And state regulators require that any profits earned through these investments go back to Vermont’s utility customers.

“Blackstone is going to support this project,” Jessome said. But he said the company “would be interested in talking to parties in Vermont, in particular, who would be interested in being an investor” in the project.

“We have the capital now to build this project,” he said. “But having said that, we have always looked for local partners to help get projects across the finish line.”

After any project is selected, Commissioner Recchia said the state can also place conditions on the developers’ permit that will ensure the project serves the public good.

“The state participating in the regional process is not relinquishing or changing any of our siting authorities for projects in state,” he said.

Canadian hydro’s impact on small-scale renewables

With hydropower imports being the chief focus of the region’s future energy supply, advocates for small-scale renewable generation are concerned Canadian power will flood regional markets.

“We want to make sure that imports of a significant amount from Canada that the public is being asked to help subsidize are not undermining efforts to build out more renewable supply in the region,” said Sandra Levine, a senior attorney for the Conservation Law Foundation.

John Bennett, executive director of the Sierra Club Canada, opposed industrial-scale hydropower and has been publicly seeking to stop the Northern Pass project.

Bennett said building out this transmission corridor only “undermines” the world’s energy future and “hooks people to the past.”

“Power should be generated close to where it’s being used,” he said. “Usually that’s more cost effective to the local community than bringing in electricity from the outside. We would really think that New England should be figuring out how to meet its own energy needs.”

Rooftop solar, distributed energy, smart grid infrastructure and energy efficiency are better energy investments that support local economies and reduce environmental destruction, he said.

“Is this power actually needed or are there better ways to meet our energy needs?” Bennett said. “There are better ways to produce the power closer to where it’s being used.”

Recchia said importing hydropower will not undermine renewable energy development in Vermont. Instead, he said hydropower will fill in for old generating stations set to go offline in the coming years.

“I have never seen these as being competitive in that way,” Recchia said.

Environmental push-back

Hydroelectric power relies on dams to build up the force of moving water, generating the world’s largest source of renewable energy. But environmentalists say while this energy is renewable, it should not be considered clean.

Damming rivers disrupts local fish migration patterns and saturates upstream reservoirs with mercury levels poisonous to aquatic life, floods large swaths of land previously home to carbon-absorbing forests and indigenous populations and threatens downstream aquatic habitats.

“They fundamentally alter the ecosystem,” said Bennett, of the Sierra Club Canada. He said dams in Quebec, sometimes turning rivers into reservoirs larger than Lake Champlain, cause massive environmental damage.

Gary Sutherland, a spokesman for Hydro-Québec, said the company operates 61 generating stations, the vast majority of which are hydro powered. The company is in the process of building four new hydroelectric generation stations, one of which will come online this year.

Sutherland said the company has implemented business practices designed to minimize adverse environmental impacts. This includes using one reservoir to feed multiple generators, he said.

Hydro-Québec’s power cut 16 million metric tons of greenhouse gases from the atmosphere in 2012, Sutherland said.

Market push-back

The initiative also calls for an expansion of natural gas infrastructure. And it would require electric ratepayers to help pay for long-term contracts with natural gas providers, a unique financing model designed to level spot-market price spikes and attract infrastructure investments.

Some natural gas companies would like power plant owners to lock in contracts. But power plant owners enjoy low prices on the spot market nine months out of the year under the current model.

A trade group representing power plant owners is opposing the market change they say will “undercut the highly competitive marketplace” for natural gas. The New England Power Generators Association said this year in a statement: “As a radical new concept, the proposal could face tremendous legal, regulatory and cost sharing hurdles.”

The proposal is a key component to the overall six-state pact. Nonetheless, it comes as no surprise that some power plant owners would view the proposal as a potential for litigation.

“It’s definitely a new animal that could be challenged in a variety of ways,” Recchia said.

Environmental, economic, legal and regulatory concerns will pose the greatest hurdles as southern states pressure the region to adopt an unprecedented energy policy.

And despite mounting momentum to find a solution to the region’s urgent energy needs, if any project is not in any state’s interest, states can simply call it off.

“We are all reserving our right to walk away from this,” Recchia said.