President’s and General Manager’s Message: Co-op Considers Selling Wrightsville Hydro Plant

Coop CurrentsCoop News

October-November 2024

The question is: Is it worth it to our members to pay more for our own power than market cost, and some years substantially more? – Louis Porter

The Board is going to reach its decision with a lot of thought and with an eye to what the plant is worth. – Stephen Knowlton

Louis: Washington Electric is considering whether to sell the Wrightsville hydro project. The dam to which the hydro project is attached is operated by the State of Vermont, but the hydroelectric renewable power generating station and the penstock and turbines are owned by the Co-op. Wrightsville produces between 1-3% of the Co-op’s power portfolio. The reason we’re contemplating selling it is because it’s expensive power. Even though we own the plant, it costs between 9 to 30 cents per kWh to produce power from it because of the restrictions on when it can run. 

Hydro permits are moving from what they call ponding facilities—where water builds up and is then drawn down—to run-of-river facilities. A ponding hydro project is basically the perfect battery. It’s free potential power coming in, filling up the pond, then you draw that down and create electricity from it whenever you need that electricity; for example, during peak power times. But it’s problematic from an ecological standpoint. Run-of-river basically means the water runs at the same rate of flow as the water coming in at the head of the pond. That’s better ecologically, for both the pond upstream and the river downstream, but it’s less advantageous in the economics of power production than a ponding facility.

In our Wrightsville case, the permit is as close to run-of-river as the technology allows. That means the power is less financially beneficial for the Co-op, while the costs to run it have stayed the same. It’s nine hundred kW, so just under a megawatt, but it rarely runs anywhere close to that. 

Steve: Many Board members are of two minds about this decision, including myself. Everything Louis says informs that: it’s problematic because we can have wet years when it produces a lot of power, and drier years, or downtime due to repairs, that cause its power to be very expensive, since the operating costs are fixed, or largely independent of the amount of electricity it produces. At the same time, it’s a renewable power resource that WEC owns. We need to consider closely if we’re willing to give up a source of renewable energy at this time when loads in our rural territory may be increasing. The Board is going to reach its decision with a lot of thought and with an eye to what the plant is worth.

Louis: There are a lot of good reasons to be conflicted. We’re considering getting rid of an asset that’s largely depreciated, paid off, and produces something of value. Whether it’s a utility decision or a personal decision, you’ve got to think long and hard about cases like that. The question is: Is it worth it to our members to pay more for our own power than market cost, and some years substantially more? Is the benefit of having 3% of our power controlled by ourselves worth it?

Regulation

Steve:
Hydro from sources like reservoirs are some of the more highly regulated sources of power you can find. Going forward, one has to assess the regulatory burden on this power source. As Louis alluded to, it’s highly regulated when we can run the power house at the dam, and it doesn’t, perhaps rarely, correlate to when WEC actually needs the power to meet load requirements—particularly when the sun goes down and solar goes offline, or the wind drops. A dam like Wrightsville is going to produce most during the spring runoff, and that’s not typically a time we need its power. 

Louis: Our peak power usage is in the summers and winters, and Wrightsville produces power mostly in the spring, and less so in the fall. The North Branch is also very flashy, which means the water flow goes up and down rapidly. Combined with the absence of being able to pond the water and release it when advantageous for us to make electricity, those factors mean it’s less productive than it would otherwise be.

Steve: The way we’re required to run it is not a good match for the dynamic load conditions and the availability of other power sources.

Benefits of Selling

Louis: WEC can sell the property and plant to someone who would put in a bid and offer to buy it. The FERC license—the federal and state licenses to operate—go with the plant. The separate operating agreement with the State would go with the plant as well

The short-term benefit to Washington Electric members would be that the purchasing funds would belong to members and be invested into the Washington Electric system without having to borrow that money. The longer-term benefit would be replacing the power that costs between nine and 30 cents per kWh with cheaper renewable power bought on the market.

As an intangible benefit, Washington Electric is a small organization, with 39 employees. Our utility does a lot of things and asks its people to do a lot of different jobs, and they’re great at doing that. But it comes at a cost of efficiency. One of the folks who runs Wrightsville is also our meter and radio technician, so when there’s an outage or something else to do, that’s something else he has to handle.

It’s fairly unusual for a utility of oursize to produce 70% of its own power, as we do through Coventry and Wrightsville. Being able to focus on other key aspects of WEC’s work, like Coventry and the distribution system, would allow us to concentrate on those areas. We do a lot of different things for a small utility. Removing one of those jobs allows more capacity to focus on others.

