Please, Don't Buy My Product

Honest.  That's what Vermont's utilities are urging their customers to do.   Not just one or two, but all of them, from the consumer owned cooperatives to the greedy (and greenish) publicly owned electric companies.  We're usually bombarded with ads from companies, and sometimes entire industries (Got Milk?) urging us to buy more of their product. Not this time.  Not in Vermont.

Vermont's electric companies don't want us to switch to their product, even though it may be cheaper.  No.  Perish the thought.  But, as I've pointed out elsewhere, it is now just about as cheap for people to use electric heat as it is to use heating oil.  Yet CVPS spokesman Steve Costello says

Right now, for most customers, it probably won't save them much if any money.

Yes, if heating oil doesn't go up any more, he is right.  There may not be much saving.  Their prices, per million BTUs, are about the same.   But given what oil prices have been doing,  that's a big if.  Also, it's a lot easier to keep your thermostat turned down and save fuel oil and bring your electric space heater into the room your are in.  That could save money. 

And there are a lot of pitfalls associated with it, potentially large electric bills that they won't be able to pay.

Sorry, I can't agree with this one.  You're just trading a large electric bill for a large fuel oil bill.  But fuel oil companies won't deliver a load of oil to you if you can't pay.  Electric companies can't do that, so if you're one of those people we always hear advocates and politicians talking about,

"We have at times had to choose between baby food and diapers and heating fuel. We've run out of heating fuel three times so far and the baby has ended up in the hospital with pneumonia two times."

A rational person in this situation will choose to heat with electricity.  It doesn't cost any more than oil, and if you can't pay, you won't freeze because the electric company won't turn off your power.  That may be one factor behind the electric companies' announcement.

But there are other reasons the electric companies are concerned.  As Costello notes

And also taxing of the grid. In southern Vermont in particular in CV's case we have constraints on the southern loop and an increase in numbers of people using electric heat or hot water could really cause some problems for us in terms of being able to feed the load that's there already.

Just like Vermont's roads and bridges are falling apart and are inadequate to handle the demands placed on them, so too is our electric infrastructure.  It's not just where we get the kilowatts we use, it's how we transport them that is a problem in Vermont.   

Costello's solution doesn't make much sense to me:

Instead, Costello said customers should research alternatives, such as wood pellets, solar hot water systems, or natural gas.

OK.  A wood pellet stove costs between $1,000 and $2,000, plus the cost of a chimney.  That's out of reach for low income Vermonters who are going to have to make tough choices this winter.  A cheap electric space heater costs about $30.    A solar hot water system costs about 10 times what a pellet stove costs, which makes it out of reach for the majority of middle income Vermonters who look for a reasonable economic return on their investment.  And natural gas is available only in extreme northwestern Vermont, from Swanton down to Shelburne and not much farther west than a few miles from Route 7.  That puts a vast majority of Vermonters out of that market.  LP gas, although Costello doesn't mention it, costs just as much as fuel oil so there's no savings there. 

That leaves $30 space heaters, and it leaves problems for the state's utilities and our electric infrastructure. 

But the chattering classes in Vermont don't like electricity.  The environmental community has been opposed to using more electricity for decades and that mentality has permeated into state government.  The Public Service Board and Public Service Department both have tried to minimize the growth of electricity demand in Vermont.   That's what Efficiency Vermont is all about--and it's financed by a tax on our electric bills.  But that way of thinking may be about to change, as the cold reality of an expensive winter leads many Vermonters to do what is economically rational for them. 

What's wrong with using electricity for heat?  Every gallon of fuel oil that is not used and is replaced with electricity could actually benefit the environment.  If that electricity is produced by HydroQuebec or Entergy Vermont Yankee that means less gunk going up our chimneys, less sulfur dioxide and NOx, and less carbon into the environment.   If most of those electric heaters are turned on at night when people are in bed (that's a big if, but not an insurmountable problem), using electric heat may not put any big increase in peak demand on the system, since nighttime is the off peak time.  In fact, the electric companies ought to think about encouraging off peak use of electricity for heating.  They actually had a rate structure that encouraged that in the 1980s. 

