More Bad News for Unworkable Heat Standard

PUC recommends not adopting obligations; cites lack of data, and harm to low-income Vermonters.

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Act 18, the Clean Heat Standard law, required the Public Utilities Commission (PUC) to design the detailed rules for how the program’s carbon credit market would work in practice. That plan is due, and the PUC’s draft report indicates it doesn’t. Work that it.

One main component of the PUC’s task is to determine who the “obligated parties” (those heating fuel dealers who will be required to obtain carbon credits) and what that credit obligation will be in the first year of the program. Mission fail! The PUC’s excuse for this states, “…there are substantial problems with the fuel dealer registration data that form the basis of our determinations. Accordingly, we strongly recommend against these obligations being adopted.”

So, here’s our plan. Don’t do it!

What are the problems with the data? A big one is that only 110 fuel dealers registered with the PUC by the extended deadline – which is estimated to be less than half of those required to do so – and of those that did the data supplied regarding fuel imported and sold was incomplete or inaccurate. An unspecified number apparently registered late, but what data they supplied has not yet been processed.

Blame here does not fall on the fuel dealers because the PUC was, in the first instance, ill-equipped to inform the companies that they were required to do so. The PUC didn’t know who they were to begin with (and still don’t), so couldn’t directly reach out. Moreover, the PUC says, “… the Commission did not have the resources to pursue unregistered but likely required-to-register entities in this initial registration year.” This just goes to show how the bureaucratic costs of administering this complicated program should it be implemented will be very high.

The second reason for incomplete data was that the law (Act 18) defining what heating fuel is “broad and ambiguous.” Even those fuel dealers who did their best to comply with the data request couldn’t understand exactly what lawmakers were telling them to do because the law was poorly written. Requests for clarification received the response “use your best judgment” — to comply with a poorly articulated law that even those in charge of regulating it didn’t understand.

Another politically promised aspect of the Clean Heat Standard was that it would benefit low-income Vermonters – a promise made without any basis in reality. And, in fact, was always completely contrary to reality, the reality of which is now becoming undeniably apparent.

This decision is an acknowledgment that increasing the distribution of credits serving LMI households increases the cost of the program, as the necessary incentive levels would need to be higher. Because it is not feasible for all LMI households to participate in the program’s early years – and those not able to participate would face higher heating costs as a result of front-loading LMI participation – an increased LMI requirement could potentially cause more harm than good. The Equity Advisory Group, statutorily charged with this consideration, agreed that there are costs and benefits with front-loading credits to LMI households and that there is “insufficient information to determine whether front-loading the LMI targets in the earliest years of the program is ‘reasonably possible’.” (Emphasis added)

This should have been obvious from the outset (and was to folks like, well, me.) Frontloading the program with the most expensive and least efficient greenhouse gas reduction measures was obviously going to spike the initial costs for the program. Those high costs would be borne by those who burn fossil fuels to heat their homes, disproportionately impacting low-income Vermonters. The lack of resources, including an insufficient labor force, meant most folks would be facing high heating bills with no realistic, timely alternatives. And so it is!

All that said, the PUC did do the math to determine – with admittedly flawed data – what the obligated parties obligations would be in year one of a Clean Heat Standard regime:

As an example, if an obligated party is assigned to obtain and retire 25 clean heat credits in year one, the current draft of the TRM indicates that this amount could be earned by installing two 3.5 ton (42,000 Btu/h) single-family residential air-source ducted heat pump systems (specifically homes in which this would fully displace existing oil heat) and delivering 7,251 gallons of 20% biodiesel (“B20”) sourced from soybean oil (displacing fuel oil #2). For the installations, while they would generate only a portion of their carbon reductions in year one, those measures would continue to earn credits for the estimated lifetime of the measure (in this case, the next 16 years).

Now, replacing a fossil fuel heating system with heat pumps to the extent they would fully displace the use of oil heat can cost tens of thousands of dollars, especially if the building in question requires electrical upgrades and weatherization to work. The example here describes what it would take to obtain just 25 carbon credits. But according to the PUC’s report, which outlines all registered fuel dealers’ potential obligations – albeit with flawed data -- Champlain Valley Plumbing and Heating, to pick one a lot of readers will recognize, would be required to obtain 12,069.72 carbon credits. The largest obligation goes to Vermont Gas with 76,380.63 carbon credits required. The smallest, Fox Fuel LLC just 1.32.

What the PUC’s draft report doesn’t calculate is what all this will cost consumers, who will inevitably have to pick up the tab in the price per gallon on their heating fuel bill. Dare we say a lot! So, yes to the PUC’s strong recommendation against these year one obligations being adopted by the legislature.

But beyond that, Act 18 must be fully repealed in 2025. It is an unpopular, unworkable, unaffordable disaster. I suspect the new legislature will not move forward with implementation at this time – and that’s good -- but this legal weed needs to be pulled out by the roots. Hey, Vermont Republicans, you ran on this. You won big on this. Where’s the bill you’re putting forward to actually do this?

• Rob Roper is a freelance writer with 20 years of experience in Vermont politics including three years service as chair of the Vermont Republican Party and nine years as President of the Ethan Allen Institute, Vermont’s free market think tank.

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