Factors Impacting WEC’s Rates and Members’ Bills
Proceeding with the RES with new mandates, the state should scale back earlier programs that are no longer effective in producing renewable electricity at the lowest reasonable cost. – Steve Knowlton
The most important and successful thing we can do as a utility is keep our total cost of electricity down for all members. – Louis Porter
Affordability
Steve: Affordability of meeting life’s basic needs, including electricity, has recently mushroomed as a nationwide concern and it would be prudent for Louis and me to say some words to our members about this. In some parts of the country, people are seeing their electric bills go up 10% or more. Barring a catastrophe, WEC is not forecasting a rate increase for at least another year, and not a particularly large one after that. I hope this reassures WEC members who are worried about their WEC bills and are hearing of many utility companies around the country having to rapidly raise their rates to meet increasing costs.
Louis: My office opens to where our Member Services Representatives talk to members in person and on the phone. There are a lot of people in Washington Electric territory who struggle to pay their bills, including their electric bills. We hear those stories firsthand.
Because Vermont is a regulated state, we don’t see the wild swings that some of our neighbor states see in electric bills. Having said that: New England is the most expensive region in the country for electricity, and Washington Electric is a very rural electric service territory with very few members per mile of line and very few industrial members. Even though we’re not-for-profit and even though we return capital credits to members, it’s a very expensive place to buy electricity.
I’m proud to say WEC has a lot of programs to help members with bill costs, including the ACRE [Affordable Community Renewable Electricity] program, which uses federal funding to offset income-qualified members’ electric bills. We’re hoping to move soon into the second phase of that program, which will make another 100 members eligible to receive those benefits. We have income-based incentives for EVs and other beneficial electrification technologies.
But the most important and successful thing we can do as a utility is keep our total cost of electricity down for all members. That’s made difficult by our territory, but also by net metering, which causes a cost shift, where generally high-income members benefit more and lower-income members pay more. It’s of concern to us, to regulators, and to legislators, that people struggle to afford to remain in Vermont. Stowe Electric is going to file a tariff to create a low-income program within their own territory. GMP [Green Mountain Power] has a low-income program, and a diverse territory with plenty of commercial and industrial load.
Instead of this utility-by-utility approach, Washington Electric encourages a state program that would provide a low-income benefit to Vermonters across all utilities. There’s two reasons for this: one is in territories like WEC, with a lot of net metering and a lot of lower-income members, it would result in people barely getting by helping cover the bills of people who make far more than they do. The other issue with each utility running its own program, from our perspective, is it results with a diminishing number of folks in the middle paying twice: buying power at premium cost from high-income net metering members, and subsidizing the cost of a low-income program.
WEC’s Two-Tier Rate System
Louis: The difference between WEC’s rates and other utilities has become less pronounced over the last couple of years, as other utilities have raised rates. Our retail electric rate doesn’t tell the whole story. Even though our stated electric retail rate is high, the first 100 kWh of use per month is very low, so it’s important people compare a complete bill to a complete bill for the same amount of electric use across utility companies. Members who use 100-200 kWh a month have lower bills at WEC than they would at other utilities.
Steve: Members who’ve been on WEC’s lines for many years may recall our earlier two-tier rate was designed to encourage conservation of electricity and it rewarded efficiency by having an inexpensive block of power for one’s first 200 kWh of monthly usage and a higher rate for the remaining electricity purchased that month to reward low usage. It seemed to work. And it is always true that the cheapest kilowatt hour is the one you don’t need to buy, by being efficient, insulating your home, etc.
But with WEC becoming 100% renewable in 2014, the environmental cost of WEC’s electricity portfolio largely went away. More recently, state policy makers and others have come to promote electricity as the cleanest of available energy sources, and suggest it should be priced to encourage its use in place of fossil fuels where appropriate. WEC’s cheap lower block was reduced to 100 kWh, leading to an average electricity price between 21 and 22 cents per kWh if you use about 500 kWh a month, which is typical of the average WEC member. Further changes in our bill structure are being explored to take advantage of our new Advanced Metering Infrastructure (AMI) that will be installed over the next few years. Nonetheless, you can see that while the bills must collect the revenue needed to run the Co-op, the design of our rates reflects choices made by the Co-op and our regulators to serve our members equitably.
No Rate Increase in 2026
Louis: Our projection is at soonest, the next rate increase would take effect January 2027. Because WEC owns Coventry, which provides 60-70% of our electricity, we’re kind of off-cycle with other utility companies. We’re less dependent on power supply than other utilities.
Steve: I can’t say exactly what’s driving up rate increases all over the country; the reasons vary. What would drive a rate increase at WEC would be if costs for essential materials and services continue to rise rapidly. We generally have power purchase agreements that mitigate against large changes in power costs.
