Cost equity and policy evolution at a time of change

Steve and Louis discuss the why behind costs and policy decisions

President’s and General Manager’s Message

Cost equity

Louis: We’re at a strange juncture of abundance and scarcity. Our state is receiving lots of federal money for infrastructure, we are encouraging our members to purchase electric vehicles and switch over from fossil fuel to electric devices, and yet we’re looking at severe shortages of transformers and other necessary infrastructure elements due to increased demand and supply chain issues. As a result, we as a utility need to have some clear priorities about how we deploy our limited resources.

Steve: This is a good teaching moment for our members. Individual choices that people may make can have an influence on a shared system. As people put up things that change the load, like a large net metering system or a substantial electric vehicle charger, it may require upgrading the infrastructure to accommodate these changes. It’s up to the utility to provide the infrastructure that ensures safe and reliable power for all members to use the appliances they want to use. Nonetheless, these upgrades come with consequences and costs that the utility must keep track of. 

Louis: People make decisions to change their electrical systems at home, in some cases incentivized by the state or their utility. These changes have an impact on our grid and operations. We’re trying to educate our members around this to a greater extent, even as we’ve tried to encourage adoption of beneficial electrification. It can seem in opposition to each other to say EVs and heat pumps are a good thing, and also say they also have an impact that needs to be accounted for.

Steve: It’s up to us to help our members understand the decisions we have to make and the issues behind our decisions in sufficient but not mind-numbing detail. WEC is part of a regulated electrical system, and the cost and revenue challenges we face are not addressed with simple reflexive choices, but come as a result of being part of a region-wide electric system. So, I’ve been thinking: how do we communicate some of these more detailed, nuanced ideas to members who might otherwise say, “it’s just WEC raising rates”? Not that WEC wants to raise rates or not find ways to reduce increases. But before I joined the Board, I was largely ignorant of a lot of these details. It would have helped me if I’d taken the trouble to inform myself about the challenges that a cooperative utility faces carrying out its business on behalf of its members.

Louis: Absolutely. Like a lot of places, a challenge for the Co-op is the amount of information and obligations members have coming at them. It is hard for most people to get through the things they have to do and learn the things they have to learn on a daily basis, let alone understand how an electric cooperative operates because they happen to be a member. It’s asking a lot of people to do that, and it’s becoming more challenging for people to have the time and bandwidth to do that as well.

Steve: This is a time of change induced by the pandemic, adapting to climate change, new technologies, and third party participation in the electric business largely in terms of net metering and solar in general. We can use Co-op Currents to bring some of these details to the fore to engage some of the members who are interested.

Louis: There’s another interesting thing about this. The transformer shortage is due to all the things we’re used to hearing about these days: supply chain issues, availability of trucking and transportation, panic or overbuying due to concerns about shortages. But the interesting thing is,  years ago, the Co-op installed a lot of small five-kilowatt transformers into its system. That was a prudent thing to do decades ago due to declining electricity use and the efficiency of those transformers. Well, now we’re seeing the opposite effect. Because we now understand the importance of beneficial electrification, and because of changes in tech that mean many of us have more electric devices in use, we’re seeing the need to increase transformer sizes. 

The interesting thing to me is the benefits and costs of electricity use and how our policies change in relation to electricity use. The very real impact, which I frankly hadn’t thought of before stepping into this role, is we need larger transformers. We’re taking small transformers out of the field and installing larger ones in their place. That means WEC and other utilities that installed these smaller transformers are seeing a greater impact from the shortage.

Steve: In terms of responsibility, the member’s responsibility is to have to have a distribution panel to safely handle the load that they need. My understanding is whichever user causes the increased load that causes a need to change the transformer, they’re the one that pays for it. There may need to be a rethink about the way those costs are distributed. It’s an interesting discussion as our grid gets updated due to beneficial electrification: how does the WEC membership support this as a cooperative?

Louis: One nuance to that is, what we charge for transformers or other materials for such an upgrade lags significantly from actual costs. Ultimately, either the household putting in the change that requires that upgrade pays, or all the membership pays, in some fashion. Theoretically, it’s the household, but because the costs assessed to the household are not up to date, it’s effectively a mix. Other than that, I’d say Steve’s exactly right. It seems in particular in the case of net metering, where the household receives a significant benefit over time for their electric bill, that they would pay; with the advent of EVs, maybe we should change. But as I think I’ve said in these conversations before, I’m concerned about something I see in Vermont in various forms of public policy: the spreading out of costs among those with less means to benefit those with more means.

Steve: I’ve had that sense with net metering for some time. I became a net meterer before I joined the board,  and I can see the generous tariff set by the state allows me to essentially transfer some of the cost of running WEC’s system to those who don’t have net metering. As Louis put it, people who don’t have the means or desire to net meter, and just want their renewable electricity delivered from WEC, are partially subsidizing others.While solar net metering is not the only driver of rate increases at WEC, the growing number and size of net metered systems is indubitably becoming an increasing factor in rate pressure.

It’s important for me to have a discussion about this for two reasons: first, because we’re a 100 percent renewable utility, so every WEC member gets 100 percent renewable power, as indicated by the Department of Public Service. Second, as a cooperative, each member should expect to be treated as equitably as possible, and this is a system imposed on us to treat our members inequitably, that some members subsidize the energy choices of another member. I feel the way this net metering has worked out is that it has unintentionally created stresses.

