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Vermont Sees Greater Gas Transportation Needs, Looks to Expand Generation Diversity

Vermont Sees Greater Gas Transportation Needs, Looks to Expand Generation Diversity

Greater power generation diversity is vital to an improved energy future for Vermont, the Vermont Department of Public Service (DPS) said in a final draft of its 2004 Vermont Comprehensive Energy and Electric Plan. But a more diverse generation infrastructure means bolstering the state's gas pipeline network, which has been a difficult task in recent years.

There is "considerable unrealized potential to replace other fossil fuel use with natural gas in Vermont," the DPS said. "The current pipeline infrastructure is the primary constraint to the expansion of use."

Noting that there is a phased expansion by Vermont Gas Systems in its existing territory currently underway, the department said other avenues also need to be looked into. "Additional transmission pipelines through Vermont are another option, although two proposals in the recent past for new pipelines in Vermont have not come to fruition," the DPS said in its report.

"Generation from natural gas is especially attractive if cogeneration or new technologies such as the latest combustion turbines or combined cycle plants are used, all of which improve efficiency and emissions."

With proposed pipe projects currently on the table, Vermont could see natural gas become available in the Northeast Kingdom, as well as the southwest part of the state. The department noted that a major factor in the expansion of the natural gas transmission system in the state is siting electric generation facilities that will use natural gas, known as "anchor tenants."

Under a rate case settlement reached between the DPS and Vermont Gas in the fall of 2003, Vermont Gas agreed to accelerate its expansion of natural gas service in Vermont, whether from its existing system, from other natural gas pipelines or local distribution companies or by other means, and to work cooperatively with the DPS and other agencies of the state to promote the extension of natural-gas service throughout Vermont where economically feasible. In addition, Vermont Gas has agreed to increase its capital investment in Vermont over and above historical levels and, for 2005, above the amounts that were originally planned.

The energy plan highlighted a disparity between the average electric rates Vermont's residential and business customers pay and the average rates paid by customers in the U.S. as a whole has steadily increased. The department found that in 1990, Vermont's residential electric rates were about 15% higher than the U.S. average, commercial rates were about 20% higher, and industrial rates were some 35% higher than the U.S. average. "Today, that disparity has grown to about 50% for all three classes," the DPS said.

As a result, Vermonters have paid over $2 billion in premiums over what they would have paid on electricity had Vermont's electric rates been comparable to the U.S. average since 1990. Currently the premium is approximately $200 million annually. The department noted that the high electric rates have retarded economic growth by making it more costly for businesses to either locate in Vermont or expand existing operations.

"Today, 3.3% of Vermont's Gross State Product (GSP) is spent on electricity, compared with the New England average of 2.51% and the national average of 2.57%," the department said. "Because Vermont is not an electric intensive state -- there are no automobile manufacturers, steel mills, etc., located here -- the high GSP percentage spent on electricity is a clear indicator of the high costs faced by Vermont's businesses and residential customers. Access to affordable and clean energy will remain critical to Vermonters' livelihoods and general well-being."

Based on this, the DPS identified three long-term goals underlying the 2004 Vermont Twenty-Year Energy and Electric Plan. They include lower energy prices, reduced risk and reduced environmental impacts.

Today, Vermont's electric portfolio is heavily weighted toward two resources: Hydro-Quebec and Vermont Yankee, which supply two-thirds of the state's total electricity. The state receives one-third of its electric energy supply from Hydro-Quebec, almost all of which is generated at hydroelectric facilities. The department noted that it will need to increase the diversity of its electric resource portfolio, including more resource types and suppliers and different types of pricing contracts to reduce the risk of supply disruptions.

Today, almost 50% of Vermont's electricity is supplied by renewable resources, including utility-owned hydroelectric plants, the Searsburg wind facility, and the wood-fired McNeil Station. Additionally, there are a number of independent power producers supplying renewable energy from small hydroelectric plants, landfill gas recovery, and the Ryegate wood-burning facility.

In Vermont's energy plan, the department has set goals for the short, mid and long terms. The short-term action plan, which spans from 2004-2007, includes, among other things:

  • Formalizing new decision analysis planning techniques in electric utility integrated resource plans and distributed utility planning rules;
  • Beginning design and implementation of alternative, performance-based regulation to encourage additional utility efficiency;
  • Implementing new electric and natural gas rate designs that encourage economic growth through more efficient market pricing;
  • Designing, implementing, and monitoring voluntary green-pricing programs for all of Vermont's retail electric utilities; and
  • Evaluating progress towards reducing relative electric rates in Vermont.

The mid-term action plan (2007 - 2012) includes:

  • Beginning to plan for Vermont Yankee nuclear plant retirement or re-licensing in 2012;
  • Beginning more active negotiations with Hydro Quebec for replacement power or its equivalent;
  • Evaluating results of voluntary utility green pricing programs;
  • Monitoring and evaluating electric generating resource portfolio diversity; and
  • Continuing to evaluate progress towards reducing relative electric rates in Vermont.

The long-term action plan (2012 - 2022) includes:

  • Developing specific plans for replacement of Hydro Quebec contract;
  • Continuing to evaluate progress towards reducing relative electric rates in Vermont; and
  • Monitoring technology improvements.

In developing or updating the plan's recommendations, the DPS said it will seek public comment by holding public hearings in at least five different geographic regions of the state on at least three different dates.

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