OverviewVermont Power Supply

University of VermontJanuary 27, 2004

Dave Lamont

Vermont Public Service Department

OverviewWhere are we? Utility structure Regional Context Vermont’s current power mix and needs

Where are we going? Vermont’s future power needs

What might it look like when we get there? Utility resource acquisition options

As usual, things are more complicated than they seem:

Vermont Electric Utility Structure

22 Electric Utilities (Soon to be 21) CVPS, Green Mountain Power, Citizens and

Rochester Electric are IOU’s WEC and VEC are Coops 16 Municipal Utilities

Vermont Utility Structure

Vertically Integrated Each guaranteed a geographic service territory Obligation to Serve Earn a reasonable rate of return Subject to regulation

The Rest of New England is heading in a different direction

Vermont Participates in the Regional Marketplace

www.iso-ne.com \ Data & Reports \ LMP Map

Vermont’s Electric Needs

1,000 MW peak demand now Growing at about 2 MW per year since 1992; 100 MW 1984-92 550 MW will need to be replaced in 2012- 2015 timeframe!!

Current Sources Vermont Yankee - about 1/3 of annual demand and energy

Contract Expires 2012 Hydro Quebec - about 1/3 of annual demand and energy

Contract expires from 2012 to 2020, most expiring in 2015 Owned Renewables – 7-10% of energy

Independent Power Producers - about 10% demand and 5% energy Contracts expire 2008 to 2020+

Other sources - about 20% of energy

VT Electric Energy Supply Mix2001 Vermont Own Load Electric Energy

Supply

Nuclear36.3%

Renewable4.9%Hydro

6.9%Gas1.0%

Coal0.0%Oil

1.6%

Hydro Quebec34.9%

System14.4%

Electricity sales- slow growthVERMONT STATE LOAD - POWER PERIOD

FOR YEAR ENDED DECEMBER 31

-1000

1000

3000

5000

7000

59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Sta

te L

oad F

act

or

CALENDAR YEAR - MWH

State Load Factor

Slow growth in annual peak, summer peak rising faster

5960

6162

6364

6566

6768

6970

7172

7374

7576

7778

7980

8182

8384

8586

8788

8990

9192

9394

9596

9798

9900

01

0

100

200

300

400

500

600

700

800

900

1,000

1,100T

hou

sand

s

KW

1.10

1.20

1.30

1.40

1.50

1.60

1.70

Power Year Peak Summer Peak Ratio - Winter Max / Summer Minimum

Power Year Peak - 997,020 - December 1999Power Year Peak - 967,846 - December 1989

VERMONT STATE PEAK LOAD - POWER PERIODPERIOD NOVEMBER 1, TO OCTOBER 31

Positive steps:

Since 1984 peak demand in VT has risen by ~125 MW, all met by new, in-state renewables

40 MW - small hydro, IPP, WEC, GMP 73 MW - McNeil and Ryegate wood chip plants 6 MW - Searsburg wind project small landfill gas projects – Brattleboro and Burlington

Vermont utilities’ energy efficiency efforts, including Efficiency Vermont, have saved over 80 MW of demand

Bottom line – current portfolio mix is very high in renewables, and America’s lowest in CO2

BUT – VT still imports a large % of our electricity

VT Yankee Shift to Fossil Plants New Cogen and

Distributed Gen in VT Efficiency and Load

Management Ride the Spot Market

Add Renewables Imported Hydro (HQ or

Lower Churchill) Connecticut and

Deerfield River Dams

Blended Balance

Major Resource OptionsWhere Can We Go From Here?

Different Solutions May be Viewed Differently by Each Utility

Other Resource Alternatives

Transmission Exports the generation siting

issue Creates a new siting issue

Demand Side Resources Energy efficiency Demand response Customer-sited generation

Can local resources avoid power lines?

Efficiency is Cheaper

Power Costs vs. Efficiency Vermont Costs for 2002 & 2003NE-ISO Average Monthly Price

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Cen

ts p

er

Killo

watt

ho

ur

EfficiencySavings:

1 cent/KWh(Jan 2002),more than

6 cents/KWh(Mar 2003).Currently

3.6 cents/KWh

Delivered Cost of Wholesale Power * Wholesale Spot Market Price Efficiency Vermont, Contract Commitment

Lots of Uncertainty

Fuel prices, particularly Natural GasNuclear and Hydro conditionsLoad GrowthProduction Tax CreditCO2 TaxesInterest RatesEfficiency potential

Old Approach Make one assumption for each

area of uncertainty. Calculate a least-cost mix.

New Risk Analysis Approach Calculate probability-

weighted portfolio cost, volatility, and standard deviations; use judgment with final results.

Natural Gas Prices Have Increased

0

1

2

3

4

5

6

7

8

9

10

Apr-

90

Apr-

91

Apr-

92

Apr-

93

Apr-

94

Apr-

95

Apr-

96

Apr-

97

Apr-

98

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Mar-

05

Mar-

06

Mar-

07

Mar-

08

Feb-0

9Natu

ral G

as

Futu

res

Price

($/M

MB

tu)

Source: NYMEX

Decision-making:Potential Benefits of Wind

Mitigates Fuel Price RiskReduces Natural Gas PricesReduces Wholesale Power Prices (through “bid stack effect”)Displaces Emissions & Mitigates Future Environmental Compliance RiskPromotes Local Economic DevelopmentNational and Global Contributions

But…Concerns

Is it a higher priced resource?

Intermittent resource – not reliable?

Can Vermont wind make a difference or would we be better doing something else?

Siting: electrical, aesthetic, and environmental impacts

Local economic harms?

How Would the Benefits of a Wind Project Flow Through to Ratepayers?

Depends on Ownership

Ownership

Type

Risk Reward

Merchant Low Low

Long Term

Contract

Limited Limited

Utility

Ownership

High 100%

Reliability and Wind Power

All Types Generation Need Back Up Reliability Guidelines Dictate Operating

Reserves at Any Particular Time Large Plants Require Most Reserves

The Variability in Output from a Wind Turbine Installation is Insignificant Compared to the Variability in the Load

Every KiloWatt-hour generated by a wind plant will offset generation from a fossil fueled plant Most Likely Located in New England

Conclusions

Looking at the state, Vermont needs to make a major commitment for new power sources before 2015

Some smaller utilities have more immediate needs

From an energy planning point of view, there is no reason wind power can’t be an option

The allocation of benefits and costs will depend on ownership

The devil is in the details

“But what if we do switch to gas, and then the cost goes through the roof?”

Questions for discussionWhat do we want in the portfolio? Not just wind v. gas & nukes Wind, hydro, biomass, CHP, efficiency are

all competing for our investment $ Whose needs are we trying to meet?

Who is taking what risks? Utility-based or market-based ? Can we move to risk-based analysis?

Can we be creative with the siting process and community solutions?