Clean Heat Standard (S.5) - April 7, 2023

The House Environment & Energy Committee returned to discussion of the Clean Heat Standard (CHS) in S.5 on Friday after taking testimony during the week largely from environmental advocates.

Legislative Counsel raised the timeline change to June 1, 2024, when the Public Utility Commission (PUC) would contract with a Default Delivery Agent (DDA) for the clean heat credits generated under the bill. Representative Smith questioned “what are we voting on,” here, stating that “this is just a study right?” Legislative Counsel reminded the Committee that they are voting on the “full content” of S.5, which authorizes the PUC to begin work on enacting the Clean Heat Standard. However, they are not able to enact final rules establishing the details of the Clean Heat Program until 2025 (after the legislature signs off on those details).

In 2025, the bill could take a number of forms. It could be short, saying the PUC shall submit its final rules for adoption. It could direct the PUC to make any number of changes to the rules before they are adopted. Or, the statute establishing the CHS could be amended in any number of other ways to say what should or should not be in the rules.


Definitions of Low and Moderate-Income

Representative Sibilia suggested language establishing that “low income” means a customer with up to 60% Area Media Income (AMI) or statewide median income. Additionally, “middle income” would be defined as 60% to 120% AMI or statewide median income. There was (and remains) confusion around this, as there could be overlap between the two standards (for example someone could meet both 59% of AMI and 61% of statewide median income).

Representative Logan noted that this was meant to create equity between renters and homeowners, but Chairwoman Sheldon decided to “put this issue aside” for now.

A question was raised about the mandate in the bill that 16% of credits be generated in low-income homes. It was unclear to Legislative Counsel if the intent was that incentives should be “stacked.” Representative Morris chimed in, saying that basically it means “notwithstanding participation in other programs” you can participate in generating credits. There was general agreement with this and Legislative Counsel will re-write the language to make this more clear. Additionally, they discussed language allowing the PUC flexibility to change the 16% mandate up or down based on market conditions “for good cause.”


Non-Compliance Penalties

Sibilia referred to language being requested around the PUC’s ability to wave an obligated party’s credit requirements based on a “good faith effort” and if market forces were at play, preventing the action required to retire a credit. She preferred deferring the requirement to a later year instead of eliminating the obligation entirely. Representative Bongartz agreed there needs to be “some leeway” based on “good faith effort”.

Legislative Counsel had done some homework on the penalties involved in non-compliance with the credit requirements. They found there was precedent for 2x penalties in the environmental realm. There are also precedents for 3x penalties elsewhere in statute. Morris stated that that the 4x penalty (currently in the bill) is “going to be a problem for me.” She worried that this could put some dealers out of business and preferred incentives over penalties.

Sibilia claimed that fuel dealers say they want to “ensure 100% compliance” in order to maintain an even playing field. However, others agreed with Morris that the current penalty in the bill was too high:

“We have no idea what 4x means because we don’t know what the cost of a credit is. 4x what? The penalty could be $300 or $3000.” - Smith

“The PUC says 3x is more prevalent. 4x seems harsh.” – Representative Stebbins

Rep. Clifford said “I would rather consider 2x penalty.” – Representative Clifford


Default Delivery Agent

Sibilia made reference to requested change from a “conglomeration of business interests” that would require the DDA to create specific programs that allow renters (residential, commercial, and industrial) and others to be included in the CHS for the purposes of generating credits.

Stebbins thought that idea was “a no brainer.” If they aren’t able to participate, “we aren’t going in the right direction,” she said. However, Legislative Counsel noted that it wasn’t clear exactly what type of program would be set up.

Sibilia noted that what the bill says now is that the obligated parties have to go through the DDA unless they get permission from the DDA to do their own thing. There is “lots of potential” under this provision and some of the obligated parties are worried this gives too much discretion to the PUC. These businesses want a standard by which the PUC must judge and approve a plan, she claimed.

Sibilia also suggested adding a provision so that when a DDA is installing measures on behalf of an obligated party, any “banked credits” will be available for the future use of that obligated party. 

Stebbins wondered if this language would restrict voluntary agreements between the DDA and obligated parties regarding credit ownership. In her experience with Efficiency Vermont, sometimes obligated parties and the DDA would prefer to be able to make private arrangements in this regard. There was not a clear answer on this point.


Potential ANR Study

Representative Torre asked when they thought the study suggested by the Agency of Natural Resources might be completed. Legislative Counsel noted that the work would take 9-12 months to complete, and it will “take some time” to contract with a consultant to do the work.

Stebbins commented that it “looked like” a September 2024 timeline for the study to be completed.


Credits for Workforce Development

Morris wondered if, by allowing credits for workforce development, they were disincentivizing obligated parties from actually reducing greenhouse gas emissions. She noted that workforce development was important, but “this seems like it could be counterproductive to the real goal of the law,” she stated.

Logan shared that she had been in communication with Efficiency Vermont, who provided the language for workforce development training. They were thinking it would not just be the DDA generating credits through these actions.

After a brief discussion of whether the Technical Advisory Group had jurisdiction over this aspect of the CHS, Morris’ concerns were satisfied.

Sheldon noted, in closing, that the Committee would take up this conversation again next week.

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