PUC submits its rules on the Clean Heat Standard, Part 1.

by Rob Roper

So much to unpack from Thursday’s big reveal of the Clean Heat Standard rules package from the Public Utilities Commission (PUC)! The big news is we got an “official” cost impact estimate – sort of. Just shy of a billion dollars over ten years with the impact per gallon of fuel oil bouncing from 8 cents in year one to 58 cents. That’s official but it’s not right. It also accounts for just the first ten years of a twenty-five year program, which will get progressively more expensive as time goes by.

Here’s why the ten-year estimate is low. A main component of the Clean Heat Standard is the establishment of an SEC compliant commodities exchange platform on which to trade carbon credits, and the PUC didn’t do that. As PUC chief Ed McNamara explained, “One of the requirements is developing a system of tradable credits. The concern that we had working through this is what ‘tradable credits’ means. [Yup, four years into the GWSA and the CHS “planning”, we still don’t know.] That can vary drastically depending upon what kind of program you have.” The kind of exchange described in Act 18, with thousands of entities trading in real time, would be, “extremely expensive to develop in house,” or we could farm it out.

The problem with farming it out is that nobody else is dumb enough to want to do something like this in this way, so there are no states to partner with to share costs or existing platforms to buy into. Nevertheless, the estimate incorporated into this total is $175,000 to $362,500 per year. Considering the current IT upgrade for the state is going to cost $11 million in the first year of a four-year upgrade process, I’m pretty sure that the real cost to establish a financially secure, fraud resistant bank/broker system is WAAAAAY higher than a couple hundred grand, both to initially set up and to maintain.

Another gross underestimate of cost is the state’s administrative burden to maintain this program. Under the “State Admin Costs” tab of their spreadsheet, th PUC assumes that it and other state staff necessary to run this program will remain constant at what looks like two employees and a consultant — for the next 25 years. (The PUC staff appears to get a raise every year, but the poor consultant is stuck at $133,333.33 every year with no COLA. Sad.) And it says we’re going to spend exactly $275,000 a year EVERY YEAR for the Department of Public Service doing a potential study for a program that would already be in place. Huh?

What this indicates to me is that the PUC did not really consider at all what the personnel requirements of overseeing a system that would have to verify, process, track, trade and retire literally hundreds of thousands of clean heat measures taking place around the state involving by literally tens of thousands of providers and customers, all with stakes, sometimes conflicting, in the financial value of the credits being created. I don’t know either, but I’m going to guess with considerable surety it’s more than three people. It looks like the PUC just copied the 2023-4 budget line items and pasted them twenty-five times into the spreadsheet. Slick.

Another big cost issue admitted to by McNamara is that their analysis does not consider the “participant costs” of the program. Defined in the report, “These costs reflect the costs incurred by customers who implement clean heat measures. For example, if the incentive level for a heat pump does not support the full cost of installation, the customer’s costs associated with installation are considered participant costs. In addition, the costs of the electricity to run the heat pump would also be included in this category.”

Of course, the major financial (and logistical) hurdle to this scheme is the up-front cost of swapping out less expensive fossil fuel heating infrastructure for more expensive electric-based equipment, and in many cases the costs of weatherizing and upgrading the electrical systems in homes to accommodate that new equipment. That this analysis doesn’t take into account the impact of this cost to home and business owners is glaring.

Moreover, the “Commission’s model includes only the direct effects; it is not an examination of indirect or induced effects such as price-driven changes in demand for each fuel.” So, when calculating the benefits of the program (savings) this analysis doesn’t allow for the likelihood that massively increased demand for electricity will drive up its cost, decreasing or eliminating any potential benefit of transitioning, especially if the price of fossil fuel continues to fall. While future prices are certainly hard to predict, this seems like a delusional assumption that the basic laws of economics will be suspended for the purposes of this program. They will not.

Speaking of cost/benefit, an interesting line in the report states, “The value of the greenhouse gas emissions reduced by the proposed Clean Heat Standard over the first 10 years would be $477,450,610.” But the (again, low) estimated cost for the program over the same time period is $955,923,033. That’s not a good bargain!

As for the estimated early years’ impact of just 8 cents a gallon, here’s why I’m not buying it:

First, it’s based on the assumption that wide adoption of biofuels, the cheapest and easiest measure currently allowable under Act 18, will do the heavy lifting of greenhouse gas reduction in the early years of the program. However, there is a very vocal segment of the climate activist community arguing that no combustible fuels, bio or not, should be counted as clean heat measures. If they were to win that argument – and granting here solely for the sake of argument the bill’s premise regarding ghg reduction, they make a compelling case – the foundation for that 8 cent figure evaporates pretty quick.

The second reason for my incredulity is that we already have a 2 cent excise tax on fossil fuels, and it raises about $4.5 million a year. Therefore, we know pretty well that an 8 cent charge on fossil heating fuels would generate about $18 million. That’s not chicken feed, for sure, but I don’t see that amount covering the costs necessary to meet the 2030 deadline in the Global Warming Solutions Act for the thermal sector.

As I reported back in February 2023, testimony from the Home Weatherization Assistance Program stated that in 2022 they alone spent $13 million on just weatherization projects (1033 units weatherized at an average cost of $10,036 per unit), and this represented a 22% shortfall in meeting their targeted goal for that year. And, as that report noted, federal money for these projects is scheduled to go away in 2026. So, $18 million as a total cost estimate to kickstart the Clean Heat Standard at a pace to meet the 2030 deadlines? I don’t think so, and I’d be willing to take bets….

But, perhaps all this is moot because the key point made by the PUC is that the Clean Heat Standard is “not a good fit” for Vermont, and should not be implemented. And I understand they have to be politically polite to the people who vote on their budgets every year, so I’ll say it for them: the idea is terrible, awful, unworkable, regressive, unaffordable, and undesirable. Act 18 needs to be fully repealed right now.

Still, the usual suspects continue trying to keep this corpse alive, and they’re getting pathetically creative about it. More on that next time…

Rob Roper is a freelance writer who has been involved with Vermont politics and policy for over 20 years. This article reprinted with permission from Behind the Lines: Rob Roper on Vermont Politics, robertroper.substack.com