Louis: We’re not immune to power costs because we purchase power at some times of the year to fill in our supply, but about 95% of our annual power supply is in long-term contracts. Those costs are fairly stable.
Steve: With the rest of the country building up electric infrastructure for new data centers etc., there’s a lot of demand for electric equipment, transformers, and substations. When demand goes up, it drives up the price for everybody, whether they’re expanding to supply larger loads or not. I expect WEC’s operating costs will increase, but I hope it will not be as dramatic as what we see now across the country.
Impacts of Renewable Energy Standard
Steve: In addition to requiring all Vermont utilities to provide the entirety of the power delivered to customers to be renewable, Vermont’s revised Renewable Energy Standard (RES) also requires all utilities, including utilities already 100% renewable like WEC, to meet a growing share of their load growth from new renewables located in New England. Over the coming years, adherence to the RES is expected to raise utility rates. The purpose of the RES is to reduce Vermont’s greenhouse gas emissions from the use of electricity by Vermont consumers. At present, Vermont’s electric sector is said to produce only about 3% of Vermont’s statewide emissions.
Louis: There’s no question the RES bill was going to increase costs to the consumer. It’s a mandate. Utilities, by statute and regulation, are obligated to provide electricity at the lowest reasonable cost they can with the requirements put on them. Anything that mandates a different power portfolio increases costs, because it requires utilities to take something outside of lowest possible cost into their consideration when purchasing power.
The original RES bill increased costs to move the state to more renewable electricity usage. The RES update from two years ago increases costs because it speeds up that process and puts more requirements on what electricity is purchased by the utilities.
In WEC’s case, the RES specifies that any increase in load we experience needs to be met in large part by renewable sources that have come online since 2010, deliverable within the New England grid. That means that we cannot fill our increase in load through existing renewable sources that are cheaper, such as Hydro-Québec. Other utilities that are not yet 100% renewable have much more stringent requirements.
WEC supported the RES bill for several reasons. We thought it was going to pass with or without our support, so we supported so we could help inform how requirements were structured in a way that benefits the Co-op. We also supported it because our members demand 100% renewable electricity, and this bill does that statewide. Our position is to be supportive of renewable electricity. I still think we should have supported it, but there’s no question that in the 2030s, it’s going to be more expensive than if we met our load growth through cheapest available renewable power.
Steve: The RES is a well-meaning approach if the state is to continue having a clean electricity energy portfolio as electric load growth takes place in Vermont. While I personally remain to be convinced that mandating fully 100% renewable electricity to be achieved within the next several years, beyond the Vermont’s present 92% fossil-free portfolio, is the wisest, most economical, and hence a politically durable method of lowering greenhouse gas emissions in the state, it is how Vermont voters have chosen to proceed and I presume Vermont utilities will comply. But with the advent of the 100% RES, it’s appropriate to reexamine the worth of earlier incentives that have helped develop renewable power, by which I mean net metering, which is probably the most expensive way a utility can procure solar energy for its members. I think that in proceeding with the RES with new mandates, the state should scale back earlier programs that are no longer effective in producing renewable electricity at the lowest reasonable cost.
Louis: It’s a great point, Steve. One of the reasons we supported the bill is because it removed group or merchant net metering, where solar wasn’t on, or even adjacent to, the property being served. Solar sited where it’s being used is better for our members.
Steve: Even though incentives have succeeded in bringing down the cost of installing solar installations over the last decades, some folks in the solar industry oppose cutting back on net metering and Standard Offer incentive programs because they continue to encourage sales of their products at inflated cost to the ratepayer. So it gets down to the question of what’s affordable for the consumer versus what’s profitable for the industry in moving the state toward its greenhouse gas emission goals? It’s a classic political conundrum of who has the most influence in the legislature, where these incentives are set into law.
WEC Not Impacted By Municipal Utility Reviews
Louis: The Department of Public Service (DPS) is conducting reviews of the financial condition of small municipality-owned utilities. WEC has not received one, and we’d comply if we did get it. This is prompted by publicly reported issues at Hyde Park Electric, which is significantly in debt. Vermont Public Power Supply Authority and Morrisville Water and Light are working to help Hyde Park continue operations. Hyde Park is looking at a 20% rate increase as part of those financial issues.
Separately, DPS has asked for a management audit of Burlington Electric Department. There’s no similar question of Burlington’s financial viability, but there were several things that the department and the PUC had questions about in Burlington’s operations. So, they are conducting a management audit separate from the review of small municipals. The only reason I highlight this is all these stories have been publicly reported, and our members are reading them, and may be wondering about our part—does this review include us? It does not.