 I think most of us agree that solar energy is a very good thing, and when technology allows it to become more dispatchable, its benefits to the Vermont grid will only increase. The state has incentivized net metering to make it more costly than most other renewables, including that of Standard-Offer solar. This is the legislature’s right, as they have many issues to consider, but the state’s approach to put the resulting financial burden of net metering solely on the electric ratepayer is not likely going to encourage many of us to participate in beneficial electrification programs that are at the heart of the Comprehensive Energy Plan. Some of us may think a bit more before investing in a heat pump or electric vehicle, knowing that state policy is steadily increasing electric rates. We need to have more equitable ways of socializing the type of costs created by net metering. The challenge posed by climate change is great, and if we are to make headway, we must find better ways to work together.

Louis: I should emphasize that WEC has supported net metering, particularly smaller scale projects, in part because over time, technology should make it more beneficial for the membership at large. Over time, as our grid and other utility grids become more advanced with battery storage and other tech, that will allow a smoothing out: when small scale renewables are usable, the benefits of net metering will go more to the membership at large and the state at large.

Steve: I agree. With storage and a more advanced, dynamically controlled grid, the future can be bright. But, if the costs of doing that are socialized throughout the state in such a way that people with less means support people with more means, that’s counterproductive to moving forward.

Policy evolution

Steve: More than 20 years ago, WEC created a rate structure that incentivized low monthly electricity use. WEC was trying to induce people to conserve electricity because, at the time, many sources of electric energy were more polluting than they are now, and it was better to be efficient. Fast forward to the situation we’re in now, where WEC and two other Vermont utilities distribute 100 percent renewable power, and as a state we’re moving toward renewable goals as dictated by the state’s Renewable Energy Standard, and in fact, electricity contributes a relatively small fraction of greenhouse gas emission compared to the entirety of Vermont’s energy portfolio. Electricity has emerged as a clean-and-getting-cleaner source of energy. Around the world, that’s motivated an interest in switching to electricity for a lot of our energy needs. The Department of Public Service, our regulators, are also touting this. 

I do not by any means urge people not to conserve electricity as appropriate, because I do believe efficiency is a key value. The flip side is, we as a society are likely to be using more electricity now than in the past, and we are not only using it more efficiently but also for needs that replace what we’ve used fossil fuel energy for. 

In my time at WEC, one of the most controversial things I’ve been part of is modifying the rate design. To members who are concerned that their bills are going up, I’ve had to say, WEC’s policies favored your low monthly use in the past over those who used more, and now our policies are shifting to meet new realities. I’m trying to say that in a straightforward way. The fact is, our 20 year old policy was out of date, and we needed to move from only incentivizing low electric use to incentivizing electricity over fossil fuel. Times have changed, and WEC has to evolve like everyone else.  But that won’t stop us from continuing to fine-tune our ways of doing it.

Louis: I understand that frustration people feel, Steve, and I know you do too. It’s frustrating to be encouraged to do something, and then have that direction be changed, whether that’s in your personal life or in your decisions on energy use. We—as a state—haven’t done as good a job explaining that pivot in our collective energy policy. The fact of the matter is, as we reduce fossil fuel use in Vermont, people are still going to need to drive to work and heat their houses, and there are limited power sources that can do that. Here at WEC, electricity is a good way to do that. To make that pivot successful, there are things we’re going to need to adjust, from the big, like our rate structure, to the small, like what size transformers we’re putting out in the field.

Steve: WEC can advise members what we see coming down the road from our position of being involved in the energy business, but we need to be careful about telling people what’s good for them to do. I know I’m somewhat cautious of anyone who tells me what I have to do. As you said, Louis, people have their own individual needs and situations and one size does not fit all. We, as a cooperative utility, make policy choices based on the collective good. We have to try to look into the future as best we can, knowing things are always changing and one solution that seems obvious at a particular time may no longer be so obvious years later.

The climate factor

Steve: Vermont recently adopted its first Climate Action Plan. WEC and other utilities have been on this for a number of years. For years, it’s been in our mission statement that we distribute electricity to our members in an environmentally conscious way. We’ve worked to become 100 percent renewable before any policy directed us to. We’ve been progressing this way for some time, and trying to do it in an equitable way.  Now we have a comprehensive energy plan moving us toward this. The Climate Action Plan, coming out of the climate council, comes out of a direction WEC actually participated in for some years already. 

Many people over the years have talked the talk, but WEC as a functioning utility has also attempted to walk the walk. That’s the way I think about it. We may not be not the largest or flashiest utility, we don’t have a PR department, but nonetheless we’re living up to our mission statement as a reality and not as something that’s aspirational. We continue to aspire to do it better and more effectively, but I believe that everyone on the Board is happy with holding to those values.

Louis: All this comes from our members: shifting to be 100 percent renewable, stating clearly they didn’t want power from Vermont Yankee. Clearly concerned about climate change and the impact of power generation on climate change. The Board addressed these things for that reason. Our periodic membership surveys bear out those are important values to members of the Co-op beyond having reliable and affordable power supplied to them.

Steve: Coincidentally, we are in the middle of a strategic planning process, and this is an appropriate vehicle for WEC to do strategically. Now that we have our direction more or less set, it’s important for us as a community to think about our choices strategically, and Louis has joined us at just the right time to say, “Here’s our direction, how do we find ways of implementing it that interlock reasonably and have legs to take us into the future?” Our strategic planning exercise is coming on at an opportune time for both of us. We have new leadership and an impetus on which to follow through.