Steve: Louis raises a good point. We don’t have an in-house department for managing hydro systems. This is an offshoot and not our core strength even though it does produce renewable electricity. WEC’s mission is delivering power reliably to all members. We get more than two thirds of our power from our landfill gas to electricity plant in Coventry, but we hire a contractor to manage the facility for us. That allows us to focus on how best to serve the members and expand in ways that serve our mission: for example, in more advanced metering systems to help WEC deliver power more reliably.

Benefits of Keeping

Louis: There are two reasonable arguments for keeping Wrightsville. First, regulations could change in the future to allow ponding hydro projects in Vermont. If we could operate Wrightsville as a battery, it would be much more valuable than it is as a run-of-river facility.

The second reason is the value of having our own generation source, even if it’s more expensive. You could argue that paying extra for the certainty of ownership and control is worth it. But weighing against that are the high costs per kWh and the potential for major maintenance or catastrophic failure at some point.

Regarding the possibility of a future regulation change: here at Washington Electric, we balance our environmental mission with the costs to our members. Having worked with scientists on dam changes, I’m convinced that run-of-river is better ecologically than ponding facilities.There’s no serious argument that they’re environmentally equivalent. If the regulations on ponding versus run-of-river were to change, it would be worth a conversation about the environmental and economic tradeoff. Even a small amount of ponding would significantly increase the facility’s value to WEC. But for now, this is largely moot; we have a long-term FERC license, so we’re locked into the current setup for 20 years or so.

Steve: While strictly following the federal and state regulations for run-of-river requirements Louis described, WEC made a comparable decision on its own regarding the application of powerful herbicides in our rights-of-way. We stopped using them about 20 years ago as part of our mission, believing most of our members, not just sportsmen, preferred to have fish in their streams and ponds where some of the herbicides might have otherwise ended up.

Louis: And nuclear power. We don’t contract for nuclear energy.

Steve: Right. Anyway, it’s unclear whether state agencies tasked with regulating the aquatic health of our waters would even consider changes to the ponding rule. It’s the law to ensure clean and healthy water.

Nonetheless, the future cannot be predicted with confidence. As we decide whether to sell or not, we face various uncertainties. Maybe the price of renewable electricity will sharply rise as the national demand for electricity ramps up due to EV’s, heat pumps, data centers, and new manufacturing. Not all of this increased usage will necessarily occur in our neck of the woods, but it may drive up the cost of renewable electricity to make keeping our Wrightsville resource more attractive. As climate change progresses, the balance between preserving any renewable electricity resource and maintaining existing environmental regulations could shift. Priorities and political directives may look different 10 years from now than they do today.

Weather and water effects

Louis: As we all know too well, water is powerful, and we’re seeing more frequent flooding events. It’s reasonable to wonder if this impacts our consideration, and the answer is, not really. Any hydro facility carries some risk from flooding. It’s the nature of these projects—they’re built at the bottom of a system that has tremendous water power. Their advantage is also their vulnerability; they’re at the receiving end of a significant hydrologic power.

However, I believe the risk at Wrightsville is very low due to the size and structural integrity of the dam. The chance of the dam being damaged is minimal. There was some confusion last year about rising water behind the dam. From what I’ve known, there was never a risk of the dam failing. Water was within a few inches of going into the emergency sluiceway, which is designed to prevent failure. Adding water downstream during a flood is not good, but there was no danger of the dam breaking. A couple of inches over the sluiceway is very different from a dam failure. By the way, the sluiceway comes in below or at the same level as our penstock and powerhouse. So overall, the risk to this hydro project is quite low.

Steve: Louis is correct—the possibility of wetter summers being the new normal hasn’t really factored into our thinking about the dam’s viability or liability. The key issue is whether the operating procedures and regulations WEC follows will account for what may be long-term shifts in our local weather patterns. But as a safety issue alone, there’s no concern about the dam from WEC’s perspective.

Louis: On the surface, wetter summers and more precipitation might suggest increased production. But the reality is, the water comes in large flooding events, which actually limits production. Once the Wrightsville reservoir exceeds a certain depth, we can’t operate because there’s too much head, or pressure, on the turbines. Similarly, we are not allowed to operate if the water level is too low. So, these weather patterns of either too little or too much precipitation do present challenges for us.