Instead, we have the paradox of companies telling us not to use their product when it could actually be cheaper for us, and better for the environment, for us to use it. 

I welcome comments from people who know more about this than I do.

Comments

[Quechee Jeff]

If enough businesses downsize or close down, we should have enough electrical capacity to heat our homes. Kudos to IBM for looking out for the public good.

Last business out, please shut off the lights (Courtesy of Efficiency Vermont).

[Sheldon Katz]

Art,

First, of all, IT's not a tax, IT's a fee. We know this because the bill on which IT is based originated in the Senate and the state constitution requires all tax bills to originate in the house.

That is the only way we know it is a fee, because IT walks like a tax and talks like a tax. Try contacting your utility or Efficiency Vermont and telling them that you do not want the service that IT pays for and therefore you refuse to pay IT. Good luck. Seems to me that a payment that you cannot avoid is by definition a tax. But in Orwellian Vermont IT is called a fee, which makes us all feel better.

So Art, if you (or I) cannot get this through your head, we may have to put you in a room full of rats until you see the light.

Second, this is a question for you Art. Putting aside the customer's capital costs, I wonder if electricity is a relatively good deal now because of the way its prices are set by regulation, which is based on embedded instead of opportunity costs. Assuming oil is the marginal producer, the price to the consumer would be much higher, and more efficient. Just a thought. At any rate (no pun intended) nuclear and HQ are great deals, and if the market were not so distorted, nuclear plants would be going up as we post.

Finally, in the mid-1990's, the public service board penalized the utilities for locking in HQ at prices that turned out to be higher than market for a few years, but which are probably lower than market now. This is a good example of Geoff's axiom from another post today that the government is not good at picking winners and losers.

[Tom Evslin]

Art:

I've been researching this for a while and you're dead right. For many Vermonters electric radiant heat is already cheaper than $5/gallon oil for heating. The cutoff point is at about $.155/kWh for electricity with oil at $5. There are some charts on my blog that show the breakeven point for various fuels and with various price assumptions http://blog.tomevslin.com/2008/06/fuel-selector-h.html

BTW, a strict BTU comparison doesn't do electricity justice. Not only, as you pointed out, can space heaters be well-targeted to need - they are 100% efficient (honest) at converting electricity to heat. A modern oil furnace is about 78% efficient so you don't get all the BTUs you paid for when you use it.

However, the Vermont utilities do have a potential problem. On peak they have to burn fossil fuel (or buy electricity made by burning fossil fuel). So if all use radiant heat onpeak, we'd be burning fuel to make electricity (30% efficiency or so), transmitting it with some loss, then converting it to heat. There costs would go up quickly if the onpeak demand goes up. This could (maybe will) force them to ask for emergency rate increases.

The solution to this problem is time-of-day electric rates which have fallen in disfavor but which align the interest of the consumer and the utilities; there is still offpeak cheap (Hydro and Yankee) capacity available. If time of day rates don't go into effect, anyone who can buy a space heater can arbitrage the power company's rates (assuming oil over $5.00/gallon). Jawboning as in "don't buy my product" isn't going to stop people from doing what's currently best for their families.

There is a second problem in that parts of Vermont already suffer from inadequate transmission capacity - mainly because of NIMBY. In the worst case - even higher oil prices - we could see delivery system failures.

Given these problems it's not surprising that electric utilities are saying "don't buy my product"; but it's still a head in the sand approach. People'll buy it if it makes sense to buy it; yesterday's announcement probably boosted space heater sales.

We need to recognize the problem and deal with it by immediately redesigning electric rates and recognizing and addressing bottlenecks in the grid - with higher peak rates where capacity can't be provided quickly.

[Dan Weber]

Asking people not to do something often causes them to do exactly that. Witness Charlotte, http://danweber.blogspot.com/2005/09/charlotte-runs-out-of-gas.html

Minutes after local and state leaders asked people to conserve gasoline because of a temporary supply shortage, long lines formed at gas stations all across the region.

City leaders asked people not to panic, but it seems like that is exactly what is happening.