Thursday morning the House Environment & Energy Committee returned to testimony on S.5. Neale Lunderville (President & CEO, Vermont Gas Systems) was first to speak. Chairwoman Sheldon gave an introduction Lunderville’s terms as Transportation Secretary, Secretary of Administration (under Douglas), and General Manager of the Burlington Electric Department.

In his presentation, he shared that Vermont Gas Systems (VGS) is the largest heating energy provider in Northwest Vermont, with 55,000 customers in Franklin, Chittenden and Addison Counties via a pipeline from Canada (entering through Highgate) and service lines throughout the region. They have also been an energy efficiency utility for 30 years, similar to Efficiency Vermont.

In 2019 they set a new course with the launch of their own climate action plan. Their objective was to provide net-zero emission energy to all customers. As good as gas is, Lunderville recognizes that it does contribute to climate change.

He stressed that they are “rapidly evolving” their business model to “fight climate change and provide warmth to our customers in new and innovative ways.” Some examples he gave of this included:

1. Reducing energy usage.
2. Increasing access to the latest and most efficient in-home heating solutions.
3. Displacing fossil fuels with low or no-carbon alternative supply. This could be green hydrogen, networked geothermal heat pumps, or even utility scale steam waste.

He also added that they are invested in “hybrid models” of systems so the low temperature heat pumps also maintain a gas backup for extreme temperatures and breakdowns.

Sheldon asked about the hydrogen production project they are working on with Global Foundries and how it is produced.  Lunderville provided a technical description; the process uses renewable electricity to operate an electrolyzer that runs water over the electrolyzer which divides the atoms between hydrogen and oxygen. The hydrogen is then captured to operate the boiler system (or to be distributed) as a mixed fuel with natural gas.

VGS was an early adopter of the Energy Action Network plan and supported H.715 as well as S.5. However, he cautioned that there is some complexity to this bill. Everything needs to be looked at apples-to-apples and fairly compared. He feels a “lifecycle analysis” will accomplish this.

He believes S.5 improves on how low and moderate-income customers are treated and protected. Then he stressed that “importantly, Vermont thermal consumers would not be mandated to change their fuel source or equipment.”

NOTE: While this is true in the short term, customers would ultimately be priced out of their current heating source.

“The thermal sector transformation proposed in S.5 is not costless,” he acknowledged. “While customers may choose incentives for heat switching or weatherization, there will be near-term fuel cost increases as a clean fuel market is established and fossil sources are reduced.” We cautioned the House to not complicate the bill further.

As we was wrapping up, Lunderville mentioned that they would like to do more scaled geothermal, which he feels may be less likely as a regulated utility. “There is not the regulatory backup to do that sort of thing right now,” he stated. However, he thinks the Clean Heat Standard (CHS) may “unlock” some of those areas for them.

Representative Bongartz asked what the “regulatory obstacles” were for VGS. Lunderville noted that it had to do with their “territory restrictions.” Ultimately, he believes that the CHS may allow them to expand beyond their current boundaries.

Representative Smith questioned if Vermont Gas can “survive” without S.5. Lunderville confirmed that they could, saying that they were “tenacious,” but it would be better for them with the CHS in place.

Smith followed by asking “are you in competition with the other fuel dealers?” Lunderville confirmed competition with “oil, electricity, and propane for service customers” for decades.

Representative Sibilia praised their diversification model. She wondered if there was an advantage to the creation of a marketplace, as in S.5, as opposed to a direct appropriation towards weatherization or other fossil fuel reducing measures. Lunderville stated that he believes “in markets and in the long term [they] will provide the most cost effective and ultimately the most innovative solutions to challenges that we face.” The Oregon and California models were cited as examples.

During the discussion, Lunderville commented that “as a fully regulated established company [they] can deliver S.5 to [their] customers in a way that is cost effective.” Other experiences may be different if the customer does some of the upgrades to “protect themselves” from price volatility in the future.

NOTE: This hits on the previous testimony from the Fuel Dealers Association that the bill will benefit the larger and more established companies while likely putting the smaller ones out of business.

Representative Morris noted that he is “still not hearing any answers” for the cost per unit for lower income Vermonters. Lunderville thought they could manage costs, especially for customers who participate early (so cash needed). In those situations, they could offset the increased cost of energy with efficiency and weatherization.

After a break, Kyle Landis-Marinello (General Counsel, Public Utility Commission) and Thomas Knauer (Policy Director, Public Utility Commission) joined the Committee.

Thomas Knauer (Policy Director, Public Utility Commission) joined the Committee. They stressed that the Public Utility Commission (PUC) has not taken a position on S.5 and they are only there to guide where the Legislature can improve the bill as currently drafted. That being said, they offered a number of technical corrections to the bill.

On a policy front, one major request was for an “alternative method” for the Default Delivery Agent (DDA) to meet their obligations, which could be applied for in advance to add flexibility. They believe this will “enhance enforcement,” but didn’t specify how.

NOTE: What the PUC is really asking for here is for the obligated parties to be mandated in all cases to use the DDA, and if they want to pursue another method, present a plan to the PUC for approval.

Representative Sibilia assumed (correctly) that this would mostly impact small dealers. However, from the PUC’s perspective, this system is easier to manage.

The overarching concern for the PUC is accountability and regulatory oversight obligations with clear definitions that will allow for few “excuses” as to why obligated parties didn’t meet their obligations.

Landis-Marinello admitted that there “are a lot of unknowns about what the ultimate cost is going to be of the Clean Heat Standard and so when we dive into this if we are given this to implement we may find there is good cause to pause the implementation until there is a larger work force or the different reasons given here why a pause might happen.”

Representative Stebbins was upset by that response, questioning why we would do that given the other performance standards programs we have. Knauer responded that he is not immediately aware of any similar situations.

Representative Morris asked about the guardrail provision, requiring that the rules come back to the legislature before implementation. He thought it was put in because of potential “enormous cost” of added fees on heating fuels. Landis-Marinello and Knauer had no “policy position” on that but were concerned about the precedent that sets. The legislature could always step in anyway, they pointed out. A different type of “circuit breaker” could be devised based on some cost associated with implementation and there is a “precedent for that,” they argued.

Sibilia suggested they had heard concerns about H.715 and “the legislature being more active in the authorization of it.”

NOTE: H.715 was vetoed by the Governor because the “check back” provision did not provide enough of a guardrail. The provision in S.5 is very similar in this respect.