Steve: It would be a bit like trying to generate electricity from lightning bolts—there’s a lot of energy there, but it comes all at once, making it hard to use effectively. Benjamin Franklin was very lucky when he flew his kite in a thunderstorm!

Categories of Potential Buyers

Louis: There are two broad categories of potential buyers. One is a group net metering project, though that would have to be outside WEC territory, because we wouldn’t want our members paying the high cost of hydro net metering. It could be attractive to others since hydro net metering earns roughly 18 cents per kWh, which is generous. 

Steve: I want to clarify for readers that if it’s group net metered, it would be connected directly to the grid. This kind of net metering will be eventually phased out under Vermont’s new Renewable Energy Standard rules. Under this type of net metering enforced by Vermont regulators, a commercial owner could sell the same power from Wrightsville as WEC does, but at well above market prices, passing the additional cost on to the utility’s ratepayers. Any contract for the sale of Wrightsville would thus preclude net metering within our territory because of the cost to members.

Louis: The other category of buyers includes companies that already operate hydro dams and have the expertise to run small hydro projects more efficiently than WEC can.

Steve:
And possibly because they need more power for their renewable portfolio than WEC currently does.

Value and Financial Factors

Louis: It’s hard to put an exact dollar figure on Wrightsville. Washington Electric lists it at $1.2 million on its books. However, restrictions under the FERC license and potential maintenance needs affect that value. On the other hand, someone might find value in net metering the power from the project at a high rate. We know the project will require about $100,000 in new operating software to keep it running. It’s nearly a 40-year-old facility, so it’s reasonable to expect maintenance costs.

Steve: Where there’s a financial risk, even not-for-profits like WEC have to pay attention to it. There’s only so much risk WEC wants to take on in owning generation. Wrightsville provides only 1-3% of our power annually, and we own other larger generation like Coventry, which makes it a bigger priority. As a relatively minor power source, the Wrightsville power plant requires attention from the WEC employees that takes them away from innovative improvements and maintenance we are working on for our members. It’s fair to say Wrightsville at present is a bit of a drain for a small organization. The staff has asked the Board to consider this carefully, and both are doing their due diligence before making any formal decisions.

Process and Timeline

Louis: Before staff invested time in this, we brought it to the Board. They’re considering the possibility, but no final sale has been made.  However, there are reasons to make a prompt decision. Group net metering projects must file for a Certificate of Public Good by the end of the year. So, that category of buyers would need to act by then. Just as important, we need to figure out our plan—whether to divest from Wrightsville or invest in a new digital control system. We also need to pursue any avenues that could make it a more efficient and effective asset for WEC.

Steve: It’s an asset with both pros and cons, and we should always be assessing whether to keep it. Since I’ve been on the Board—less than 10 years—the subject and value of Wrightsville have come up regularly, even before Louis became GM. Credit to him for bringing this issue up front and center.

Louis: We want members to know about this so they can share their opinions. If they have strong feelings about it, they should reach out to board members, myself, or through Currents. We’ve tried to present the considerations, pros, and cons of this decision here. Some people may have strong opinions, while others, like Steve and me, may be conflicted about the best course of action.


Mini Message: Advanced Meter Update

A brief President’s and General Managers Message

Louis: Readers know Washington Electric is in the process of changing its metering system from a powerline carrier system that communicates thru power lines to a system that communicates separately from power lines, probably through a RF mesh radio frequency system. We expect to get between $2.25 and $4.5 million in state and federal grant money for that project, though those grants are not yet final yet. We are closing in on selecting a vendor to provide that system. 

We spent the summer doing our due diligence, looking closely at proposals, and investing a lot of time by staff and Board members, by whom I mean Steve here. We’re narrowing down proposals and are close to selecting a vendor. Our plan is to build out the system over the next couple of years. We anticipate a lot of benefits: better outage management; more information coming in, especially during outages; the ability to do time of use rates and other rates; and keeping up with advances in technology. Our current system is over 10 years old, and there’s a lot of communication between members’ premises and Washington Electric that it can’t support.

Steve: Louis asked me to participate in the evaluation and selection process. Because the ultimate recommendation of the staff will come before the Board for approval, I have tried to participate as an observing Co-op member. I am pleased to find that we have an experienced consulting group that’s helping us make an informed decision, and there’s been spirited and informed discussion among staff members involved in the evaluation of each vendor’s proposals. Regardless of the outcome, I believe staff and consultants are capably looking at the key and minor aspects of the various proposals and evaluating their merits in a constructive way.